Technology

On Tuesday, Tencent Music Entertainment filed for an IPO in the US that is expected to value it in the $25-30 billion range, on par with SpotifyIPO in April. The filing highlights just how different its social interaction and digital goods business is from the subscription models of leading music streaming services in Western countries.

That divergence suggests an opportunity for Spotify or one of its rivals to gain a competitive advantage.

Tencent Music is no small player: As the music arm of Chinese digital media giant Tencent, its four apps have several hundred million monthly active users, $1.3 billion in revenue for the first half of 2018, and roughly 75 percent market share in Chinarapidly growing music streaming market. Unlike Spotify and Apple Music, however, almost none of its users pay for the service, and those who do are mostly not paying in the form of a streaming subscription.

Its SEC filing shows that 70 percent of revenue is from the 4.2 percent of its overall users who pay to give virtual gifts to other users (and music stars) who sing karaoke or live stream a concert and/or who paid for access to premium tools for karaoke; the other 30 percent is the combination of streaming subscriptions, music downloads, and ad revenue.

At its heart, Tencent Music is an interactive media company. Its business isn&t merely providing music, itgetting people to engage around music. Given its parent company Tencent has become the leading force in global gaming—with control of League of Legends maker Riot Games and Clash of Clans maker Supercell, plus a 40 percent stake in Fortnite creator Epic Games, and role as the top mobile games publisher in China—its team is well-versed in the dynamics of in-game purchasing.

At first glance, the fact that Tencent Music has a lower subscriber rate than its Western rivals (3.6 percent of users paying for a subscription or digital downloads vs. 46 percent paying for a premium subscription on Spotify) is shocking given it has the key ingredient they each crave: exclusive content. Whereas subscription video streaming services like Netflix, Hulu, and Amazon Prime Video have anchored themselves in exclusive ownership of must-see shows in order to attract subscribers, the music streaming platforms suffer from commodity content. Spotify, Apple Music, Amazon Music, YouTube Music, Pandora, iHeartRadio, Deezer… they all have the same core library of music licensed from the major labels. Thereno reason for any consumer to pay for more than one music streaming subscription in the way they do for video streaming services.

In China, however, Tencent Music has exclusive rights to the most popular Western music from the major labels. The natural strategy to leverage this asset would be to charge a subscription to access it. But the reality is that piracy is still enough of a challenge in China that access to that music isn&t truly &exclusive.& Plus while incomes are rising, thereextraordinary variance in what price point the population can afford for a music subscription. As a result, Tencent Music can&t rely on a subscription for exclusive content; it sublicenses that content to other Chinese music services as an additional revenue stream instead.

&Online music services in China have experienced intense competition with limited ability to differentiate by content due to the widespread piracy.&Tencent Music, SEC Form F-1

This puts it in a position like that of the Western music streaming services—fighting to differentiate and build a moat against competitors—but unlike them it has successfully done so. By integrating live streams and social functionality as core to the user experience, itgaining exclusive content in another form (user-generated content) and the network effects of a social media platform.

Some elements of this are distinct to Tencentcore market—the broader popularity of karaoke, for instance—but the strategy of gaining competitive advantage through interactive and live content is one Spotify and its rivals would be wise to pursue more aggressively. It is unlikely that the major record labels will agree to any meaningful degree of exclusivity for one of the big streaming services here, and so these platforms need to make unique experiences core to their offering.

Online social activities like singing with friends or singing a karaoke duet with a favorite musician do in fact have a solid base of participants around the world: San Francisco-based startup Smule (backed by Shasta Ventures and Tencent itself) has 50 million monthly active users on its apps for that very purpose. There is a large minority of people who care a lot about singing songs as a social experience, both with friends and strangers.

Spotify and Apple Music have experimented with video, messaging, and social streams (of what friends are listening to). But these have been bonus features and none of them were so integrated into the core product offering as to create serious switching costs that would stop a user from jumping to the other.

The ability to give tips or buy digital goods makes it easier to monetize a platformmost engaged and enthusiastic users. This is the business model of the mobile gaming sector: A minority percentage of users get emotionally invested enough to pay real money for digital goods that enhance their experience, currency to tip other members of the community, or access to additional gameplay.

As the leading music platform, it is surprising that Spotify hasn&t created a pathway for superfans of music to engage deeper with artists or each other. Spotify makes referrals to buy concert tickets or merchandise —a very traditional sense of what the music fan wants—but hasn&t deepened the online music experience for the segment of its user base that would happily pay more for music-related experiences online (whether in the form of tipping, digital goods, special digital access to live shows, etc.) or for deeper exposure to the process (and people) behind their favorite songs.

Tencent Music has an advantage in creating social music experiences because it is part of the same company that owns the countryleading social apps and is integrated into them. It has been able to build off the social graph of WeChat and QQ rather than building a siloed social network for music. Even Spotifymain corporate rivals, Apple Music and Amazon Music, aren&t attached to leading social platforms. (Another competitor, YouTube Music, is tied to YouTube but the video servicesocial features are secondary aspects of the product compared to the primary role of social interaction on Facebook, Instagram, and WhatsApp).

Spotify could build out more interactive products itself or could buy social-music startups like Smule, but Tencent Musicsuccess also suggests the benefits of a deal thatsometimes speculated about by VCs and music industry observers: a Facebook acquisition of Spotify. As one, the leading social media company and the leading music streaming company could build out more valuable video live streaming, group music sharing, karaoke, and other social interactions around music that tap Facebook2 billion users to use Spotify as their default streaming service and lock existing Spotify subscribers into the service that integrates with their go-to social apps.

Deeper social functionality doesn&t seem to be the path Spotify is prioritizing, though. It has removed several social features over the years and is anchoring itself in professional content distribution (rather than user-generated content creation), becoming the new pipes for professional musicians to put their songs out to the world (and likely aiming to disrupt the role of labels and publishers more than they will publicly admit). To that point, the companyacquisitions—of startups like Loudr, Mediachain, and Soundtrap—have focused on content analytics, content recommendation, royalty tracking, and tools for professional creators.

This is the same race its more deep-pocketed competitors are running, however, and it doesn&t lock consumers into the platform like the network effects of a social app or the exclusivity of a mobile game do. It recently began opening its platform for musicians to add their songs directly—something Tencent Music has allowed for years—but this seems less like a move to a YouTube or SoundCloud-style user-generated content platform and more like a chess move in the game of eventually displacing labels. Ultimately, though, building out more social interaction around music will be critical to it in escaping the race with Apple Music and the rest by achieving more defensibility.

Backed with nearly $87 million in venture capital funding from GV, Oak HC/FT and F-Prime Capital, Quartet Health was founded in 2014 by Arun Gupta, Steve Shulman and David Wennberg to improve access to behavioral healthcare. Itsmission: &enable every person in our society to thrive by building a collaborative behavioral and physical health ecosystem.&

Recent shakeups within the New York-based companyc-suite and a perusal of its Glassdoor profile suggest Quartetculture is not fully in line with its own philosophy.

In the last few weeks,chief product officer Rajesh Midha has left the company and president and chief operating officer David Liu is on his way out, TechCrunch has learned and confirmed with Quartet. Founding chief executive officer Arun Gupta, meanwhile, has stepped into the executive chairman role, relinquishing responsibility of the companyday-to-day operations to former chief science officer David Wennberg, whotaken over as CEO.

&I&m focusing on our external growth,& Gupta told TechCrunch on Friday. &David has really stepped up as CEO.&

Gupta and Wennberg said Liurole was no longer needed because Wennberg had assumed his responsibilities. Liu will formally exit the company at the end of the month. As for its product chief, the pair sayMidha had &transitioned out& of the role and thatan unnamed internal candidate was tapped to replace him.

When asked whether other employees had left in recent weeks, Wennberg provided the following indeterminate statement: &We are always having people coming in. I don&t think we&ve had any unusual turnover. We&re hiring and peopleroles change and thatjust part of growth.&

Quartet,which providesa platform that allows providers to collaborate on treatment plans, currently has 150 employees, according to its executives.

In a LinkedIn status update published this week — after TechCrunchinitial inquiries — Gupta announced his transition to executive chairman:

&Still full-time, though focused largely on our opportunity to further evangelize our mission, [I will] drive the change we want to see in this world, and expand our reach … I have tremendous confidence in Davidability to lead our many talented Quartetians to deliver this next phase.&

Several former employees seemed less than pleased with Guptaperformance, writing in a number of Glassdoor reviews that he was &abominable,& &kind of a monster& and &by far the worst executive.&

When asked for comment on those reviews, Gupta and Wennberg shrugged it off: &Glassdoor is Glassdoor.& They agreed its important to pay attention to but impossible to vet.

Gupta began his career as a management consultant at McKinsey and served as a consultant to The World Bank before joining Palantir, Peter Thieldata-mining company, as an advisor in 2014. Wennberg, for his part, was the CEO ofThe High Value Healthcare Collaborative, a consortium of 15 healthcare deliverysystems, before co-founding Quartet.

In January, Quartet raised a $40 million Series C to expand throughout the U.S. F-Prime Capital and Polaris Partners led the round, with participation from GV and Oak HC/FT. The financing valued the company at $300 million, according to PitchBook.

As part of the funding, Quartet announced it was adding three new directors to its board: F-Primeexecutive partner Carl Byers; Ken Goulet, an executive vice president at health insurance provider Anthem; and former Rackspace CEO and BuildGroup co-founder Lanham Napier. Other outside board members includeOak HC/FTmanaging partner Annie Lamont, GV partner Krishna Yeshwant, Polaris managing partner Brian Chee and former U.S. Congressman Patrick Kennedy.

Quartet previously raised a $40 million Series B in April 2016 led by GV. The investment marked the venture capital investment arm of Googlefirst in a mental health startup.Before that, the startup brought in a $7 million Series A led by Oak HC/FTmanaging partner Annie Lamont.

For now, Quartet remains committed to growth.

&We learn from what we are doing and we continue to learn,& Wennberg said. &That is part of growth. Ithard and you just keep working and growing because we have a huge mission.&

When Brazilian-born Henrique Dubugras and Pedro Franceschi met at 16 years old, they bonded over a love of coding and mutual frustrations with their strict mothers, who didn&t understand their Mark Zuckerberg-esque ambitions.

To be fair, their moms& fear of theirhacking habits only escalated after their pre-teen sons received legal notices of patent infringements in the mail. A legal threat from Apple, which Franceschi received after discovering the first jailbreak to the iPhone, is enough to warrant a grounding, at the very least.

Their parents implored them to quit the hacking and stop messing around online.

They didn&t listen.

Today, the now 22-year-olds are announcing a $125 million Series C for their second successful payments business, called Brex, at a $1.1 billion valuation. Greenoaks Capital, DST Global and IVP led the round, which brings their total raised to date to about $200 million.

San Francisco-based Brex provides startup founders access to corporate credit cards without a personal guarantee or deposit. Italso supported by the likes of PayPal founders Peter Thiel and Max Levchin,the former chief executive officer of Visa Carl Pascarella and a handful of leading venture capital firms.

&Brex is off to one of the most exciting starts we&ve ever seen,& IVPSomesh Dash said in a statement.

The financing makes them some of the youngest unicorn founders in history and puts them in a rare class of startups that have galloped into unicorn territory at such a fast clip. Brex was founded in the winter of 2017. It only launched publicly in June 2018.

How&d they do it

&I&ve had two failed attempts, one successful attempt and one on the way to being a successful attempt,& Brex CEO Dubugras told TechCrunch while reciting a lengthy resume.

At 14, when most of us were worrying about what the first year of high school would bring us, Dubugras was more concerned about what his next business attempt would be. He had already built a successful online game but was forced to shut it down after receiving those patent infringement notices.

Naturally, he used the cash he earned from the game to start a company — an education startup meant to help Brazilian students apply to American schools. He himself was hoping to get into Stanford and had learned quickly how little Brazilian students understood of the U.S. college application process.

In some respects, the company was a success. It garnered 800,000 users but failed to make any money. His small fortune wasn&t enough to scale the business.

&There aren&t a lot of VCs in Brazil that are willing to fund 15-year-olds,& Dubugras told TechCrunch.

Shortly after folding the edtech, he met Franceschi, a Brazilian teen from Rio — Dubugras is from São Paulo — who understood his appetite for innovation and was just as hungry for success. The pair got to talking and because of Franceschiinterest in payments, they started Pagar.me, the &Stripe of Brazil.&

Pagar.me raised $30 million, amassed a staff of 100 and was processing up to $1.5 billion in transactions when it sold. Finally, they had a real success under their belt. Now it was time to relocate.

&We wanted to come to Silicon Valley to build stuff because everything here seemed so big and so cool,& Dubugras said.

And come to Silicon Valley they did. In the fall of 2016, the pair enrolled at Stanford. Shortly after that, they entered Y Combinator with big dreams for a virtual reality startup called Beyond.

&I think three weeks in we gave it up,& Dubugras said. &We realized we aren&t the right founders to start this business.&

He credits Y Combinator with helping him realize what they were good at — payments.

As founders themselves, Dubugras and Franceschi were hyper-aware of a huge problem entrepreneurs face: access to credit. Big banks see small businesses as a risk they aren&t willing to take, so founders are often left at a dead-end. Dubugras and Franceschi not only had a big network of startup entrepreneurs in their Rolodex, but they had the fintech acumen necessary to build a credit card business designed specifically for founders.

So, they scrapped Beyond and in April 2017, Brex was born. The startup picked up momentum quickly, so much so that the pair decided to drop out of Stanford and pursue the business full time.

Simplifying financial access

Brex doesn&t require any kind of personal guarantee or security deposit and it doesn&t use third-party legacy technology; its software platform is built from scratch.

It simplifies a lot of the frustrating parts of corporate expenses by providing companies with a consolidated look at their spending. At the end of each month, for example, a CEO can easily see how much the entire company spent on Uber or Amazon.

Plus, Brex can give entrepreneurs a credit limit thatas much as 10 times higher than what they&d receive elsewhere and they can issue cards, virtual cards at least, moments after the online application is complete.

&We have a very similar effect of what Stripe had in the beginning, but much faster because Silicon Valley companies are very good at spending money but making money is harder,& Dubugras explained.

As part of their funding announcement, Brex said it will launch a rewards program built with the needs and spending patterns of founders in mind. Beyond that, they plan to use the capital to hire engineers and figure out how to grow the businessclient base beyond only tech startups.

&We want to dominate corporate credit cards,& Dubugras said. &We want every single company in the world, whenever they do businesses expenses, to do it on a Brex card.&