Stripe’s easy-peasy acquisition, and why is Twitch still losing money?

Today’s episode is packed with M&A talk, how one YouTuber succeeded at the creator economy, why Twitch is still losing money and an autonomous vehicle company that is making a comeback. First up, Rebecca took a look at fintech giant Stripe’s acquisition of four-year-old competitor Lemon Squeezy. The buy will allow Stripe to beef up its merchant of record selling “in a big way,” according to Stripe CEO Patrick Collison. Deal terms weren’t disclosed, but Lemon Squeezy has a reputation for turning down other offers, including a $50 million Series A. The company’s founder said he was holding out for the right partner to take the business to the next level, and apparently Stripe was it. This comment led Rebecca to explore the idea of M&A as an exit strategy. Does this practice create perverse incentives in venture capital, where investors are becoming more risk-averse and looking for a surer path to regaining capital, at the long-term expense of competition? Other startups have turned down such opportunities so they can go it alone. Just look at Wiz’s decision not to get acquired by Google for $23 billion, something we discussed on last Friday’s episode. Next, Rebecca touched on MatPat, the first big YouTuber to successfully exit his company, Theorist Media. Matthew Patrick turned his successful video series, The Game Theorists, into a full-fledged media business called Theorist, with 40 million subscribers across channels. But he was getting tired of the ceaseless content uploading, and found a way to convince investors that the business could go on without him. Now, he’s in Capitol Hill educating politicians about what creators need to succeed as small businesses. Speaking of creators and acquisitions, Rebecca pulled up a Wall Street Journal report that found that after 10 years, Twitch is still losing Amazon money. Amazon bought Twitch for $1 billion in 2014, but the company still isn’t profitable. And will it ever be? Twitch in 2023 generated about $667 million in ad revenue and $1.3 billion in commerce revenue, but that accounted for less than 0.5% of Amazon’s total 2023 revenue. Amazon defended its buy, saying Twitch has a long-term path to profitability. But broader trends that seem to favor short-form videos over watching someone play an entire video game live say otherwise. Finally, while we’re on the subject of comebacks, autonomous delivery startup Nuro is gearing up for one of its own. Nuro has been quiet for the past year or so after two big rounds of layoffs. Once the darling of the AV industry with over $2 billion in funding from high-profile investors, Nuro was burning money fast as it tried to scale and commercialize all at once. Now, Nuro is back with better AI and a new vehicle, the R3, which it will be testing later this year in the Bay Area and Houston. Equity is TechCrunch’s flagship podcast, produced by Theresa Loconsolo, and posts every Monday, Wednesday and Friday. Subscribe to us on Apple Podcasts, Overcast, Spotify and all the casts. You also can follow Equity on X and Threads, at @EquityPod. For the full episode transcript, for those who prefer reading over listening, check out our full archive of episodes over at Simplecast. Credits: Equity is produced by Theresa Loconsolo with editing by Kell. Bryce Durbin is our Illustrator. We'd also like to thank the audience development team and Henry Pickavet, who manages TechCrunch audio products. Learn more about your ad choices. Visit megaphone.fm/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:11Rebecca Bellan?

  Hello and welcome back to Equity, TechCrunch's flagship podcast about the business of startups. Today is July 29, 2024, and I'm Rebecca Bellan, a senior reporter here at TechCrunch. This is our Monday show where we take a look at the weekend and get you ready for the week ahead. But just a quick housekeeping note for our listeners, this will be our last Monday show for a while at least. The Equity team is very focused on bringing you bigger interviews and Friday news roundup, so don't worry, Equity itself isn't going anywhere. But if there's something you do want us to do more of, or less of, or anything in between, just give us a shout at [email protected]. Now, on today's show, we have Stripe's easy-peasy acquisition, how YouTubers can successfully exit their company, Twitch reports it's still losing money, and the autonomous delivery startup that's making a comeback.

• 0:56Rebecca Bellan?

  Let's get started.

• 1:00Rebecca Bellan?

  Our first story of the day comes from our very own Maryann Azavado, who reported that fintech giant Stripe has acquired four-year-old competitor Lemon Squeezy. Lemon Squeezy is a merchant of record, which if you don't know what that means, because I didn't, it means that they calculate and pay global sales tax for digital products and handles the legal processing and fees in every country. Lemon Squeezy's target market is mainly SaaS and software businesses. In a post on X, Stripe CEO Patrick Collison said that this acquisition would allow Stripe to scale merchant-of-record selling in a big way. For those who don't also know, Lemon Squeezy has been processing payments on Stripe since its inception. The terms of the deal weren't disclosed, but we do know that Lemon Squeezy has turned down other offers and Series A term sheets from investors.

• 1:43Rebecca Bellan?

  The startup's co-founder and CEO, J.R. Farr, said specifically that Lemon Squeezy once turned down a $50 million Series A. He noted that the company was displaying strong performance from the get-go. Nine months after its public launch in 2021, Lemon Squeezy already surpassed $1 million in annual recurring revenue. At the time, Farr said that Lemon Squeezy needed the right partner to take the startup to the next level. So I guess Stripe was the one. It's not clear how much in venture funding Lemon Squeezy has raised, if any, but that comment about being acquired by Stripe being what's necessary to take Lemon Squeezy to the next level, it stuck with me because how many startups are unable to scale their businesses without being acquired by a bigger giant? And my question is, why? Is it a lack of venture funding? Is it bad business?

• 2:26Rebecca Bellan?

  Are VCs pushing their portcos towards M&As rather than helping them grow their businesses towards the public market? And how does this affect a startup's ability to take on incumbents? This reminds me of an argument that I've heard several crypto bros and other billionaire VCs make, which is that antitrust regulation is actually harmful for startups because if you stop big companies from buying the smaller ones, you cut off exit options for those startups. Now startups can either exit through an IPO or a merger and acquisition, and the argument is M&As will result in funding for 1,000 more competitors. I understand this might be the case and that many startups truly lack the funds to reach their potential without the help of benevolent giants, but does this practice create perverse incentives in venture capital where investors are becoming more risk averse and looking

• 3:11Rebecca Bellan?

  for a surer path to regaining their capital at the long-term expense of competition in the market? We're already looking at a dry IPO market this year with under 100 completed in 2024 so far, which follows the downward trend that we've been seeing over the past few years. That said, of the IPOs that have come to market lately, we are seeing more of an appetite for backing fast-growing tech companies that are also profitable, which is a good thing for a healthy market. Wiz might be among those. On last Friday's episode, we dove into Wiz's decision to walk away from a $23 billion Google acquisition. The startup CEO, Russaf Rapapour, in a letter to his staff, said that he thinks Wiz is on the path to greater things solo, including $1 billion in ARR in 2024 and an IPO.

• 3:56Rebecca Bellan?

  So if you want to learn more about why Wiz say no and the M&A market at large, check out the episode right before this one. Now, turning back to Lemon Squeezy, was an IPO ever on the cards for that company? It's difficult to say, but we do know that this wasn't Stripe's first acquisition over the past 12 months or so. Earlier this year, we saw an acqui-hire of Supaglue for an undisclosed sum. Supaglue is an open-source developer platform for user-facing integrations. And last summer, Stripe picked up OK, a startup that developed a low-code analytic software to help engineering leaders better understand how teams are performing. Now, neither of these appear to be in the fintech space specifically, but since 2013, Stripe has acquired 15 firms in total per Crunchbase Data.

• 4:39Rebecca Bellan?

  Stripe has been accused of anti-competitive practices, but not to my knowledge because of its acquisitions. It's mostly been for decisions to launch similar features to rival fintech firms, something the CEO Collison has been unapologetic about. Companies like Plaid and Bolt have levied foul-play allegations against Stripe, with Bolt's founder calling Stripe "a mob boss of Silicon Valley" and colluding with investors like Y Combinator and Sequoia. By the way, Sequoia was one of the investors in OK. In a 2022 CNBC article, Collison defended the practice of borrowing features from other competitors, saying, "This is how the economy works." Other tech companies like Meta, Apple, Twitter (when it was Twitter), Amazon, et cetera, have all been investigated for similar practices, so I'm keeping an eye out on Stripe.

• 5:23Rebecca Bellan?

  Next up, we've talked about founder succession plans on the show before, but how does that work in the creator economy? Matthew Patrick, or Matt Pat, was the first big YouTuber to successfully exit his company, Theorist Media, giving him a break from the ceaseless creator economy. Matt Pat turned his successful video game series, The Game Theorists, into a full-fledged media business with 40 million subscribers across his channel. But 13 years later, this guy wanted a break. Earlier this year, he posted an emotional video for his viewers explaining why he wanted to step away from his illustrious YouTube career. He said, quote, "I don't love late nights. I don't love the fact that my wife, Steph, and I have been work-first for over a decade, where I'm sitting down at a dinner with my best friend and we're talking about business

• 6:08Rebecca Bellan?

  logistics. I miss the days when I could just sit down on the couch with her and play video games, and it's not for content." Apparently, Matt Pat has been thinking about how to exit YouTube since 2018. But one issue he kept running up against was valuation. How do you convince investors that the company could go on without him? He was the face of so many of these videos. But by then, he had actually hired a robust team of writers and editors who could make quality video on his behalf, and his own role in the creative process was becoming less prominent anyway. He had over 40 people working at Theorist Media, including full-time staff and freelancers, and that is something that has helped Theorist become a blueprint for creators seeking to make the same business transition. Theorist eventually sold to Lunar X, a company that invests in creator IP.

• 6:52Rebecca Bellan?

  Now Patrick is on Capitol Hill, using his position to educate legislators about what creators need: a small businesses. As a former freelancer myself, I sincerely hope that ditching the 15% self-employment tax is one of them.

• 7:07Rebecca Bellan?

  And while we're on the subject of creators and acquisitions, The Wall Street Journal has reported that 10 years after Amazon paid almost $1 billion for Twitch, the company is still losing money. Amazon bought Twitch in 2014, but a decade later, the live streaming platform is still not profitable. And hey, it's hard to know when your trendy buy is here for the long haul or when it's just a fad. In January, Twitch CEO Dan Clancy said on the platform, after laying off 500 workers, "I'll be blunt, we aren't profitable at this point." Now, Amazon doesn't actually break out its Twitch revenue figures, but The Wall Street Journal was able to view some internal documents, and they said that in 2023, the live streaming service generated about $667 million in ad revenue and $1.3 billion in commerce revenue.

• 7:51Rebecca Bellan?

  Now, that might sound like a lot, but it actually accounts for less than 0.5% of Amazon's total 2023 revenue. Insiders at Amazon told Wall Street Journal that they worried Twitch would become, quote, "a zombie brand at Amazon." These are brands that are sidelined for not living up to expectations. Other examples of zombie brands include Goodreads, Mechanical Turk, and Woot, and of course, there's the Echo, something The Wall Street Journal also looked into last week. Apparently, there are Echoes in millions of households, but Amazon is still losing money on them. Why? Well, it sold them at a pittance just to scale, with the hope that people would use Echoes to buy more stuff on Amazon, when really, everyone is just like, "Hey Alexa, what's the weather today? Hey Alexa, play Despacito."

• 8:33Rebecca Bellan?

  Anyway, Amazon, of course, denies that Twitch will be sidelined, saying that Twitch has a long-term path to profitability and can hit harder-to-reach audiences. However, broader trends, like consumer preferences for short-form videos à la TikTok, don't really appear to be in Twitch's favor for a comeback.

• 8:52Rebecca Bellan?

  Speaking of a comeback, autonomous delivery startup Neuro is gearing up for one itself. Neuro was once the darling of the autonomous vehicle industry, raising over $2 billion from high-profile investors who fell in love with the startup's approach to goods delivering. If you haven't already seen them, Neuro has these vehicles that kind of look like giant sidewalk delivery robots, only they go on the road. Now, because Neuro doesn't transport passengers, these vehicles don't have seats, pedals, steering wheels, windows. They do, however, have temperature-controlled storage units to hold food. If building these types of vehicles at scale sounds expensive to make, you're right. Neuro was burning cash at a deeply unsustainable rate, and over the past couple of years, issued two large rounds of layoffs. The company had only just started getting some commercial pilots off the ground, but it pulled most of those back

• 9:36Rebecca Bellan?

  as it decided to focus on getting the autonomy piece right. Now, Neuro is back and ready to show us what it has up its robo-sleeve. It just got approval from the California DMV to test its third-generation R3 autonomous delivery vehicle throughout the Bay Area. Neuro will also be deploying the R3 in Houston later this year. I spoke to one of the founders of Neuro, Dave Ferguson, who told me that the new hardware and software stack on this vehicle is better than expected. He said, quote, "We've actually dramatically accelerated our autonomy progress and even the timeline around the autonomy side." Now, before you get too excited, Neuro still has a long road ahead of it. It's heavily focused on testing, particularly in partnership with Uber Eats, and has paused manufacturing partnership with Chinese EV maker BYD, which means scaling those vehicles

• 10:21Rebecca Bellan?

  won't be coming anytime soon. Ferguson also teased that Neuro is exploring another path to market outside of autonomous delivery. So we, and Neuro's many investors, I'm sure, will be watching to see how Neuro turns its business around.

• 10:35Rebecca Bellan?

  That's it for me this morning, but Equity will be back on Wednesday. Mary Ann is diving deep into how venture fared in the first half of the year with Crunchbase's senior data editor and friend of the pod, Janet Tier, so don't miss it. If you want to keep up with us in the meantime, though, you can find Equity on X and Threads at EquityPod. Thanks for listening.

• 10:56Speaker 01

  Equity is produced by Teresa Loconsolo with editing by Kel. Bryce Durbin is our illustrator, and we'd like to give a big thanks to our audience development team and Henry Pickavet, who manages TechCrunch Audio Products. Thanks so much for listening, and we'll talk to you next time.