Why are revenue-based VCs investing in so many women and underrepresented founders? – TechCrunch

This guest post was written by David Teten, Venture Partner, HOF Capital. You can follow him at teten.com and @dteten. This is part of an ongoing series on revenue-based investing VC that will hit on:

A new wave of revenue-based investors are emerging who are using creative investing structures with some of the upside of traditional VC, but some of the downside protection of debt.

I’ve been a traditional equity VC for 8 years, and I’m researching new business models in venture capital. As I’ve learned about this model, I’ve been impressed by how these venture capitalists are accomplishing a major social impact goal… without even trying to.

Many are reporting that they’re seeing a more diverse pool of applicants than traditional equity VCs — even though virtually none have a particular focus on women or underrepresented founders. In addition, their portfolios look far more diverse than VC industry norms.

For context, revenue-based investing (“RBI”) is a new form of VC financing, distinct from the preferred equity structure most VCs use. RBI normally requires founders to pay back their investors with a fixed percentage of revenue until they have finished providing the investor with a fixed return on capital, which they agree upon in advance. For more background, see “Revenue-based investing: A new option for founders who care about control“.

I contacted every RBI venture capital investor I could identify, and learned:

  • John Borchers, Co-founder and Managing Partner of Decathlon Capital, reports that “37% of our portfolio companies would be considered ‘impact’ qualified companies. This includes companies that would meet most institutional definitions for impact investing (women, minority, and veteran owned/run businesses, including LMI (“Low to Moderate Income”) and CRA (“Community Reinvestment Act”) qualified companies. While we do lots of work in these areas due to the attractive opportunity set, we are not an impact investor, and impact qualification is not a criterion that we use in evaluating or funding companies. On an organic basis, 13% of our portfolio companies are women-owned or run businesses, while 19% of the companies we work with are minority-owned or run. When you look at the composition of the entire founding or executive teams, the number of companies with either a woman or minority in management jumps even higher and is north of 50%.”
  • Indie.VC reports, “…50% of the teams we’ve funded are led by female founders and nearly 20% are led by black founders.”
  • Lighter Capital reports that they’ve funded companies in 30 states, including well established startup hubs and less mature ecosystems.
  • According to Derek Manuge, CEO of Corl, in the past 12 months, 500+ companies have applied to Corl for funding. Of the ones who received capital, “30% were led by women, and 40% were led by executives of non-Caucasian or of mixed ethnic origin.”
  • Feenix Partners reports that “35% of our portfolio companies have either a female or minority (non-Caucasian) CEO or Owner.”
  • Michelle Romanow, co-founder and CEO of Clearbanc, says that “We have funded eight times more women than the venture capital industry average – probably because we’re not doing meetings, which is an amazing accomplishment, and that’s not because we do different sourcing or anything else. It was just because we looked at data.” (Note that Clearbanc has a somewhat different business model than the RBI VCs I list here.)
  • Founders First Capital is the only RBI VC I’ve identified with a specific focus on underrepresented founders. Kim Folsom, Co-Founder, reports that as of August 2019, Founders First’s portfolio was 80% women and 55% women of color; 70% people of color; 20% military veterans; and 71% located in low/moderate income areas. 85% of their companies have under $1m in annual revenues. I can also announce exclusively that according to Kim Folsom, “Founders First Capital Partner (F1stcp) has just secured a $100M credit facility commitment from a major institutional impact investor. This positions F1stcp to be the largest revenue-based investor platform addressing the funding gap for service-based, small businesses led by underserved and underrepresented founders.”

By contrast, according to PitchBook Data, since the beginning of 2016, companies with women founders have received only 4.4% of venture capital deals. Those companies have garnered only about 2% of all capital invested. This is despite the fact that the data says that in fact you’re better off investing in women.

Paul Graham href=”http://www.paulgraham.com/bias.html”> observes, “many suspect that venture capital firms are biased against female founders. This would be easy to detect: among their portfolio companies, do startups with female founders outperform those without?

A couple months ago, one VC firm (almost certainly unintentionally) published a study showing bias of this type. First Round Capital found that among its portfolio companies, startups with female founders outperformed those without by 63%.”

Image via Getty Images / runeer

Why are RBI investors investing disproportionately in women & underrepresented founders, and vice versa: why do these founders approach RBI investors? 

I’d argue it’s not that RBI is so unbiased and attractive; it’s that traditional equity VC is biased structurally against some women and underrepresented founders.

The Boston Consulting Group and MassChallenge, a US-based global network of accelerators, partnered to study why “women-owned startups are a better bet”. Through their analysis and interviews, BCG identified three primary reasons why female founders are less likely to receive VC funds.

The study used multivariate regression analysis to control for education levels and pitch quality to conclude that gender was a statistically significant factor. I argue that these 3 reasons are much less applicable for RBI investors than for conventional VCs.

  1. Less need for a belief in breakthrough technology. From the study: “More than men, women founders and their presentations are subject to challenges and pushback. For example, more women report being asked during their presentations to establish that they understand basic technical knowledge. And often, investors simply presume that the women founders don’t have that knowledge.” However, companies with a focus on early profitability are less likely to require an investor to believe in complex, hard-to-predict new technology which is hard to diligence. Instead, the company can pitch itself based on a credible financial projection.
  2. Realistic projections. “Male founders are more likely to make bold projections and assumptions in their pitches,” BCG observes, while, “Women, by contrast, are generally more conservative in their projections and may simply be asking for less than men.” However, to raise RBI a woman founder does not need to promise a valuation of $1 billion within 5 years. Rent the Runway co-founder and CEO Jennifer Hyman said in a recent interview with CNBC’s Julia Boorstin, “I haven’t been given the permission or privilege to lose a billion every quarter… I’ve had to bring my company towards profitability…”
  3. Concentration in consumer/branded products startups. BCG reports that, “Many male investors have little familiarity with the products and services that women-founded businesses market to other women”—especially in categories such as childcare or beauty. However, RBI investors report that they see a lot of proposals for ecommerce and consumer packaged goods geared to mothers. Meghan Cross Breeden, Cofounder of Amplifyher Ventures, observes, “Personal customer attachment shouldn’t be a factor in investing; the early investors in Snapchat and Facebook weren’t the Gen Z target demo. Rather, I would imagine that one explanation of women garnering rev-share modes of financing is the prevalence of women-led companies in the consumer/branded goods field, which systemically is more tangible and revenue driven. Therefore, there’s more revenue to share – as opposed to the typical venture business, which requires capital upfront before a J curve of growth.”

Traditional equity VCs are looking for high-risk, high-reward, “swing for the fences” models. The founders of such companies inherently are taking financial risk, reputational risk, and career risk.

Paul Graham, co-founder of Y Combinator, said, “few successful founders grew up desperately poor.” Ricky Yean, a serial founder, agrees: “building and sustaining a company that is “designed to grow fast” is especially hard if you grew up desperately poor”.

Most of the founders of the paradigmatic VC home runs were privileged: male, cisgender, well-educated, from affluent families, etc. Think Bill Gates and Mark Zuckerberg .

That privilege makes it easier for them to take very high risk. The average person, worried about students loans and long term employability, quite rationally is less likely to take the huge risk of founding a company. It’s far safer to just get a job.

Investors who back diverse teams can win much higher returns than the industry norm. Both RBI investors and the founders they back will hopefully benefit from this pattern.

For further reading

Note that none of the lawyers quoted or I are rendering legal advice in this article, and you should not rely on our counsel herein for your own decisions. I am not a lawyer. Thanks to the experts quoted for their thoughtful feedback.



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Facebook is losing its last Oculus co-founder – TechCrunch

Facebook spent billions on Oculus in 2014, and in the years since the organization has been absorbed deeper into Facebook while the startup’s co-founders have stepped back in prominence. Today, the final Oculus co-founder remaining at Facebook, Nate Mitchell, announced in an internal memo sent to employees that he was leaving the company.

The news was first reported by Alex Heath at The Information. Mitchell confirmed the news soon after on Twitter.

We’ve reached out to Facebook for comment.

In a note on Reddit, Mitchell said he was leaving the company and would be “taking time to travel, be with family, and recharge.”

Mitchell was Oculus’s head of product management for virtual reality.

Mitchell’s role has shifted several times in the past few years at the company as the VR organization underwent a number of leadership shakeups. Late last year, the company’s former CEO Brendan Iribe left the company following disagreements with the team on the future of Oculus’s high-end products. The company’s central co-founder, Palmer Luckey, had a much more high-profile departure from the company in 2017, following an odd, convoluted scandal that involved him paying for a billboard for an anti-Clinton political group aligned with Reddit’s r/The_Donald community.



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Facebook’s human-AI blend for audio transcription is now facing privacy scrutiny in Europe – TechCrunch

Facebook’s lead privacy regulator in Europe is now asking the company for detailed information about the operation of a voice-to-text feature in Facebook’s Messenger app and how it complies with EU law.

Yesterday Bloomberg reported that Facebook uses human contractors to transcribe app users’ audio messages — yet its privacy policy makes no clear mention of the fact that actual people might listen to your recordings.

A page on Facebook’s help center also includes a “note” saying “Voice to Text uses machine learning” — but does not say the feature is also powered by people working for Facebook listening in.

A spokesperson for Irish Data Protection Commission told us: “Further to our ongoing engagement with Google, Apple and Microsoft in relation to the processing of personal data in the context of the manual transcription of audio recordings, we are now seeking detailed information from Facebook on the processing in question and how Facebook believes that such processing of data is compliant with their GDPR obligations.”

Bloomberg’s report follows similar revelations about AI assistant technologies offered by other tech giants, including Apple, Amazon, Google and Microsoft — which have also attracted attention from European privacy regulators in recent weeks.

What this tells us is that the hype around AI voice assistants is still glossing over a far less high tech backend. Even as lashings of machine learning marketing guff have been used to cloak the ‘mechanical turk’ components (i.e. humans) required for the tech to live up to the claims.

This is a very old story indeed. To wit: A full decade ago, a UK startup called Spinvox, which had claimed to have advanced voice recognition technology for converting voicemails to text messages, was reported to be leaning very heavily on call centers in South Africa and the Philippines… staffed by, yep, actual humans.

Returning to present day ‘cutting-edge’ tech, following Bloomberg’s report Facebook said it suspended human transcriptions earlier this month — joining Apple and Google in halting manual reviews of audio snippets for their respective voice AIs. (Amazon has since added an opt out to the Alexa app’s settings.)

We asked Facebook where in the Messenger app it had been informing users that human contractors might be used to transcribe their voice chats/audio messages; and how it collected Messenger users’ consent to this form of data processing — prior to suspending human reviews.

The company did not respond to our questions. Instead a spokesperson provided us with the following statement: “Much like Apple and Google, we paused human review of audio more than a week ago.”

Facebook also described the audio snippets that it sent to contractors as masked and de-identified; said they were only collected when users had opted in to transcription on Messenger; and were only used for improving the transcription performance of the AI.

It also reiterated a long-standing rebuttal by the company to user concerns about general eavesdropping by Facebook, saying it never listens to people’s microphones without device permission nor without explicit activation by users.

How Facebook gathers permission to process data is a key question, though.

The company has recently, for example, used a manipulative consent flow in order to nudge users in Europe to switch on facial recognition technology — rolling back its previous stance, adopted in response to earlier regulatory intervention, of switching the tech off across the bloc.

So a lot rests on how exactly Facebook has described the data processing at any point it is asking users to consent to their voice messages being reviewed by humans (assuming it’s relying on consent as its legal basis for processing this data).

Bundling consent into general T&Cs for using the product is also unlikely to be compliant under EU privacy law, given that the bloc’s General Data Protection Regulation requires consent to be purpose limited, as well as fully informed and freely given.

If Facebook is relying on legitimate interests to process Messenger users’ audio snippets in order to enhance its AI’s performance it would need to balance its own interests against any risk to people’s privacy.

Voice AIs are especially problematic in this respect because audio recordings may capture the personal data of non-users too — given that people in the vicinity of a device (or indeed a person on the other end of the phone line who’s leaving you a message) could have their personal data captured without ever having had the chance to consent to Facebook contractors getting to hear it.

Leaks of Google Assistant snippets to the Belgian press recently highlighted both the sensitive nature of recordings and the risk of reidentification posed by such recordings — with journalists able to identify some of the people in the recordings.

Multiple press reports have also suggested contractors employed by tech giants are routinely overhearing intimate details captured via a range of products that include the ability to record audio and stream this personal data to the cloud for processing.

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YC’s Earth AI closes funding for its platform to make mining less wasteful – TechCrunch

Discovering and drilling for the important minerals used for industry and the technology sector remains incredibly important as existing mines are becoming depleted. If the mining industry can’t become more efficient at finding these important deposits, then more unnecessary, harmful drilling and exploration takes place. Applying AI to this problem would seem like a no-brainer for the environment.

Andreessen Horowitz knows this, as they invested in KoBold Metals. GoldSpot Discoveries is a competitor.

Joining this field is now Earth AI, a mineral targeting startup which is using AI to predict the location of new ore bodies far more cheaply, faster, and with more precision (it claims) than previous methods.

It’s now closed a funding round of ‘up to’ $2.5 million from Gagarin Capital, A VC firm specializing in AI, and Y Combinator, in the latter’s latest cohort announced this week. Previously, Earth AI had raised $1.7 million in two seed rounds from Australian VCs, AirTree Ventures and Blackbird Ventures and angel investors.

The startup uses machine learning techniques on global data, including remote sensing, radiometry, geophysical and geochemical datasets, to learn the data signatures related to industrial metal deposits (from gold, copper, and lead to rare earth elements), train a neural network, and predict where high-value mineral prospects will be.

In particular, it was used to discover a deposit of Vanadium, which is used to build Vanadium Redox Batteries that are used in large industrial applications. Finding these deposits faster using AI means the planet will thus benefit faster from battery technology.

In 2018, Earth AI field-tested remote unexplored areas and claims to have generated a 50X better success rate than traditional exploration methods, while spending on average $11,000 per prospect discovery. In Australia, for instance, companies often spend several million dollars to arrive at the same result.

Jared Friedman, YCombinator partner comented in a statement: “The possibility of discovering new mineral deposits with AI is a fascinating and thought-provoking idea. Earth AI has the potential not just to become an incredibly profitable company, but to reduce the cost of the metals we need to build our civilization, and that has huge implications for the world.”

“Earth AI is taking a novel approach to a large and important industry — and that approach is already showing tremendous promise”, Mikhail Taver, partner at Gagarin Capital said.

Earth AI was founded by Roman Tesyluk, a geoscientist with eight years of mineral exploration and academic experience. Prior to starting Earth AI, he was a PhD Candidate at The University of Sydney, Australia and obtained a Master’s degree in Geology from Ivan Franko University, Ukraine. “EARTH AI has huge ambitions, and this funding round will supercharge us towards reaching our milestones,” he said.

This latest investment from Gagarin Capital joins a line of other AI-based products and services and investments it’s made into YC companies, such as Wallarm, Gosu.AI and CureSkin. Gagarin’s exits include MSQRD (acquired by Facebook), and AIMatter (acquired by Google).

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‘Private’ and ‘hidden’ mean different things to Facebook – TechCrunch

Facebook’s leadership made a pretty heavy-handed indication this year that it believes Facebook Groups are the future of the app. They announced all of this alongside their odd declaration that “The future is private.” Now, Facebook is changing the language describing the visibility of privacy of groups.

As the Groups feature has come front-and-center in recent redesigns, Facebook has decided that the language they have been using to describe the visibility of “Public,” “Closed” and “Secret” Groups isn’t as clear as it should be, so the company is switching it up. Groups will now be labeled either “Public” or “Private.”

That means that groups that were previously “Closed” or “Secret” will now share the designation of “Private,” meaning that only members of the group can see who’s in the group or what has been posted. The distinction is that there’s now a second metric — whether or not the group is “Visible,” which denoted if the group can be found via search. For groups that were previously “Closed,” the migration to the classification will leave them “Visible” while “Secret” groups will remain “Hidden.”

Screen Shot 2019 08 14 at 8.48.45 AM

In a way, this is kind of just Facebook throwing more privacy-related labels in their app to change perceptions while the feature sets stay the same, but denoting the visibility of a “closed” group in search was probably the biggest point of confusion here that Facebook was aiming to rectify. There’s a clear editorial message with Facebook conveying that there are shades and nuances to what “Private” means on Facebook compared to “Public,” which is unwavering and defaulted.

The point of the previous labels was to make privacy settings easier to grasp with a single word. Facebook didn’t hit a home run with those labels, but it kind of feels like you really need to see this graphic to fully get the differentiations to Groups now, which probably isn’t the best sign.

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Snapchat beats a dead horse – TechCrunch

Hey. This is Week-in-Review, where I give a heavy amount of analysis and/or rambling thoughts on one story while scouring the rest of the hundreds of stories that emerged on TechCrunch this week to surface my favorites for your reading pleasure.

Last week, I talked about how Netflix might have some rough times ahead as Disney barrels towards it.


3d video spectacles 3

The big story

There is plenty to be said about the potential of smart glasses. I write about them at length for TechCrunch and I’ve talked to a lot of founders doing cool stuff. That being said, I don’t have any idea what Snap is doing with the introduction of a third-generation of its Spectacles video sunglasses.

The first-gen were a marketing smash hit, their sales proved to be a major failure for the company which bet big and seemingly walked away with a landfill’s worth of the glasses.

Snap’s latest version of Spectacles were announced in Vogue this week, they are much more expensive at $380 and their main feature is that they have two cameras which capture images in light depth which can lead to these cute little 3D boomerangs. One one hand, it’s nice to see the company showing perseverance with a tough market, on the other it’s kind of funny to see them push the same rock up the hill again.

Snap is having an awesome 2019 after a laughably bad 2018, the stock has recovered from record lows and is trading in its IPO price wheelhouse. It seems like they’re ripe for something new and exciting, not beautiful yet iterative.

The $150 Spectacles 2 are still for sale, though they seem quite a bit dated-looking at this point. Spectacles 3 seem to be geared entirely towards women, and I’m sure they made that call after seeing the active users of previous generations, but given the write-down they took on the first-generation, something tells me that Snap’s continued experimentation here is borne out of some stubbornness form Spiegel and the higher-ups who want the Snap brand to live in a high fashion world and want to be at the forefront of an AR industry that seems to have already moved onto different things.

Send me feedback
on Twitter @lucasmtny or email
lucas@techcrunch.com

On to the rest of the week’s news.

tumblr phone sold

Trends of the week

Here are a few big news items from big companies, with green links to all the sweet, sweet added context:

  • WordPress buys Tumblr for chump change
    Tumblr, a game-changing blogging network that shifted online habits and exited for $1.1 billion just changed hands after Verizon (which owns TechCrunch) unloaded the property for a reported $3 million. Read more about this nightmarish deal here.
  • Trump gives American hardware a holiday season pass on tariffs 
    The ongoing trade war with China generally seems to be rough news for American companies deeply intertwined with the manufacturing centers there, but Trump is giving U.S. companies a Christmas reprieve from the tariffs, allowing certain types of hardware to be exempt from the recent rate increases through December. Read more here.
  • Facebook loses one last acquisition co-founder
    This week, the final remnant of Facebook’s major acquisitions left the company. Oculus co-founder Nate Mitchell announced he was leaving. Now, Instagram, WhatsApp and Oculus are all helmed by Facebook leadership and not a single co-founder from the three companies remains onboard. Read more here.

GAFA Gaffes

How did the top tech companies screw up this week? This clearly needs its own section, in order of badness:

  1. Facebook’s turn in audio transcription debacle:
    [Facebook transcribed users’ audio messages without permission]
  2. Google’s hate speech detection algorithms get critiqued:
    [Racial bias observed in hate speech detection algorithm from Google]
  3. Amazon has a little email mishap:
    [Amazon customers say they received emails for other people’s orders]

Adam Neumann (WeWork) at TechCrunch Disrupt NY 2017

Extra Crunch

Our premium subscription service had another week of interesting deep dives. My colleague Danny Crichton wrote about the “tech” conundrum that is WeWork and the questions that are still unanswered after the company filed documents this week to go public.

…How is margin changing at its older locations? How is margin changing as it opens up in places like India, with very different costs and revenues? How do those margins change over time as a property matures? WeWork spills serious amounts of ink saying that these numbers do get better … without seemingly being willing to actually offer up the numbers themselves…

Here are some of our other top reads this week for premium subscribers. This week, we published a major deep dive into the world’s next music unicorn and we dug deep into marketplace startups.

Sign up for more newsletters in your inbox (including this one) here.



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Final Oculus co-founder departs Facebook – TechCrunch

The Daily Crunch is TechCrunch’s roundup of our biggest and most important stories. If you’d like to get this delivered to your inbox every day at around 9am Pacific, you can subscribe here.

1. Facebook is losing its last Oculus co-founder

Nate Mitchell, the final Oculus co-founder remaining at Facebook, announced in an internal memo that he’s leaving the company and “taking time to travel, be with family, and recharge.” His role within the company has shifted several times since Oculus was acquired, but his current title is head of product management for virtual reality.

This follows the departures of former Oculus CEO Brendan Iribe and co-founder Palmer Luckey.

2. Twitter tests ways for users to follow and snooze specific topics

The company isn’t getting rid of the ability to follow other users, but it announced yesterday that it will start pushing users to start following topics as well, which will feature highly engaged tweets from a variety of accounts.

3. WeWork’s S-1 misses these three key points

WeWork just released its S-1 ahead of going public, but Danny Crichton argues we still don’t know the health of the core of the company’s business model or fully understand the risks it is undertaking. (Extra Crunch membership required.)

4. CBS and Viacom are merging into a combined company called ViacomCBS

The move is, in some ways, a concession to a turbulent media environment driving large-scale M&A, with AT&T buying Time Warner and Disney acquiring most of Fox — both deals are seen as consolidation in preparation for a streaming-centric future.

5. Nvidia breaks records in training and inference for real-time conversational AI

Nvidia’s GPU-powered platform for developing and running conversational AI that understands and responds to natural language requests has achieved some key milestones and broken some records, with big implications for anyone building on their tech.

6. Corporate carpooling startup Scoop raises $60 million

Scoop, which launched back in 2015, is a corporate carpooling service that works with the likes of LinkedIn, Workday, T-Mobile and more than 50 other companies to help their employees get to and from work.

7. Domino’s launches e-bike delivery to compete with UberEats, DoorDash

Domino’s will start using custom electric bikes for pizza delivery through a partnership with Rad Power Bikes.

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Microsoft tweaks privacy policy to admit humans can listen to Skype Translator and Cortana audio – TechCrunch

Microsoft is the latest tech giant to amend its privacy policy after media reports revealed it uses human contractors to review audio recordings of Skype and Cortana users.

A section in the policy on how the company uses personal data now reads (emphasis ours):

Our processing of personal data for these purposes includes both automated and manual (human) methods of processing. Our automated methods often are related to and supported by our manual methods. For example, our automated methods include artificial intelligence (AI), which we think of as a set of technologies that enable computers to perceive, learn, reason, and assist in decision-making to solve problems in ways that are similar to what people do. To build, train, and improve the accuracy of our automated methods of processing (including AI), we manually review some of the predictions and inferences produced by the automated methods against the underlying data from which the predictions and inferences were made. For example, we manually review short snippets of a small sampling of voice data we have taken steps to de-identify to improve our speech services, such as recognition and translation.

The tweaks to the privacy policy of Microsoft’s Skype VoIP software and its Cortana voice AI were spotted by Motherboard — which was also first to report that contractors working for Microsoft are listening to personal conversations of Skype users conducted through the app’s translation service, and to audio snippets captured by the Cortana voice assistant.

Asked about the privacy policy changes, Microsoft told Motherboard: “We realized, based on questions raised recently, that we could do a better job specifying that humans sometimes review this content.”

Multiple tech giants’ use of human workers to review users’ audio across a number of products involving AI has grabbed headlines in recent weeks after journalists exposed a practice that had not been clearly conveyed to users in terms and conditions — despite European privacy law requiring clarity about how people’s data is used.

Apple, Amazon, Facebook, Google and Microsoft have all been called out for failing to make it clear that a portion of audio recordings will be accessed by human contractors.

Such workers are typically employed to improve the performance of AI systems by verifying translations and speech in different accents. But, again, this human review component within AI systems has generally been buried rather than transparently disclosed.

Earlier this month a German privacy watchdog told Google it intended to use EU privacy law to order it to halt human reviews of audio captured by its Google Assistant AI in Europe — after press had obtained leaked audio snippets and being able to re-identify some of the people in the recordings.

On learning of the regulator’s planned intervention Google suspended reviews.

Apple also announced it was suspending human reviews of Siri snippets globally, again after a newspaper reported that its contractors could access audio and routinely heard sensitive stuff.

Facebook also said it was pausing human reviews of a speech-to-text AI feature offered in its Messenger app — again after concerns had been raised by journalists.

So far Apple, Google and Facebook have suspended or partially suspended human reviews in response to media disclosures and/or regulatory attention.

While the lead privacy regulator for all three, Ireland’s DPC, has started asking questions.

In response to the rising privacy scrutiny of what tech giants nonetheless claim is a widespread industry practice, Amazon also recently amended the Alexa privacy policy to disclose that it employs humans to review some audio. It also quietly added an option for uses to opt-out of the possibility of someone listening to their Alexa recordings. Amazon’s lead EU privacy regulator is also now seeking answers.

Microsoft told Motherboard it is not suspending human reviews at this stage.

Users of Microsoft’s voice assistant can delete recordings — but such deletions require action from the user and would be required on a rolling basis as long as the product continues being use. So it’s not the same as having a full and blanket opt out.

We’ve asked Microsoft whether it intends to offer Skype or Cortana users an opt out of their recordings being reviewed by humans.

The company told Motherboard it will “continue to examine further steps we might be able to take”.

Update: Microsoft has now sent us this statement:

Microsoft collects voice data to provide and improve voice-enabled services like search, voice commands, dictation or translation services, and we get customer permission before collecting and using voice data. We sometimes engage vendors to assist in improving our voice services. We take steps to de-identify the content provided to vendors, require non-disclosure agreements with all vendors and their employees to protect our customer’s privacy, and require that handling of this data be held to the highest privacy standards set out in European law. At the same time, we’re always looking to improve transparency and help customers make more informed choices. We realized, based on questions raised recently, that we could do a better job specifying that humans sometimes review this content. We’ve updated our privacy statement and product FAQs to add greater clarity and will continue to examine further opportunities to improve.

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How ‘ghost work’ in Silicon Valley pressures the workforce, with Mary Gray – TechCrunch

The phrase “pull yourself up by your own bootstraps” was originally meant sarcastically.

It’s not actually physically possible to do — especially while wearing Allbirds and having just fallen off a Bird scooter in downtown San Francisco, but I should get to my point.

This week, Ken Cuccinelli, the acting Director of the United States Citizenship and Immigrant Services Office, repeatedly referred to the notion of bootstraps in announcing shifts in immigration policy, even going so far as to change the words to Emma Lazarus’s famous poem “The New Colossus:” no longer “give me your tired, your poor, your huddled masses yearning to breathe free,” but “give me your tired and your poor who can stand on their own two feet, and who will not become a public charge.”

We’ve come to expect “alternative facts” from this administration, but who could have foreseen alternative poems?

Still, the concept of ‘bootstrapping’ is far from limited to the rhetorical territory of the welfare state and social safety net. It’s also a favorite term of art in Silicon Valley tech and venture capital circles: see for example this excellent (and scary) recent piece by my editor Danny Crichton, in which young VC firms attempt to overcome a lack of the startup capital that is essential to their business model by creating, as perhaps an even more essential feature of their model, impossible working conditions for most everyone involved. Often with predictably disastrous results.

It is in this context of unrealistic expectations about people’s labor, that I want to introduce my most recent interviewee in this series of in-depth conversations about ethics and technology.

Mary L. Gray is a Fellow at Harvard University’s Berkman Klein Center for Internet and Society and a Senior Researcher at Microsoft Research. One of the world’s leading experts in the emerging field of ethics in AI, Mary is also an anthropologist who maintains a faculty position at Indiana University. With her co-author Siddharth Suri (a computer scientist), Gray coined the term “ghost work,” as in the title of their extraordinarily important 2019 book, Ghost Work: How to Stop Silicon Valley from Building a New Global Underclass. 

a mathiowetz crop 2 768x960

Image via Mary L. Gray / Ghostwork / Adrianne Mathiowetz Photography

Ghost Work is a name for a rising new category of employment that involves people scheduling, managing, shipping, billing, etc. “through some combination of an application programming interface, APIs, the internet and maybe a sprinkle of artificial intelligence,” Gray told me earlier this summer. But what really distinguishes ghost work (and makes Mary’s scholarship around it so important) is the way it is presented and sold to the end consumer as artificial intelligence and the magic of computation.

In other words, just as we have long enjoyed telling ourselves that it’s possible to hoist ourselves up in life without help from anyone else (I like to think anyone who talks seriously about “bootstrapping” should be legally required to rephrase as “raising oneself from infancy”), we now attempt to convince ourselves and others that it’s possible, at scale, to get computers and robots to do work that only humans can actually do.

Ghost Work’s purpose, as I understand it, is to elevate the value of what the computers are doing (a minority of the work) and make us forget, as much as possible, about the actual messy human beings contributing to the services we use. Well, except for the founders, and maybe the occasional COO.

Facebook now has far more employees than Harvard has students, but many of us still talk about it as if it were little more than Mark Zuckerberg, Cheryl Sandberg, and a bunch of circuit boards.

But if working people are supposed to be ghosts, then when they speak up or otherwise make themselves visible, they are “haunting” us. And maybe it can be haunting to be reminded that you didn’t “bootstrap” yourself to billions or even to hundreds of thousands of dollars of net worth.

Sure, you worked hard. Sure, your circumstances may well have stunk. Most people’s do.

But none of us rise without help, without cooperation, without goodwill, both from those who look and think like us and those who do not. Not to mention dumb luck, even if only our incredible good fortune of being born with a relatively healthy mind and body, in a position to learn and grow, here on this planet, fourteen billion years or so after the Big Bang.

I’ll now turn to the conversation I recently had with Gray, which turned out to be surprisingly more hopeful than perhaps this introduction has made it seem.

Greg Epstein: One of the most central and least understood features of ghost work is the way it revolves around people constantly making themselves available to do it.

Mary Gray: Yes, [What Siddarth Suri and I call ghost work] values having a supply of people available, literally on demand. Their contributions are collective contributions.

It’s not one person you’re hiring to take you to the airport every day, or to confirm the identity of the driver, or to clean that data set. Unless we’re valuing that availability of a person, to participate in the moment of need, it can quickly slip into ghost work conditions.

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How Facebook does IT – TechCrunch

If you have ever worked at any sizable company, the word “IT” probably doesn’t conjure up many warm feelings. If you’re working for an old, traditional enterprise company, you probably don’t expect anything else, though. If you’re working for a modern tech company, though, chances are your expectations are a bit higher. And once you’re at the scale of a company like Facebook, a lot of the third-party services that work for smaller companies simply don’t work anymore.

To discuss how Facebook thinks about its IT strategy and why it now builds most of its IT tools in-house, I sat down with the company’s CIO, Atish Banerjea, at its Menlo Park headquarter.

Before joining Facebook in 2016 to head up what it now calls its “Enterprise Engineering” organization, Banerjea was the CIO or CTO at companies like NBCUniversal, Dex One and Pearson.

“If you think about Facebook 10 years ago, we were very much a traditional IT shop at that point,” he told me. “We were responsible for just core IT services, responsible for compliance and responsible for change management. But basically, if you think about the trajectory of the company, were probably about 2,000 employees around the end of 2010. But at the end of last year, we were close to 37,000 employees.”

Traditionally, IT organizations rely on third-party tools and software, but as Facebook grew to this current size, many third-party solutions simply weren’t able to scale with it. At that point, the team decided to take matters into its own hands and go from being a traditional IT organization to one that could build tools in-house. Today, the company is pretty much self-sufficient when it comes to running its IT operations, but getting to this point took a while.

“We had to pretty much reinvent ourselves into a true engineering product organization and went to a full ‘build’ mindset,” said Banerjea. That’s not something every organization is obviously able to do, but, as Banerjea joked, one of the reasons why this works at Facebook “is because we can — we have that benefit of the talent pool that is here at Facebook.”

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The company then took this talent and basically replicated the kind of team it would help on the customer side to build out its IT tools, with engineers, designers, product managers, content strategies, people and research. “We also made the decision at that point that we will hold the same bar and we will hold the same standards so that the products we create internally will be as world-class as the products we’re rolling out externally.”

One of the tools that wasn’t up to Facebook’s scaling challenges was video conferencing. The company was using a third-party tool for that, but that just wasn’t working anymore. In 2018, Facebook was consuming about 20 million conference minutes per month. In 2019, the company is now at 40 million per month.

Besides the obvious scaling challenge, Facebook is also doing this to be able to offer its employees custom software that fits their workflows. It’s one thing to adapt existing third-party tools, after all, and another to build custom tools to support a company’s business processes.

Banerjea told me that creating this new structure was a relatively easy sell inside the company. Every transformation comes with its own challenges, though. For Facebook’s Enterprise  Engineering team, that included having to recruit new skill sets into the organization. The first few months of this process were painful, Banerjea admitted, as the company had to up-level the skills of many existing employees and shed a significant number of contractors. “There are certain areas where we really felt that we had to have Facebook DNA in order to make sure that we were actually building things the right way,” he explained.

Facebook’s structure creates an additional challenge for the team. When you’re joining Facebook as a new employee, you have plenty of teams to choose from, after all, and if you have the choice of working on Instagram or WhatsApp or the core Facebook app — all of which touch millions of people — working on internal tools with fewer than 40,000 users doesn’t sound all that exciting.

“When young kids who come straight from college and they come into Facebook, they don’t know any better. So they think this is how the world is,” Banerjea said. “But when we have experienced people come in who have worked at other companies, the first thing I hear is ‘oh my goodness, we’ve never seen internal tools of this caliber before.’ The way we recruit, the way we do performance management, the way we do learning and development — every facet of how that employee works has been touched in terms of their life cycle here.”

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Facebook first started building these internal tools around 2012, though it wasn’t until Banerjea joined in 2016 that it rebranded the organization and set up today’s structure. He also noted that some of those original tools were good, but not up to the caliber employees would expect from the company.

“The really big change that we went through was up-leveling our building skills to really become at the same caliber as if we were to build those products for an external customer. We want to have the same experience for people internally.”

The company went as far as replacing and rebuilding the commercial Enterprise Resource Planning (ERP) system it had been using for years. If there’s one thing that big companies rely on, it’s their ERP systems, given they often handle everything from finance and HR to supply chain management and manufacturing. That’s basically what all of their backend tools rely on (and what companies like SAP, Oracle and others charge a lot of money for). “In that 2016/2017 time frame, we realized that that was not a very good strategy,” Banerjea said. In Facebook’s case, the old ERP handled the inventory management for its data centers, among many other things. When that old system went down, the company couldn’t ship parts to its data centers.

“So what we started doing was we started peeling off all the business logic from our backend ERP and we started rewriting it ourselves on our own platform,” he explained. “Today, for our ERP, the backend is just the database, but all the business logic, all of the functionality is actually all custom written by us on our own platform. So we’ve completely rewritten our ERP, so to speak.”

In practice, all of this means that ideally, Facebook’s employees face far less friction when they join the company, for example, or when they need to replace a broken laptop, get a new phone to test features or simply order a new screen for their desk.

One classic use case is onboarding, where new employees get their company laptop, mobile phones and access to all of their systems, for example. At Facebook, that’s also the start of a six-week bootcamp that gets new engineers up to speed with how things work at Facebook. Back in 2016, when new classes tended to still have less than 200 new employees, that was still mostly a manual task. Today, with far more incoming employees, the Enterprise Engineering team has automated most of that — and that includes managing the supply chain that ensures the laptops and phones for these new employees are actually available.

But the team also built the backend that powers the company’s more traditional IT help desks, where employees can walk up and get their issues fixed (and passwords reset).

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To talk more about how Facebook handles the logistics of that, I sat down with Koshambi Shah, who heads up the company’s Enterprise Supply Chain organization, which pretty much handles every piece of hardware and software the company delivers and deploys to its employees around the world (and that global nature of the company brings its own challenges and additional complexity). The team, which has fewer than 30 people, is made up of employees with experience in manufacturing, retail and consumer supply chains.

Typically, enterprises offer their employees a minimal set of choices when it comes to the laptops and phones they issue to their employees, and the operating systems that can run on them tend to be limited. Facebook’s engineers have to be able to test new features on a wide range of devices and operating systems. There are, after all, still users on the iPhone 4s or BlackBerry that the company wants to support. To do this, Shah’s organization actually makes thousands of SKUs available to employees and is able to deliver 98% of them within three days or less. It’s not just sending a laptop via FedEx, though. “We do the budgeting, the financial planning, the forecasting, the supply/demand balancing,” Shah said. “We do the asset management. We make sure the asset — what is needed, when it’s needed, where it’s needed — is there consistently.”

In many large companies, every asset request is double guessed. Facebook, on the other hand, places a lot of trust in its employees, it seems. There’s a self-service portal, the Enterprise Store, that allows employees to easily request phones, laptops, chargers (which get lost a lot) and other accessories as needed, without having to wait for approval (though if you request a laptop every week, somebody will surely want to have a word with you). Everything is obviously tracked in detail, but the overall experience is closer to shopping at an online retailer than using an enterprise asset management system. The Enterprise Store will tell you where a device is available, for example, so you can pick it up yourself (but you can always have it delivered to your desk, too, because this is, after all, a Silicon Valley company).

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For accessories, Facebook also offers self-service vending machines, and employees can walk up to the help desk.

The company also recently introduced an Amazon Locker-style setup that allows employees to check out devices as needed. At these smart lockers, employees simply have to scan their badge, choose a device and, once the appropriate door has opened, pick up the phone, tablet, laptop or VR devices they were looking for and move on. Once they are done with it, they can come back and check the device back in. No questions asked. “We trust that people make the right decision for the good of the company,” Shah said. For laptops and other accessories, the company does show the employee the price of those items, though, so it’s clear how much a certain request costs the company. “We empower you with the data for you to make the best decision for your company.”

Talking about cost, Shah told me the Supply Chain organization tracks a number of metrics. One of those is obviously cost. “We do give back about 4% year-over-year, that’s our commitment back to the businesses in terms of the efficiencies we build for every user we support. So we measure ourselves in terms of cost per supported user. And we give back 4% on an annualized basis in the efficiencies.”

Unsurprisingly, the company has by now gathered enough data about employee requests (Shah said the team fulfills about half a million transactions per year) that it can use machine learning to understand trends and be proactive about replacing devices, for example.

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Facebooks’ Enterprise Engineering group doesn’t just support internal customers, though. Another interesting aspect to Facebook’s Enterprise Engineering group is that it also runs the company’s internal and external events, including the likes of F8, the company’s annual developer conference. To do this, the company built out conference rooms that can seat thousands of people, with all of the logistics that go with that.

The company also showed me one of its newest meeting rooms where there are dozens of microphones and speakers hanging from the ceiling that make it easier for everybody in the room to participate in a meeting and be heard by everybody else. That’s part of what the organization’s “New Builds” team is responsible for, and something that’s possible because the company also takes a very hands-on approach to building and managing its offices.

Facebook also runs a number of small studios in its Menlo Park and New York offices, where both employees and the occasional external VIP can host Facebook Live videos.

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Indeed, live video, it seems, is one of the cornerstones of how Facebook employees collaborate and help employees who work from home. Typically, you’d just use the camera on your laptop or maybe a webcam connected to your desktop to do so. But because Facebook actually produces its own camera system with the consumer-oriented Portal, Banerjea’s team decided to use that.

“What we have done is we have actually re-engineered the Portal,” he told me. “We have connected with all of our video conferencing systems in the rooms. So if I have a Portal at home, I can dial into my video conferencing platform and have a conference call just like I’m sitting in any other conference room here in Facebook. And all that software, all the engineering on the portal, that has been done by our teams — some in partnership with our production teams, but a lot of it has been done with Enterprise Engineering.”

Unsurprisingly, there are also groups that manage some of the core infrastructure and security for the company’s internal tools and networks. All of those tools run in the same data centers as Facebook’s consumer-facing applications, though they are obviously sandboxed and isolated from them.

It’s one thing to build all of these tools for internal use, but now, the company is also starting to think about how it can bring some of these tools it built for internal use to some of its external customers. You may not think of Facebook as an enterprise company, but with its Workplace collaboration tool, it has an enterprise service that it sells externally, too. Last year, for the first time, Workplace added a new feature that was incubated inside of Enterprise Engineering. That feature was a version of Facebook’s public Safety Check that the Enterprise Engineering team had originally adapted to the company’s own internal use.

“Many of these things that we are building for Facebook, because we are now very close partners with our Workplace team — they are in the enterprise software business and we are the enterprise software group for Facebook — and many [features] we are building for Facebook are of interest to Workplace customers.”

As Workplace hit the market, Banerjea ended up talking to the CIOs of potential users, including the likes of Delta Air Lines, about how Facebook itself used Workplace internally. But as companies started to adopt Workplace, they realized that they needed integrations with existing third-party services like ERP platforms and Salesforce. Those companies then asked Facebook if it could build those integrations or work with partners to make them available. But at the same time, those customers got exposed to some of the tools that Facebook itself was building internally.

“Safety Check was the first one,” Banerjea said. “We are actually working on three more products this year.” He wouldn’t say what these are, of course, but there is clearly a pipeline of tools that Facebook has built for internal use that it is now looking to commercialize. That’s pretty unusual for any IT organization, which, after all, tends to only focus on internal customers. I don’t expect Facebook to pivot to an enterprise software company anytime soon, but initiatives like this are clearly important to the company and, in some ways, to the morale of the team.

This creates a bit of friction, too, though, given that the Enterprise Engineering group’s mission is to build internal tools for Facebook. “We are now figuring out the deployment model,” Banerjea said. Who, for example, is going to support the external tools the team built? Is it the Enterprise Engineering group or the Workplace team?

Chances are then, that Facebook will bring some of the tools it built for internal use to more enterprises in the long run. That definitely puts a different spin on the idea of the consumerization of enterprise tech. Clearly, not every company operates at the scale of Facebook and needs to build its own tools — and even some companies that could benefit from it don’t have the resources to do so. For Facebook, though, that move seems to have paid off and the tools I saw while talking to the team definitely looked more user-friendly than any off-the-shelf enterprise tools I’ve seen at other large companies.

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