This week, several prominent startups made headlines for all the wrong reasons.
The past few days were full of controversy for a quartet of companies that have combined to raise hundreds of millions in VC and PE backing—and that's one of 11 things you need to know from the past week:
1. Bad newsWe'll start with the lawsuit. It involves Kik, a social media startup that raised $100 million in a 2017 initial coin offering for a token called Kin. In June, the SEC filed suit accusing the Canadian company of conducting an illegal securities offering to help stave off insolvency; this week, Kik volleyed back with a lengthy response accusing the regulator of "repeatedly twist[ing] the facts" in its accusations.
The heart of the issue, it seems, is what exactly constitutes a security. Was the Kin token designed as an investment opportunity requiring federal oversight, as the SEC claims, or was it simply a new way to engage users in Kik's suite of offerings? But Kik also takes issue with other parts of the suit, including its depiction of the company's finances. The case could be a bellwether for how ICOs are received in the future.
This week's hack involved StockX, the operator of a marketplace for authenticated sneakers and other designer apparel that was valued at $1.1 billion with a $110 million Series C in June. The company confirmed a data breach that exposed a wide swath of customer data including passwords, real names and shoe sizes.
That in itself, perhaps, isn't so controversial. The fact that it appears StockX initially tried to hide the hack from its users, though, is a bit more worrisome. When StockX first sent out an email to those whose personal information was exposed, it chalked up the need to reset their passwords to "system updates," according to TechCrunch. Meanwhile, someone on the so-called dark web is reportedly selling access to more than 6.8 million records from StockX for $300.
Then there were the boycotts that embroiled SoulCycle and Equinox Fitness, which have raised capital from PE firms Leonard Green & Partners and L Catterton. More importantly, though, the gym brands are also backed by a real estate company led by billionaire Stephen Ross, who last week hosted a fundraiser for Donald Trump's 2020 presidential campaign that drew the ire of fitness buffs across America. SoulCycle and Equinox were reportedly swamped with cancellations and condemnations, despite both companies publicly stating they didn't support the fundraiser.
And the most tragic news of the week sparked debate about Cloudflare, a website infrastructure and security company. Until very recently, the business provided services that helped keep 8chan, a message board long maligned for fostering hate speech and extremist violence, up and running. Last weekend, the gunman who murdered 22 people at a Walmart in El Paso, TX, is believed to have posted on 8chan giving advance notice of the terrorist act, becoming at least the third such shooter to do so this year. In response, Cloudflare severed its connection to the site.
The implications for venture capital are at the very bottom of a long list of concerns related to the nightmare in El Paso. But Cloudflare is a $1.8 billion company that's raised about $400 million in prior VC funding and is said to be planning an IPO for later this year; continuing to have its name linked to 8chan was likely the last thing the company wanted as it prepares to go public.
Our thoughts go out to the victims, friends, family members, first responders and others affected by last weekend's heartbreaking events in El Paso and Dayton, OH. It's hard to know what to say, other than that it sure seems like there are steps the US could take to decrease the likelihood of such tragedies happening again and again and again.