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Tuatara Capital targeting $375 million for dedicated marijuana fund

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Tuatara Capital, a New York City-based private equity fund founded by Wall Street veterans, is raising what could be the largest pools of capital dedicated to the booming marijuana industry.

The firm is trying to raise as much as $375 million for its second marijuana-focused fund. It’s already raised $161.2 million of that as of February 1, according to a filing with the Securities and Exchange Commission.

The firm declined to comment on the specifics of its fundraising activity.

Tuatara was co-founded in 2014 by a trio of Wall Street veterans. The partners include chief investment officer Al Foreman who’s a former private equity banker and executive at JPMorgan, chairman Mark Zittman, formerly of Guggenheim Partners’ capital markets division, and chief operating officer Marc Riiska, who has worked at a number of venture capital and software firms.

Read more: Biotech, CBD drinks, and a hot vape company: Here’s where all the top marijuana VCs are looking to write checks this year

Foreman said in an interview that the new fund will rely on the “five years of institutional knowledge we’ve built up operating in the space.” (Five years, in a brand new industry like cannabis, is a long time).

The firm’s second fund will be a lot larger than its first. Tuatara raised $93 million for its first fund, which closed in 2016, and has backed eight portfolio companies — soon to be nine, according to Foreman — including marijuana brands like Willie’s Reserve, as well as biotech startups like Teewinot Life Sciences, which is developing patents for the production of cannabinoids for pharmaceutical applications.

Foreman believes that the cannabis industry will segment broadly into four distinct markets as it matures: “social consumption,” or recreational use, cannabinoid pharmaceuticals, cannabinoid health and wellness, and industrial hemp.

“That’s the thesis we laid out in 2014, and I would say that our belief in that thesis has been reaffirmed,” said Foreman. The firm has also not shied away from “plant-touching” investments despite the US federal government’s prohibition on marijuana.

Bullish on beverages

As the industry evolves, Foreman said Tuatara’s second fund will look to make investments into the infrastructure and enterprise technology startups that support the sector.

The firm also has a “keen eye” on some select international markets, says Foreman, particularly as more countries in Europe and South America introduce legislation to legalize marijuana either medically or recreationally.

“There are attributes of certain markets that are appealing to us, which I probably wouldn’t share because it’s our secret sauce,” said Foreman.

Read more: The top 12 venture-capital firms making deals in the booming cannabis industry that’s set to skyrocket to $75 billion

Another area Foreman is bullish on: beverages formulated with marijuana, the idea being that new consumers will have an easier time drinking a THC or CBD-containing soda or beer, rather than smoking an old-school joint.

As for where Tuatara likely won’t be investing, Foreman says pure play marijuana cultivation is overheated and “set for a correction.”

“I think the viewpoint that all cultivation is valuable and all cultivation will be relevant going forward is somewhat myopic,” said Foreman. And he adds CBD, the trendy non-psychoactive compound in marijuana that’s shown up in products from beauty masks to cupcakes, into the “myopic” category.

Because marijuana is illegal under federal law (barring hemp-derived CBD), most of the capital in the sector comes from smaller dedicated funds rather than more traditional institutional private equity and venture capital funds.

While Tuatara’s new fund will make it one of the largest, there are plenty of firms that invest in both early and middle stage startups in the sector.

They include San Francisco-based Poseidon Asset Management, which is raising $75 million for its Fund II, New York City-based Altitude Investment Management, which manages approximately $30 million and is now raising for its second fund, along with 7thirty, Merida Capital, Rose Capital, Casa Verde Capital, Salveo Capital, Cresco Capital Partners, and others.

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Facebook’s Open Compute Project hits over $2.5 billion in revenues

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The Open Compute Project began its life at Facebook as a revolutionary idea to do for data center hardware what Linux and open source software did for the software market. In other words, the OCP comes up with cutting-edge, super-efficient designs that any company can use to build their own hardware.

And the OCP has succeeded, by most reasonable metrics. The project has created a fanatical following among data center engineers, and has led to the creation of products in 10 categories, including networking, servers, and storage.

And in terms of dollars and cents: On Thursday, the preliminary results of a new market assessment report commissioned by OCP was released. That report finds that companies spent more than $2.5 billion on OCP-designed products in, up from $1.16 billion year the before.

Read: AT&T signed an ‘8-digit’ deal that isn’t good news for VMware, Cisco, or Huawei — but could be great for Google Cloud

And this report doesn’t actually reveal the true amount being spent on OCP gear.

It deliberately hides what the project’s board member companies are spending on their OCP equipment, which includes Facebook, Goldman Sachs, Intel, Microsoft and Rackspace. Those companies run enormous data centers and buy a lot of data center equipment, meaning the real figure is likely higher.

The reason the board members are excluded is to try and show that the project is having an impact beyond the handful of companies in leadership roles — although it’s a bit coy of the organization to keep mum on how much money those companies pour into the ecosystem.

Even so, the commissioned report makes a fair case that OCP is creating a multi-billion market.

Excluding the purchases of board members, OCP products account for nearly 1% of the total data center market, which it pegs at $127 billion, the report says.

Interestingly, the report also finds that the overall data center equipment market is shrinking, from $137 billion in 2017 to $127 billion in 2018. Companies across the board are reducing their use of private data centers, as their use of the cloud increases. And OCP includes many of the big cloud providers that are taking those workloads, including Microsoft, Google and Rackspace.

Simply put, that means that OCP has been eating the data center market in a measurable way.

Engineers love it

OCP’s goal is to take the power out of the hands of traditional server and networking vendors like Hewlett Packard Enterprise, Dell, or Cisco, and put it into the hands of the companies who buy and use that hardware.

While all three of those companies have joined the project, OCP members design their own servers, storage, and networking gear, making them cost less and perform faster than traditional commercial alternatives. Then, they share their designs for free. Anyone can modify those designs for their own use, or share them with the group.

Attendees at the OCP Summit conference
OCP

Engineers love it. They get to freely collaborate with other top engineers trying to solve the same problems without worrying about protecting intellectual property or trade secrets.

Contract manufactures are available to build the gear, too, to make it easier for even smaller companies to take advantage of OCP gear.

OCP has also become such a big thing that a growing list of vendors, including HPE and Dell, also make commercial products that match OCP specifications. So OCP-designed products can be bought off-the-shelf. They don’t have to be custom-ordered, lowering the bar to entry.

Next up: the telecom industry

With a loyal following of data center engineers, OCP and Facebook have moved on to a related industry: telecom equipment.

Through OCP, telecom providers like AT&T and Deutsche Telekom are working on open source designs for routers and the other equipment that run their networks. This is gear that would challenge networking giants including Cisco and Juniper.

A few years ago, Facebook also launched a telecom-specific organization called the Telecom Infra Project. It is working on projects like open source telecom radio transmitters. This is gear that would take on the likes of Ericsson, Nokia and Huawei at this especially critical time, when telcos are upgrading their networks to 5G.

Meanwhile, the telecom industry has also decided that it wanted to lead its own open-source hardware project, away from Facebook.

A project called the O-RAN Alliance has gained steam, and includes a who’s who of the major telecom companies worldwide. This includes AT&T, T-Mobile, Verizon, Sprint, SoftBank, SK Telecom, Telefónica, and others.

The industry scuttlebutt is that the two groups, TIP and O-RAN, are going to announce some sort of collaboration next week at Mobile World Congress so they don’t duplicate efforts as they work to to upend the global telecom equipment industry.

Read: Bill Gates warns of the dangers of cow farts — and the world should take his words seriously

Amy Wheelus, AT&T VP of Network Cloud & Infrastructure heads Airship
YouTube/TelecomTV

OCP’s market research report doesn’t shed much light on how much money the telecos might shift to these new open source creations.

But it does show that telecom companies are one of the major users of OCP gear — including servers, storage and OCP’s optical networking equipment.

Meanwhile AT&T has taken open source even further. It’s leading a project called Airship to share software that it’s building to run and manage its 5G network. This software can be used for lots of other data center needs at all sorts of other companies.

The radical idea that launched OCP is turning into a full-fledged hardware industry coup.



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Roku CFO Steve Louden says it’s in a good position in ad-based video

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Roku isn’t worried about Amazon or anyone else horning in on its cash cow.

The electronics maker has transformed itself in recent years into an advertising business, thanks in no small part to the Roku Channel, an advertising-supported free streaming video service that’s available on Roku devices and through the web. Last month, though, Amazon launched a rival service called Freedive from its IMDb unit that threatens to steal viewers and ad dollars from Roku’s offering.

But that’s not how Steve Louden, Roku’s chief financial officer, sees it. Amazon’s entry — along with similar services from YouTube, Vudu, and others — just serve as “validation” for the Roku Channel and the ad-supported streaming business in general.

“We’re strong supporters of ad-supported content,” Louden told Business Insider in an interview on Thursday, just after the company reported its fourth-quarter results.

Read this:Amazon’s got its eyes set on yet another market — and one high-flying upstart should be worried

Roku topped analyst expectations as revenue from its platform business — which includes its advertising sales — jumped 77% from the holiday period of 2017.

Roku is in “a strong position”

The streaming video company is in a better position than many of its rivals to capitalize on ad-supported video market, Louden said. Its control of not just a streaming channel, but a streaming media platform — through its Roku streaming boxes and smart televisions that run its operating system — gives it important data on users’ viewing habits that competitors don’t have, he said. Through its platform, Roku also has the ability to steer viewers to the Roku Channel and other places that run its video ads.

“That puts us in a strong position,” he said.

Amazon too has its own platform in the form of its Amazon Fire TV devices, and it has plenty of data on viewing habits through that, its Amazon Fire tablets, and its Prime Video service. But Louden seemed unconcerned, suggesting that Amazon and many of Roku’s other competitors can’t fully match up with it. Roku can offer advertisers both the data they need to target their ads and a large viewership for them.

“That’s where a lot of folks have gaps,” he said.

Here’s what Roku reported and how it compared with Wall Street’s expectations:

  • Fourth-quarter (Q4) revenue: $275.7 million. Analysts had forecast $262.4 million.
  • Q4 earnings per share (EPS): 5 cents. Wall Street was expecting 3 cents a share.
  • First-quarter (Q1) revenue (company guidance): $185 million to $190 million. Analysts had projected $188.8 million.
  • Q1 EPS (guidance): Roku forecast that it will lose $28 million to $32 million, which works out to a per-share loss of 23 to 26 cents, assuming its share count stays stable. Wall Street was forecasting a loss of 12 cents a share.
  • 2019 full-year revenue (guidance): $1 billion to $1.025 billion. Analysts had forecast for $985.4 million.
  • 2019 EPS (guidance): The company projected a loss of between $80 million and $90 million, which is about 65 cents to 73 cents a share, assuming its share count remains the same. Analysts had predicted a full-year loss of 23 cents a share.

Roku’s stock jumped $2.72, or 5%, to $54.20 in after-hours trading. Its shares closed regular trading off $2.16, or 4%, to $51.48.



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The Trade Desk’s Q4 2018 earnings beat expectations

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The Trade Desk continues to be an outlier among ad-tech companies that struggling to grow ad revenue as more of those dollars go to Facebook and Google.

The company reported $160.6 million in fourth-quarter 2018 revenue on Thursday, primarily boosted by growth in programmatic ad dollars flowing to connected TV devices and audio.

The programmatic advertising firm reported a total of $477 million in revenue during 2018, up 55% from $308.2 million in 2017. The Trade Desk’s technology plugs into agency trading desks to power programmatic advertising.

In 2019, The Trade Desk said that it expects to grow faster than the rest of the programmatic industry, making at least $637 million with gross spending on its platform hitting at least $3.2 billion, said Jeff Green, The Trade Desk’s CEO, during the earnings call.

Programmatic firms are making connected TV gains

The Trade Desk saw the biggest growth from connected TV, where spending grew 525% year-over-year. Mobile spend jumped 69%. while programmatic audio spending grew 230%.

During the fourth-quarter, more than 160 advertisers spent more than $100,000 each on connected TV advertising, Green said. In 2018, the company’s inventory for streaming TV ads grew sixfold, with the bulk of new inventory coming from networks like NBCUniversal, A+E Networks and CBS that are building their own streaming services.

Read more: Ad-tech companies and networks are pinning hopes on streaming TV, but OTT is full of headaches for marketers

He added that inventory is also coming from digital players like Hulu, which works with The Trade Desk to power programmatic advertising.

But streaming TV ads are significantly more expensive with higher cost-per-impressions (or CPM) prices than display ads. Over time, prices will come down as more premium content becomes available, Green said.

“I don’t think it will have any big, long-term effect on our fee structure because we add so much more value by bringing data to the table,” he said. “Time will tell there but I think we’re in a really strong position.”

This week, big brands like McDonald’s and AT&T pulled their YouTube ads after it was revealed that ads ran alongside videos with inappropriate comments. Asked about what the pushback against YouTube means for The Trade Desk, Green said that he expects to see a short-term increase in spending from big advertisers over the coming weeks.

“There’s a bunch of dollars that need to find a new home,” he said. “I do think it represents an opportunity for us, but I think it’s hard for all those advertisers to move away from YouTube.”

China holds a lot of potential

The Trade Desk’s move into China was another big topic on the earnings call. The Trade Desk has long eyed Asia as a source for growth and analysts repeatedly asked Green for details on the company’s plans, particularly in China. According to Green, 86% of the firm’s revenue comes from the US, with the goal to get two-thirds of revenue from international markets.

“The fastest-growing and largest middle class in the history of the world is emerging here in Asia, and global brands want to reach these new consumers,” Green said.

Specifically, Green mentioned Alibaba, Baidu and Tencent as critical media partners in Asia. However, the Chinese market is notoriously difficult for marketers to crack. Green emphasized that the country is a “long-term investment.”

Because the Chinese companies have been slower to ramp up advertising, Green said that they have a benefit from learning from Facebook, Google and Amazon’s measurement mistakes and walled gardens.

“There’s actually clearer lines with Baidu, Alibaba and Tencent than there is with Google, Amazon and Facebook, which makes it much easier to have conversations about activating data,” he said. “I don’t think we’re going to have the same debates and evolution that we had in the rest of the world.”



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