It’s time for CrunchWeek, that very special time each week when a few of us writers gather around the TechCrunch TV cameras to shoot the breeze about the biggest and most interesting stories from the past seven days.
Anthony Ha, Colleen Taylor and I sat down to discuss Amazon’s purchase of social reading site Goodreads, Y Combinator’s Demo Day this past week and whether Bitcoin can become a real currency now that it is a billion dollar market.
Sift Science, a Y Combinator-backed startup founded by former Google engineers, is today launching its fraud-fighting service based on machine learning – a system designed to adapt to the ever-changing techniques used by criminals online. The company is also announcing $4 million in Series A funding, led by Union Square Ventures. As a part of the funding, Union Square’s Albert Wenger is joining the company’s board.
Sift Science had previously raised $1.5 million in seed funding, bringing its total raise to $5.5 million.
Other investors in Sift Science include Max Levchin (PayPal, Slide, Affirm), Chris Dixon (SiteAdvisor, Hunch), Marc Benioff (Salesforce CEO), First Round Capital, Y Combinator, Founder Collective, SV Angel, Start Fund, Alex Rampell (SiteAdvisor, TrialPay), Kevin Scott (AdMob, Google, LinkedIn), Lee Lindon (Karma Science, Facebook), Harj Taggar (Y Combinator), Garry Tan (Posterous, Y Combinator), Alexis Ohanian (Reddit, Y Combinator), and Rich Barton (Zillow, Expedia).
Co-founder Brandon Ballinger, who spent four years at Google before leaving to found Sift Science, already has experience fighting fraud at scale thanks to his experience fighting off malicious ads while with his former employer. He notes that five of the engineers at Sift Science are also from Google, some with backgrounds in search and ads, and three from the same team that worked to detect spam ads and scams.
“We realized that every site on the Internet had some types of bad users – some types of fraudulent users that they had to deal with,” he says of the inspiration for Sift Science. “And so what we decided to do was built [a fraud detection system] for the rest of the world.”
Ballinger co-founded Sift Science back in June 2011 with former college roommate Jason Tan, previously of Zillow, Optify and BuzzLabs. They later went through Y Combinator’s Summer 2011 program. When getting started, the founders talked to potential customers about spam, fraud and other malicious behavior, to see what sort of problems they were facing. There were already a number of anti-fraud vendors out there, Ballinger explains, so there was some initial concern was that the problem had, essentially, already been solved.
“But as we talked with people, we realized that it wasn’t solved at all,” he says. “Nobody was using them, and there were a couple of holes – things that existing products didn’t do. And one was ease-of-use.”
He says that today, signing up for anti-fraud systems is still somewhat complicated. “It’s not like Google Analytics. It’s not like Mixpanel. In order to use an anti-fraud system today, you actually have to go through a lengthy sales process; there are set up fees; there’s usually a minimum term,: he says, “and the APIs, too, are very complex.” Existing services often use SOAP APIs, and take months to integrate, so Sift Science offers a REST API instead.
The other big issue with the existing systems, Ballinger continues, is that they use a fixed set of rules. That is, they would flag transactions over a certain dollar amount, or every transaction from Nigeria, for example. But using fixed rules is a problem because Internet fraudsters don’t play by a fixed set of rules – they’re always adapting their tricks to stay ahead of the preventative techniques.
To give its customers the edge, Sift Science uses machine learning which adapts to the fraudsters’ changing tactics. Already, the startup has over 1 million different fraud patterns in its database, but will continually add to that, based on its learnings. Though how its algorithms work is something of the startup’s secret sauce, there are some generalities it offers as examples – like certain URL navigation sequences, IP addresses coming from Tor nodes, transaction times that occur at late night hours, and more – to give you an idea of what of what individual signals might look like.
Businesses can receive their fraud alerts via the provided API and/or email, and fraud scores are given a number to indicate their severity. Customers can also train the system by providing Sift Science with more information specific to their own service.
The primary use case for such a tool is to combat the type of fraud which results in chargebacks, but it can also help detect things like scammers who post fake inventory to marketplace sites, or help to identify which accounts on a site have been created by someone committing fraud. The company claims that the system today can detect up to 90 percent of the fraud happening on its customers’ sites and services.
Sift Science has been in private testing with around twenty companies, but it’s not permitted to name all clients at this time. However, Airbnb, Uber and Listia are a few of those early testers, as is Levchin’s Affirm, as well as a couple of marketplaces, payment processors and Top 500 retail websites.
As of today’s public debut, Sift Science is launching as a freemium service, where it charges based on the number of users a website chooses to score each month. Fewer than 5,000 users is free – which makes it the only anti-fraud service with a free tier. Beyond the first 5,000, it’s 10 cents per user per month.
With the additional funding, Sift Science plans to double its head count, currently nine, with hires in sales and engineering. The team will also update its customer-facing online dashboard with more functionality in the future, too.
Interested customers can now sign up here.
For small businesses, buying and managing health insurance is a “pain in the buns,” to quote my new favorite ad. Not only are its complicated terms, lack of transparency, slow quoting and on-boarding process and paper trail a pain in your buns, but health insurance can be a massive pain in your wallet, to boot. Hidden costs are everywhere.
Y Combinator-backed SimplyInsured is launching today with a solution. Founders Vivek Shah and George Huo, who were also both early employees at YC startup Cardpool (which sold to Blackhawk Network in late 2011), have built a simple, online health insurance manager and quote engine for small businesses, which aims to explain in plain English what is or isn’t working about your current plan and help you identify hidden costs and cost-savings.
SimplyInsured analyzes thousands of insurance policies in an attempt to find small business owners the best coverage, price and value for their unique needs, in turn, handling all the forms and paperwork automatically and paperlessly that help you get a new plan up and running quickly. Of course, if the concept behind SimplyInsured sounds at all familiar, that’s because the startup shares a similar mission with another recently-launched Y Combinator company, Zenefits, which we covered last week.
Sure, that makes for a potentially awkward situation for Y Combinator and for both startups, and, honestly, it’s surprising that this doesn’t happen more often. YC founder Paul Graham says of the situation:
We’ve had this happen before, though not to this degree in the same batch. Companies evolve, so unless you dictate their ideas to them there is always some chance that two companies you fund will compete. E.g. Google and Apple have become competitors, and few would have expected that. But while this is an awkward situation, we have procedures for dealing with it, and we know from office hours that they ended up in the same spot by evolution and not because one copied the other.
While there is most definitely overlap, both startups have taken it in stride thus far, welcome the competition and the opportunity to learn from the success (or slip-ups) of the other, as they set out to build differentiated health insurance managers. When asked to describe how SimplyInsured is looking to set itself apart from its fellow Y Combinator startup, Huo and Shah say that they’ve opted to approach health insurance from the consumer’s perspective — in other words, the driving questions they want to help small businesses answer are, for example, what medical issues are you worried about and how much will they cost?
Rather than offering a one-stop shop for managing a wide range of employee benefits (as Zenefits has sought out to do), the startup’s software estimates the cost of having a baby or going to the emergency room, the particular procedures and scenarios, which the founders believe are ignored by the majority of health insurance brokers. By providing deep comparisons — not just premiums and maximums — SimplyInsured wants to eliminate the fear (and FUD) around the hidden costs inherent to health insurance purchasing, while actively guiding companies to the best, personalized coverage and plan(s).
Of course, Zenefits and SimplyInsured are not the only startups tackling this long-standing problem, nor are they the only ones looking to bring the process online. Both Cake Health and Simplee share similar mission statements (to a degree), but the SimplyInsured co-founders are of the mindset that Cake Health and Simplee are targeting the latter half of the problem. That is to say: The startups help individuals and small businesses save money once they’re already struggling with bloated, cost-heavy plans.
While downstream cost-savings is a valuable service in and of itself — and one that SimplyInsured offers at launch — the company is also looking to help its customers save money during the purchasing process, Shah tells us, which he believes will lead to a larger net savings (and lower bills) down the line.
Differentiation aside, how does SimplyInsured work, you ask? Essentially, the startup’s service works in three steps. First, SimplyInsured helps small businesses find and identify the plan that best fits their particular needs. Traditionally, this process requires business owners or founders to set up in-person meetings or calls with insurance brokers and, while this provides the security blanket of being able to talk to intermediaries face-to-face, it’s inefficient and takes time.
Instead, SimplyInsured has opted to bring this online and automate the process, developing algorithms that surface relevant information based on a company’s needs, while offering a greater degree of price transparency — or at least that’s the idea. Essentially, it’s similar to the difference one experiences in booking flights by calling a travel agent versus using Hipmunk or Kayak.
Next, once the right plan is identified, the service automates the on-boarding process (like Zenefits) to help streamline how companies sign up and activate each of their employees. Usually, this involves a lot of paperwork, faxing and brokers driving to your offices with a stack of forms to sign. Again, like Zenefits, the startup is making this process completely paper-free, allowing businesses to complete the process online in 10 minutes, rather than two weeks.
Lastly, SimplyInsured attempts to simplify the ongoing administration of the plan through a one-click on-boarding process and by making it easy for companies or employees to switch plans at any point in the future.
Once Obamacare (or the PPACA) goes fully into effect in 2014, there is an expectation that the new state health insurance exchanges will create increased competition among insurers for the average small business customer. The Act requires insurers to offer an online product and also reduces the overall commission brokers can claim from small business clients. Under previous legislature, these commissions were already reduced to seven percent, and while this means increased competition for fewer dollars, the co-founders expect that many traditional, offline brokers will struggle to make the transition and may not survive.
In the post-Obamacare world, Shah says, only the low-cost providers will be able to survive, which means there could be a big reduction in the number of agents in the U.S., which now number around 400K. Built in the new era of the 7-percent-commissions mandate and with a process that is online from the get-go, SimplyInsured (and Zenefits as well) believe they’ll be well-positioned to weather the changes, even if commissions are reduced further. For an online business like SimplyInsured, the margins work in their favor.
The founders tell us that early users of the platform (they currently have several dozen clients) have found they’ve been able to make savings in the range of $500-$1,000 per person on their health insurance, which, if they’re able to maintain an average on the higher end of that spectrum, will put them in a good place. And it will be a boon for small businesses in particular, who tend to be the ones hit hardest by health insurance costs.
Going forward, SimplyInsured plans to integrate with payroll services (something Zenefits already offers) to be able to further automate the process of employee deductions for insurance. The founders also believe that, in focusing on individuals, they can help business owners root out the specific issues they have with their plans (or will need coverage for), and can help them find increased savings.
In building their algorithms, the team found that there are tons of hidden costs in the terms of each specific injury, and, because hospitals don’t share the prices for treatment, this requires them to essentially go through the whole plan step by step. The startup has written its algorithms to automate this process, reading insurance plans one-by-one and step-by-step to tell users what they will be paying if, say they break their leg, under the terms of each plan, allowing them to easily compare the candidates. (You can see the results/examples of that comparative analysis in the images embedded above.)
This is really the key and the biggest value-add that SimplyInsured provides over its competitors; the ability to drill down into each part of a potential plan and compare them to others adds a whole new level of transparency to the process.
And, in the end, because there really isn’t a primary, go-to online insurance platform today that’s well known and widely used, both Zenefits and SimplyInsured stand to benefit handsomely from this dearth of transparency if they play their cards right. Plus, this is a big enough problem that affects enough businesses, that there is plenty of room for both to build sustainable businesses. Of course, that’s easier said than done.
For more on SimplyInsured, find them at home here.
As stuff like Google Glass becomes mainstream, we’re going to see a lot more wearable computing devices around. But one thing that isn’t clear is how we’ll control them. One idea is to use gesture control, which would enable users to communicate with wearable computers without having to use a whole separate smartphone or other device to do so.
But so far, gesture control for most devices — like the Xbox Kinect, for instance — has depended upon cameras watching user movement. That means remaining in a fixed space and using pre-programmed gestures that are not exactly natural, but can be picked up by cameras. As a result, today’s gesture control technologies are far from perfect. In fact, most to date are just downright bad.
Y Combinator-backed startup Thalmic Labs believes it has a better way of determining user intent when using gesture control. To do so, it’s developed a new device, called MYO, which is an armband worn around the forearm. Using Bluetooth, the armband can wirelessly connect to other devices, such as PCs and mobile phones, to enable user control based on their movements without directly touching the electronics.
Thalmic Labs was founded by University of Waterloo Mechatronics Engineering graduates Aaron Grant, Matthew Bailey, and Stephen Lake. After leaving school, the three began collaborating on building the technology behind the Myo armband. Altogether, the company that they’ve built now has 11 employees.
“Before we graduated, we were interested in the area of wearable computing,” Lake told me. According to him, the team realized that a ton of research had been done on heads-up display technology, like the kind used in Google Glass. But there was a lot less energy placed on the technology used to control wearable computing devices. And so, the founder set out to build it.
The first product they’ve developed is MYO, which uses a bunch of sensors and machine learning technology use the muscles in your forearm to determine what gestures users are making with their hands. Once it’s done that, users will be able to manipulate what’s happening on screen for different devices.
Sample applications of the technology involve being able to manipulate and edit slide presentations remotely. Users could also control wireless devices with the MYO armband — like for instance, the Sphero gaming ball. In the future, The Thalmic team hopes to enable control of stuff like Google Glass without actually touching the display.
For users, the armband will be available for pre-order for $149 at www.getmyo.com. But it’s not just end users that the team is trying to get on board — it’s also hoping to court developers as well.
To do so, Thalmic Labs is introducing an API that will allow third-party developers to build applications that can take advantage of its gesture control technology. The idea is to create a platform that will enable others to build their own applications based on MYO gesture control.
“We’re really interested in what third-party developers can do. Everyone we’ve talked to has a different idea for it,” Lake told me. The company is hoping to harness some of that creative energy to build things that it would have never thought of.
While it’s unclear how popular the MYO armband will actually be, Thalmic Labs hopes that other developers will help to create applications that make it more valuable. The company also appears to have some interesting IP that could be pretty valuable. It has already filed for a couple of patents, and has more filings on the way.
Thalmic Labs is currently part of the Y Combinator Winter 2013 class of startups, and has raised $1.1 million in seed funding. In addition to Y Combinator, that funding has come from investors such as ATI Technologies founder Lee Lau, HP Canada CEO Paul Tsaparis, Rypple co-founder Daniel Debow, and Dayforce CEO David Ossip.
Read the original post: Y Combinator-Backed Thalmic Labs Introduces MYO, A $149 Armband For Gesture Control
The back office is an unglamorous but crucial part of any venture firm. At Y Combinator, which has grown its seed-stage fund and incubator quickly in recent years, it also has to move at the pace of a young startup.
The person who has made that happen is Kirsty Nathoo, a UK transplant with an accounting background. She joined a few years ago and has shepherded hundreds of companies from entry through incorporation, fundraising, and now even product development.
“Y Combinator would cease to operate if Kirsty wasn’t around,” said Y Combinator partner Harj Taggar.
“She’s the story behind Y Combinator,” said one YC founder, who us maintaining anonymity because his company is in stealth mode. “If you scratch the surface and see how YC works, Kirsty is critical to startups, and most YC companies are more likely to spend time with her than anyone else.”
As CFO of the incubator, she holds the keys to the kingdom – literally. Not only does she control and manage Y Combinator’s internal finances, from paying bills to helping organize demo days to actually making sure Y Combinator’s money is wired to startups from the proper accounts; but she helps YC startups coordinate outside financings, tax issues, incorporation and other fiscal matters. She’s the financial brains behind the entire operation, which has funded and incubated 368 startups under Nathoo’s watch. In short, Nathoo’s job could probably be handled by a staff of five.
As Nathoo tells the story of joining Y Combinator, timing was everything.
She first heard of Y Combinator back in 2008 when her husband, Amir Nathoo, was accepted into the Winter ’08 program. Amir ended up graduating and launching mobile development platform Trigger. At the time her husband entered Y Combinator, Nathoo, who studied at Cambridge, was working as an audit manager at accounting giant PricewaterhouseCoopers in England. At PwC, she helped look after company bookkeeping.
As soon as she visited San Francisco when Amir started Y Combinator, she fell in love with the city. Y Combinator also became a family of sorts, as her husband was immersed in the program. For the year following Amir’s program, Nathoo split time between the UK and the U.S. working for PwC until Y Combinator founders Paul Graham and Jessica Livingston approached Nathoo to help them with operations and accounting. In early 2010, Nathoo officially joined the incubator as its in-house accountant.
The Winter 2010 class was Nathoo’s first batch of startups, with the total number of companies incubated at 26 startups. That number has almost quadrupled in two years, Nathoo notes, with the Summer 2012 class graduating a whopping 85 startups (all under Nathoo’s watch).
She began looking after Y Combinator’s own bookkeeping efforts, organizing the money that Sequoia had invested in the organization, as well as keeping this separate from the original money that Graham, Livingston, Trevor Blackwell and Robert Morris put in the company back at its founding. It’s actually a complicated task. In March 2009, Sequoia invested $2 million in funding, which was kept in one account. In 2010, Sequoia, along with other angel investors, put $8.25 million into Y Combinator. This also had to be kept separate, and Nathoo has to report into Sequoia on the amounts invested, as well as the returns (if any).
“I was shocked at the amount of trust that was being placed on me at first,” Nathoo says.
She also started helping organize demo days, which are the presentations the startups make to investors and the press at the end of the program. She also began working with startups and founders, the part of her job which she truly enjoys the most, she says.
Taggar says that Y Combinator wants companies to do nothing during their program but write code and develop their ideas. “Kirsty is the person who let’s that happen. Founders don’t have to spend the mental energy on logistics and can focus on the things they want to focus on,” he adds.
There’s not a lot that Nathoo doesn’t do when it comes to helping Y Combinator entrepreneurs enter the program and navigate finances, both for the company and personally. Nathoo will coordinate with admitted entrepreneurs to ensure that they get their money when they start the program, and help them understand the terms of the agreements. Y Combinator puts in $11,000 plus $3,000 per founder (up to a maximum of 3 founders) in exchange for around 7 percent of equity. Nathoo ensures this money is wired to the proper bank accounts, which is a complicated task when you are dealing with 30, 40 or even 80 startups (and more founders).
Nathoo recalls a recent situation with an overseas founder who had flown to the country to attend Y Combinator with no U.S. bank account and no way to make payments. He didn’t even have access to money with which he could pay rent. So Nathoo met him at the San Francisco International Airport on his arrival with a wad of cash to take to a new landlord so the founder would have a place to sleep that night.
Another role Nathoo takes on with founders and startups is an accounting advisor. She’ll ensure that every company incorporates in the state of Delaware, and if they haven’t done this, she’ll help with that process. Y Combinator and most investors will only invest in companies that have been in incorporated in Delaware, and many founders don’t know this. Nathoo says that of the current class of 47 startups at Y Combinator, only one company’s incorporation documents were problem-free when joining the program. She also helps them open bank accounts and keep track of receipts and finances to be mindful of tax consequences. Most of the founders have never raised funding so don’t understand what a convertible note is or how a cap table works.
Jospeh Walla, CEO and founder of YC 2011 graduate and electronic signature startup HelloSign, recalls Nathoo’s help on 83(b) election forms. Whenever you issue stock, it’s important to report this via a 83(b) form to the IRS. Many startup founders don’t know this, however; and Nathoo helped Walla and a number of his classmates with this process.
“It’s interesting that she keeps a low profile, because she’s a significant part of Y Combinator. She has a lot of pattern recognition when it comes to financing and accounting. I can’t think of anyone in the Valley that has that level of experience,” he says. “She makes sure we become a real company rather than a group of people with different ideas.”
As Nathoo became more entrenched in the day-to-day operations of Y Combinator, it made more sense for her to take on responsibilities like handling and helping with financings. Last year, she was promoted to CFO. Nathoo says that she has developed a systematic way to organize incorporation documents and financing term sheets from Y Combinator.
Because she’s helped form hundreds of these funding documents from both Y Combinator and outside investors, Nathoo also has a pattern recognition into what terms specific investors will back down on, or negotiate. While she didn’t name names, she said that she’s started to see patterns of what certain investors want or don’t want and will advise startups accordingly.
Additionally, Nathoo was also helping with the financial logistics of the Start Fund, which gave each Y Combinator company $150,000 in investment from Yuri Milner, Andreessen Horowitz and General Catalyst. Y Combinator recently replaced this with YC VC, which includes Milner, Andreessen Horowitz, General Catalyst and Maverick Capital. Instead of $150,000, YC VC puts $80,000 into each startup.
Needless to say, with all these different sources of money coming into Y Combinator startups, Nathoo is a master at Excel spreadsheets.
Beyond managing financials, Nathoo has taken on the role of operations manager as well as mediator/den mother to Y Combinator startups. She invites VCs and angel investors to demo day, and ensures each investor is vetted. With the rate of successful startups coming out of Y Combinator, investors are clamoring to attend demo days, and Nathoo ensures that each investor attending is vetted, and are the right fit for startups. That means some potential investors could be left out. There have been situations, says Nathoo, where some investors try to bring their friends to demo day that have not been vetted, and she has had to ask people to leave. There have been a few investor tantrums, she adds.
Some of Nathoo’s financial advice also gets personal. Many founders will come to her with personal tax and finance questions. And startups who have graduated Y Combinator continue to email Nathoo with tax inquiries and issues. Unfortunately, Nathoo also serves as mediator when things don’t go well between founders at Y Combinator, which does happen in each class. “I try not to take sides, but I am there to pick up the pieces,” she says. “I also advise them to establish rules and contracts at the beginning of their time at Y Combinator that establishes equity breakdowns and splits if one founder leaves.”
Another characteristic that makes Kirsty so unique is her efficiency in what are normally very complicated matters. For example, she helped architect a way for funds to be automatically transferred into bank accounts of founders as soon as the original Y Combinator funding documents are filed. Previously, this was a manual process, and Nathoo would be making 60 or more wire transfers herself for each class. Now this task has been automated.
Nathoo tells us that the last of the Sequoia money was used in the Summer 2012 class. Now Y Combinator is completely self funded through the money the incubator has made through its investments in startups (i.e. exits). Will Y Combinator continue to operate without any funding? Nathoo says she’s not sure how far it will go, but the organization is in a good place, financially.
Y Combinator has also recently bought a new building in Mountain View where the incubator will move into, as it has outgrown its current Mountain View headquarters. Nathoo will be managing the financials and operations around this as well.
Looking forward, she’s also working with founders on product strategy, which she says is her next big challenge. She’s also been part of the interview process for startups applying to be in the program.
“Y Combinator’s biggest challenge right now is scaling and figuring out how to do that,” she explains. We’re trying to figure out how to help more and more companies be successful, and there are many threads to that answer. Part of this is systematizing things that can be systemized, like finance.”
For Nathoo, Y Combinator is more than just a job, it is a family. “This is my dream job. I tell so many people I have the best job in the world.”
Read the rest here: Meet Kirsty Nathoo, Y Combinator’s Secret Financial And Operational Weapon