JavaProspect: Welcome to hot due diligence summer

Wow, that headline worked?

A recent board fight at a digital health unicorn is a reminder to entrepreneurs that it’s important to set boundaries, even amid the dizzying volume and velocity of this summer’s deal frenzy.

This week I published a scoop about how Bessemer Venture Partners replaced a board member at Hinge Health, after that board member invested in a competing startup. Hinge Health co-founder Daniel Perez alleges that the board member did not notify him before they led a round in an early-stage startup in the same sector.

The situation gives a rare and nuanced peek into the world of competitive tension between startups. While founders expect certain standards of conduct from investors, including that they notify them of investments in directly competitive startups, investors may be feeling more pressure to make faster decisions that clash with the founders they’ve already backed, while having different definitions of competition from their portfolios. In a post-NDA world, the rules need to be rewritten around how to have these conversations.

I’m not quite sure if more due diligence is the solution to everyone’s woes — but I do think transparency and explicitness between founders and investors can’t hurt. It’s not just for founders. Investors, who owe returns to their LPs, don’t want to be in situations where they can’t invest in a booming sector because they have one other investment in the sector.

The situations are endless:

What happens when a startup pivots into a different market than the one that it sold its investors on and is suddenly competitive with a portfolio company?
What if a portfolio company’s future roadmap includes a go-to-market strategy that clashes with a potential investment?
Can a Sequoia India partner back a company that is directly competing with a Sequoia India company?
Is it okay for there to be competing investments within the same firm as long as different partners are sitting on the board?

Based on my DMs, Hinge Health isn’t alone in dealing with current investors backing competitors. It adds an asterisk to the barrage of funding rounds. Welcome to hot due diligence summer, I guess?

In the rest of this newsletter, we’ll get into the Duolingo S-1, a creator economy rebrand and an exclusive interview with top startup marketers. As always, you can find me on Twitter @nmasc_ — send me tips or notes on any competitive tensions you’ve dealt with.

Wall Street, it’s time for your language lesson

Image Credits: Duolingo

Duolingo, a language-learning unicorn last valued at $2.4 billion, filed to go public this week. Beyond the flurry of puns — thanks to this reader for today’s subhed — the S-1 gave us a sneak peak into the financials of a rare edtech company ambitious enough to list on the stock market.

Here’s what to know: A deep dive into the financials and fine print unveiled how Duolingo’s monetization efforts have led to 129% revenue growth and solid conversion between free and paying users. The document also exposed a number of other fun factoids, such as the fact that only four people left the company in 2020 — and that Duolingo is indeed looking to scoop up some companies.

For some more language on the language learning company:

Rebranding the creator economy

Image Credits: Alexis Gay

On Equity this week, Alex and I brought on techie comedian Alexis Gay to talk about the creator economy.

Here’s what to know: Gay went from helping creators via her role at Patreon to becoming a creative herself. We talked about pet peeves, why it’s important to be explicit when building tools for this economy, and if rolling funds are inevitable for anyone with a Twitter following. Check out the episode, which I’d say is one of our funniest to date.

And as your postgame:

Marketing some marketing

Image of a group of arrows moving up and around obstacles.

Image Credits: Richard Drury (opens in a new window) / Getty Images

TechCrunch’s Miranda Halpern and Eric Eldon are hard at work on TechCrunch Experts, a directory that will host vetted professionals within the startup industry. Right now, they’re seeking the names of the top growth marketers powering your favorite tech startup — and they’re still taking submissions!

Here’s what to know: Halpern interviewed Kathleen Estreich and Emily Kramer, the co-founders of strategic marketing firm MKT1. The revealing conversation includes notes on marketer attrition, why their job is about a lot more than just advertisements, and how they’re working against the stigma of marketers often being “thought of as second-class citizens” within a company.

Deeper dives:

Around TC

TechCrunch Early Stage 2021: Marketing & Fundraising is next week! The entire event is built for founders seeking tactical tips on everything from how to survive high-speed startup growth during COVID-19 to how to unearth the ever-illusive product-market fit. Buy your tickets, because it will make me very happy.