Pulled from our recently published Silicon Valley 100 list, meet the coolest startups in Silicon Valley.
Earlier this week, I wrote that the two questions I get most frequently from people who are interested in learning about Heartland Tech are about what cities they should be watching and what startups should be on their radar. I wrote about cities to watch here, and now I’d like to talk about startups to keep an eye on in 2018.
To gather my list of rising startups outside of Silicon Valley, I reached out to a number of investors scattered across the country. The startups that made the list are ones that have found success by leveraging the strengths in their respective markets. They’ve been set up for success in 2018 thanks to an influx of venture capital, a slew of promising hires, or an agreement with a large new customer. Here they are, in no particular order.
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Uptake (Chicago, Illinois)
Uptake’s founders, Brad Keywell and Eric Lefkofsky, are serial Chicago entrepreneurs who are best known for starting Groupon. This year, their newest company went on a fundraising tear, raising a $117 million series D round in November after closing a $90 million series C round earlier in the year. According to a PitchBook report in February, Uptake became the fastest company ever to reach a $2 billion valuation.
Uptake’s software helps companies collect and analyze sensor data to keep industrial machinery running smoothly. The company declined to state how many customers it has, saying only that the number is in the “dozens.” But publicly named customers include Berkshire Hathaway Energy and Panduit, a manufacturer of physical infrastructure for datacenters.
CEO Keywell is remarkably bullish on Uptake’s future, stating in a press release when the series D round was announced that “We’re on a growth trajectory now where there is virtually nothing standing in our way from being the predictive analytics market leader across every heavy industry, from oil and gas to mining and beyond.” Keywell and Lefkofsky have a history of building companies that grow quickly — but the big question for Uptake in 2018 is whether it can maintain that growth.
Pendo (Raleigh, North Carolina)
A product management software startup, Pendo helps teams measure user activity, create in-app guides, and capture feedback through surveys and polls. Alumni from Google, Cisco, and Red Hat founded Pendo in 2013.
In 2017, Pendo’s biggest news was its acquisition of Insert, an Israeli startup that does in-app mobile messaging, and the raise of a $25 million series C in July. Investors included Salesforce Ventures and Spark Capital, with Meritech Capital Partners leading the round.
The company nearly doubled its customer base in 2017, and it increased revenue by 400 percent, according to a company spokesperson. Pendo currently has 163 employees, and it plans to double its headcount in 2018.
Skuid (Chattanooga, Tennessee)
Skuid’s name is an acronym for Scalable Kit for User Interface Design, which succinctly sums up the company’s goal — it wants to make the process of building enterprise apps easier and quicker. The secret to Skuid’s success is a “codeless” interface that allows users to easily drag and drop components from multiple sources — including Oracle, Salesforce, SAP, and Microsoft — to build apps. Skuid counts Intuit, Jet, and Hewlett-Packard Enterprise among its customers.
In 2017, Skuid raised $25 million from investors including Iconiq, the investment vehicle for Mark Zuckerberg; Sheryl Sandberg; Jack Dorsey; and other wealthy executives. In 2018, Skuid plans to introduce the capability to build a voice-enabled app, according to a company spokesperson.
Lisnr (Cincinnati, Ohio)
Lisnr, founded in 2012, develops ultrasonic audio technology that uses inaudible Smart Tones to transmit information. It’s one of few companies experimenting within what it calls “the internet of sound.”
The company still has a way to go to become a household name, but it managed to secure some notable partnerships this year that could introduce the idea of transmitting data-over-audio to a broader audience. In July, Lisnr secured a partnership with Ticketmaster to begin the rollout of a new e-ticketing service. Called Ticketmaster Presence, the service replaces QR codes and can verify a user’s ticket via audio data transmitted through their phone. The idea is that transmitting ticketing information over inaudible sound waves makes it much more difficult for fraudsters to create duplicate tickets. Lisnr also secured a partnership with Jaguar Land Rover to explore ways to integrate Lisnr’s technology into vehicles. Smart Tones could be used to unlock a car via the owner’s phone or to transmit an order to a drive-thru restaurant.
Duo Security (Ann Arbor, Michigan)
When Duo Security cofounders Dug Song and Jon Oberheide first pitched venture capitalists on their startup in 2010, they were told that they needed to relocate to Silicon Valley to create a successful company. Nearly seven years later, Song and Oberheide proved their critics wrong when Duo Security became Ann Arbor’s first unicorn company after raising $70 million in October. According to a company spokesman, Duo Security has more than doubled its revenue for the past four consecutive years.
Duo Security creates a two-factor authentication app for enterprise companies and counts Etsy, Facebook, and Yelp among its customers. Thanks to the University of Michigan’s plethora of engineers, Duo Security has been able to scale while hiring local — the company has 550 full-time employees, more than 350 of whom are in Michigan.
Cradlepoint (Boise, Idaho)
Founded in 2006, cloud-based network provider Cradlepoint was bootstrapped for the first three years of its existence. This year, the company received a vote of confidence and $89 million from TCV, a prominent growth-stage firm whose previous investments include Netflix, Airbnb, Dollar Shave Club, and Facebook.
Cradlepoint sells both routers and a subscription to its software-defined wide area network (SD-WAN) service, called NetCloud. Cradlepoint’s pitch is that NetCloud is designed for the modern enterprise business that needs to manage a combination of branch, mobile, and internet of things (IoT) networks.
CEO George Mulhern told VentureBeat in an interview earlier this year that the TCV funding will be used to further product development in advanced 4G and 5G wireless broadband, among other areas.
Lessonly (Indianapolis, Indiana)
Another enterprise software company that’s gaining traction outside of the Valley is Lessonly. Though its most recent raise — an $8 million series B in November — is modest, its journey has been notable for a couple of reasons.
One, it has raised later-stage money in a town where that has not been an easy task. According to Crunchbase News, Lessonly’s recent round is the first series B raised in Indianapolis since 2016. Second, the company is growing at a healthy rate, having doubled its revenue from 2016 to 2017. Third, it’s one of the most mature investments in the portfolio of High Alpha Capital, a venture studio led by one of the cofounders of ExactTarget, Indianapolis’ other big startup success. If Lessonly continues to grow, it could be a signal to skeptical investors that Indianapolis startups know how to capitalize on the city’s past successes.
Download anime black clover sub indo. At the end of 2017, the company had around 500 customers using Lessonly’s educational software to help sales and customer service teams practice different skills.
Qualtrics (Provo, Utah)
While it’s not a young startup anymore, Qualtrics is still indicative of the kind of long-term growth companies can achieve away from the pressure of the Valley. Founded in 2002, Qualtrics generated more than $250 million in revenue in 2017, up more than 50 percent from last year. The company didn’t raise outside capital until 2012, but this year it raised another $180 million, bringing its total amount of venture capital funding to $400 million.
In April, CEO Ryan Smith told Axios that Qualtrics expects to file for an initial public offering (IPO) in approximately 18 months. In the meantime, the company has snagged some seasoned executives, including longtime Microsoft executive Julie Larson-Green, who was named chief experience officer in December, and newly appointed chief financial officer David Faugno, who guided Barracuda Networks through its IPO.
Tilr (Cincinnati, Ohio)
Tilr, which counts two CareerBuilder alumni among its cofounders, aims to solve many of the hiring problems exacerbated by Silicon Valley’s tight-knit network. Similar to Blendoor, two-year-old Tilr is a hiring platform that aims to remove unconscious bias in the hiring process. Tilr is aimed exclusively at on-demand workers and matches applicants with companies based solely on skills, not past job titles.
Interested workers sign up through Tilr’s app, where they can create a profile and rank their competency in certain skills on a scale of 1 to 5. Once they complete an interview and training with a team member, Tilr starts sending the workers applicable shifts to sign up for.
After signing up for a shift, workers show up at the designated time and location and begin working. At the end of the shift, both the company and the worker rate their experience, and Tilr’s algorithm uses the feedback to create better worker-company pairings in the future. Tilr currently has more than 300 clients in industries including logistics and customer service.
It’s still early days for the company — so far, Tilr is only available in four markets, though it plans to expand to 12-15 more markets in 2018. Tilr is also exploring ways to create a stronger safety net for gig workers and is partnering with Anthem to launch a new health benefits program for 1099 workers.
Kabbage (Atlanta, Georgia)
In 2017, SoftBank upended the U.S. venture capital landscape with its $100 billion vision fund. While most of the fund’s money has gone to coastal companies like Slack and WeWork, a couple of Heartland startups managed to secure SoftBank investments, and Kabbage was one of them. An online lending platform for small businesses and consumers, Kabbage raised $250 million in equity funding from SoftBank. The company determines loan amounts using a number of nontraditional data sources — from Amazon ratings to UPS shipment volume — and also licenses its technology to banks.
In 2018, expect Kabbage to take more aggressive steps to become a leader in the online lending industry. Reuters reported in March that the company was raising its latest round to gear up for potential acquisitions. Reported targets included public competitor OnDeck. Meanwhile, when the SoftBank funding was announced, CEO Rob Frohwein also told Bloomberg that the company was beginning to position for an IPO.
The Ugly Unethical Underside of Silicon ValleyAs the list of startup scandals grows, it’s time to ask whether entrepreneurs are taking “fake it till you make it” too far.
Vinod Khosla did not show up at TechCrunch Disrupt to be harangued by some smartass, know-nothing journalist. The venture capitalist came to talk about disruption and revolutions to an audience of 1,000 potential disrupters and revolutionaries, laptop glow illuminating their faces in a San Francisco warehouse.
But of course the journalist had to bring up Hampton Creek, the vegan-food company that had fashioned itself—and more important, valued itself—like a tech company. Khosla, a legend in Silicon Valley, was a Hampton Creek investor, alongside Peter Thiel’s Founders Fund and Salesforce (CRM) CEO Marc Benioff. Despite media reports of shoddy science at the company on things like shelf-life testing, and an FDA battle over misleading labeling, Khosla declared Hampton Creek was “doing awesome.”
“Debatable,” the journalist, TechCrunch’s Jonathan Shieber, needled before beginning his next question.
Khosla cut him off with a “talk to the hand” motion and turned to the audience with a wide, this guy amirite? grin. “Here’s a journalist,” he said, “who doesn’t know what’s going on, has an opinion, just like he does, to make interesting stories.” He turned back to Shieber: “I know a lot more about how they’re doing, excuse me, than you do.”
This was in September 2015. Kitab ul mufradat free download. And what Khosla didn’t know was that Hampton Creek’s employees and contractors had been covertly buying its jars of eggless mayo from grocery stores for more than a year, allegedly as a way to make the product appear more popular to its retail partners. It would be another year before Bloomberg Businessweek revealed the scheme, in an article featuring an animated GIF of founder Josh Tetrick’s face covered in squirts of mayonnaise. (Hampton Creek has denied wrongdoing, describing the buybacks as quality-control testing. Khosla declined to comment.)
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RULE BREAKER: Parker Conrad’s startup Zenefits admitted violating state insurance rules. He’s now starting a new, similar company.Photo: Jim Willson—The New York Times/Redux
The startup community has a set response to this kind of news, and it sounds a lot like Khosla’s sniping. Blindly defend; it’s us against them. After the Wall Street Journal first exposed problems at blood-testing startup Theranos in 2015, for example, venture investors like Greylock’s Josh Elman and Y Combinator’s Sam Altman tweeted defenses against the one-sided “slam piece.”
But as scandals have piled up—and other negative stories have proved to be true—the defensive strategy hasn’t aged well. While some investors are standing by their tainted companies, others are taking pains to distance the bad actors from the rest of the startup pack. Theranos, which has since voided two years of its test results and faces a criminal investigation, is now described as an exception. Just one bad apple. (“Theranos doesn’t represent us, we are better,” a group of startup founders sang in the annual holiday video created by VC firm First Round Capital.) Likewise Zenefits, the human resources startup that admitted its employees had cheated on mandatory compliance training: a freak occurrence. #NotAllStartups.
Lending Club’s loan doctoring? That’s not what startups are about. Same for WrkRiot, the startup that abruptly shut down after an employee accused it of forging wire-transfer documents. Or Skully, the failed maker of smart motorcycle helmets, being sued for “fraudulent bookkeeping.” Or ScoreBig, the struggling ticketing site being sued by brokers. Or Rothenberg Ventures, the firm under investigation after using investors’ money to finance founder Mike Rothenberg’s side startup. (The firm says it informed investors.) Or Faraday Future and Hyperloop One, ambitious, well-funded companies now tainted by lawsuits and accusations of, respectively, overhype and of mismanagement. (Faraday has not commented on its suits; Hyperloop denies the accusation and had settled its suit.) Or any of the dozens of smaller shady accounting shortcuts, growth hacks gone awry, and other implosions too minor to make headlines.
No industry is immune to fraud, and the hotter the business, the more hucksters flock to it. But Silicon Valley has always seen itself as the virtuous outlier, a place where altruistic nerds tolerate capitalism in order to make the world a better place. Suddenly the Valley looks as crooked and greedy as the rest of the business world. And the growing roster of scandal-tainted startups share a theme. Faking it, from marketing exaggerations to outright fraud, feels more prevalent than ever—so much so that it’s time to ask whether startup culture itself is becoming a problem.
“We hope that founders bend the rules but don’t break them. There’s a fine line between entrepreneurship and criminality.”
Fraud is not new in tech, of course. Longtime investors remember when MiniScribe shipped actual bricks inside its hard-disk boxes in an inventory accounting scam in the 1980s. The ’90s and early aughts brought WorldCom, Enron, and the dot-bombs. But today more money is sloshing around ($73 billion in venture capital invested in U.S. startups in 2016, compared with $45 billion at the peak of the dotcom boom, according to PitchBook), there’s less transparency as companies stay private longer (174 private companies are each worth $1 billion or more), and there’s an endless supply of legal gray areas to exploit as technology invades every sector, from fintech and med-tech to auto-tech and ed-tech.
The drama has some investors predicting more disasters. “What if Theranos is the canary in the coal mine?” says Roger McNamee, a 40-year VC veteran and managing director at Elevation Partners. “Everyone is looking at Theranos as an outlier. We may discover it’s not an outlier at all.” That would be bad news, because without trust, the tech industry’s intertwined ecosystem of money, products, and people can’t function. Investors may find the full version of the old proverb is more accurate: “One bad apple spoils the whole barrel.”
Breaking the rules makes you a Silicon Valley hero. That’s great if you’re breaking a dumb rule, not so much if you’re breaking an important one. Startup mythology is packed with stories of That Time Steve Jobs the Genius Did Whatever It Took to Win, and That Time in the 1990s that Larry Ellison the Badass Calculated Revenue the Way He Damn Well Pleased. Today’s founders cite Airbnb’s famous “farming” strategy (it spammed people advertising rentals on Craigslist to lure them to Airbnb). They speak breathlessly about how “T.K.”—Uber cofounder Travis Kalanick—has repeatedly ignored legal roadblocks. Admirers see an aggressive attitude and a $70 billion valuation, ignoring Uber’s careful, behind-the-scenes negotiations with regulators in many cities, notes Bradley Tusk, a political consultant for Uber.
The romantic lone-cowboy tales make it easy for founders to rationalize questionable decisions. “The whole ‘fake it till you make it,’ ‘move fast and break things’ attitude—all those sorts of battle cries are misinterpreted by some folks into making things up,” says Jakub Kostecki, founder of StartupFactCheck, a consultancy that helps investors conduct due diligence on startups. Three-quarters of the 150 early-stage startups he has investigated have pitched investors with misleading or purposely incomplete information, like identifying as “customers” people who are merely using a free trial, or taking full credit for past projects they played only a small role in.
Even when truth-stretching founders get caught, early-stage investors may look the other way. Dave McClure, founding partner of venture fund and accelerator 500 Startups, says misrepresentations don’t always preclude his firm from investing. “You might even find a correlation between ‘interesting’ behavior and successful entrepreneurship,” he says. A founder who recently pitched 500 Startups claimed he “attended” a college he wasn’t even enrolled in—technically true, since he had snuck into some lectures. Fudging the facts is so common at the early stage, it’s practically expected. “Everyone just assumes that the [investment] amounts involved here are too small, [that] reputation matters, and that all startups exaggerate a bit,” says Naval Ravikant, founder and CEO of AngelList, a platform for early-stage investing. AngelList says it has facilitated 1,100 investments over the past six years with no incidents of fraud.
By definition, entrepreneurship requires promoting the heck out of things that don’t exist yet. Even a founder with a strong moral compass and a heart full of good intentions has to persuade investors, engineers, and customers to believe in a future where their totally made-up idea will be real. “That’s not ‘My cola tastes better than yours.’ That’s ‘Let me explain to you how the world’s going to be.’ ” says Chris Bulger, managing director at Bulger Partners, an investment bank that advises technology companies on acquisitions. “Is that person lying when they turn out to be wrong?”
If a founder’s vision does turn out wrong, investors often have little recourse. Ever since Google’s and Facebook’s founders negotiated dual-class share structures to retain control over their companies, hot startups including Uber, Airbnb, Square, Snap, Palantir, and WeWork have pushed for, and gotten, similar founder-friendly terms. If anything goes wrong, too bad. That includes you, Theranos investors: CEO Elizabeth Holmes’s supershares are worth 100 votes per share.
Some founders grow into talented CEOs. Most don’t. That’s an inevitable by-product of Silicon Valley culture, where everybody fetishizes engineers, designers, and inventors while managers get little respect. “We have an epidemic of bad management,” says Phil Libin, a partner at venture firm General Catalyst. “And that makes [bad] behavior more likely, because people are young, inexperienced, and they haven’t seen the patterns before.”
So inexperienced people are handed giant piles of money and told to flout traditions, break rules, and employ magical thinking. What could possibly go wrong? “We hope that entrepreneurs bend the rules but don’t break them,” McClure says. “You know the saying ‘There’s a fine line between genius and insanity’? There’s probably a fine line between entrepreneurship and criminality.”
At its worst, venture capital culture can push founders across that line. To understand VC incentives, flip everything you know about business on its head. Squishy terms like “traction” and “momentum” are more valuable than functional business models, revenue, and profits. But that’s all part of the fun! Venture is high risk, high reward. Wouldn’t you rather play the lottery than toil away for a boring little paycheck for the rest of your boring little life?
To spread risk around, VCs make dozens of bets in each fund. Only one needs to be a Facebook (FB). So why not push the other companies to set impossibly lofty projections? Why not encourage them to advertise a “$1 trillion market opportunity” and “$100 billion in revenue” in their pitch deck? “Every time I meet my investors, they’re asking me, ‘How can we pour more gas on the fire?’ ” one founder recently explained. In public, investors denounce this habit, calling it the “foie gras effect.”
Once the fire is roaring, nobody wants to put it out. While some startups are transparent with their investors—and some investors demand it— the hottest companies have enough leverage to keep inconvenient numbers under wraps. The rich people buying into Uber’s latest round of funding, for example, got no financial information beyond a set of risk factors, according to reports. Likewise, the media feeds on self-reported scraps of information—dubious “annual recurring revenue” here, a growth percentage (from what base?) there. If that sounds familiar, recall the 2000s housing bubble, when Americans reported their incomes on mortgage applications with no outside verification. No surprise, they took liberties. Startup financial disclosures are the “liar loans” of corporate accounting.
It’s easy to shrug off a startup that pushes ethical boundaries a smidgen too far when it’s just a few people and an idea. We assume it will iron things out before it gets big enough to cause real problems. But in the so-called Age of Unicorns, startups can go from zero to $1 billion in valuation in the blink of an eye. And that hype can help them quickly rack up customers, vendors, and employees—all of whom are vulnerable if something melts down. We can’t assume that a billion-dollar valuation is a sign of maturity.
“Startups are desperate,” says Sean Ellis, CEO of collaboration software startup GrowthHackers. “[Mature] companies aren’t going to die if they don’t figure out how to accelerate growth. Most startups will die, and when you’re desperate, you’ll do stupid things.” Like build a computer program to cheat on mandatory compliance training. Or fudge your quarterly numbers. Or buy your own mayonnaise from the store.
Last March, Securities and Exchange Commission chair Mary Jo White traveled to Stanford to deliver a message to Silicon Valley: We’re watching you. The SEC is increasingly concerned, she said, with “eye-popping valuations,” questionable governance, and the lack of transparency at high-risk tech startups.
But when I asked investors about White’s visit, few even remembered it. There’s little reason to worry, the thinking goes, when startups can raise money with ease. Right now the supply of greater fools feels endless. U.S. venture funds are on track to break fundraising records this year, according to PitchBook. Sovereign wealth funds and state-backed investors in the Middle East and Asia are upping their stakes. SoftBank created a $100 billion tech fund alongside Saudi Arabia’s Public Investment Fund. And Fortune 500 companies, betraying their own desperation, are eager to throw money at their disrupters: The number of active corporate venture firms quadrupled between 2012 and 2015, according to CB Insights. The early-stage market is equally flooded. Angel investment in the U.S. grew an estimated 37% between 2009 and 2014, in dollars committed.
Historically, Silicon Valley forgives, even celebrates, failure. E-commerce startup Fab.com promised world domination, then promptly burned through $336 million of investors’ money, selling for just $15 million. That didn’t stop some of the same investors from giving millions to cofounders Jason Goldberg and Bradford Shellhammer for their next startups. (Shellhammer’s failed in less than a year.) Zenefits CEO Parker Conrad stepped down amid the cheating scandal in February; within months he was working on a new employee-benefits startup that sounds a lot like Zenefits. It helps if you spin your meltdown as a learning experience.
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But the near-daily revelations of silliness demand greater skepticism toward the truth benders. If America stops trusting the Valley, startups will lose the freedom to innovate. They’ll have a harder time persuading customers, investors, and potential employees to work with them. Their businesses could even be regulated out of existence.
Recklessness with the financial truth is often a sign of an economic bubble about to deflate—see the dot-bombs and Enron in late 2000 and the banks amid the 2007 subprime mortgage crisis. Scandals don’t cause recessions, but they can help trigger one. As White warned her Stanford audience: “Who loses when the truth behind inflated valuations is revealed? I think we all do.”
Hermione Way
A version of this article appears in the January 1, 2017 issue of Fortune.