StrictlyVC: January 17, 2014

110611_2084620_176987_imageHappy Friday, everyone. Hope you have a great weekend; see you back here on Monday!

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Top News in the A.M.

Google is now building a so-called smart contact lens, one designed to help diabetes patients keep track of their glucose levels by measuring the glucose levels of the wearer’s tears.

Speaking of Google, remember that Southern California woman who was ticketed for wearing Google Glass for driving? That ticket was dismissed yesterday. The court says it was impossible to prove that Google Glass was turned on while she was behind the wheel.

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As Chinese Internet Giants Look to the U.S., GGV Makes Introductions

GGV Capital knows China. The 13-year-old, expansion-stage venture firm, with offices on Sand Hill Road and in Shanghai, prides itself on a U.S.-China strategy that sees its partners spending healthy amounts of time in both countries. With China now the world’s second largest economy and, as of last year, the world’s largest trading nation, that puts GGV in an enviable position.

Already, 16 of GGV’s portfolio companies have gone public since 2010, several of them China-based, including the Chinese online travel booking service Qunar, which went out in November, and the entertainment site YY.com, which held its IPO in November 2012. Meanwhile, e-commerce powerhouse Alibaba — which GGV backed in both its A and B rounds, in 2003 and 2004, respectively — is expected to go public this year at a valuation of up to $150 billion. (Asked if it still holds its stake in the company, GGV says only that it “continues to work actively” with Alibaba.)

Now, GGV is looking to invest alongside China’s Internet giants as they endeavor to expand their presence in the U.S. market. In October, for example, Alibaba led a $50 million financing round in Quixey, a Mountain View-based search engine for apps, and GGV participated in the round.

Last week, I spoke with GGV managing partner Glenn Solomon about Chinese companies looking to invest here. Our conversation has been edited for length.

What’s the biggest trend you’re seeing?

We’re living in a truly cross-border world, so we’re seeing more China companies that want to access the U.S. capital markets and more U.S. entrepreneurs, particularly in mobile, recognizing that China is a really important part of market.

Why are Alibaba and Tencent and others so keen on backing and acquiring U.S. companies?

First, the big players are very cash rich. And while they’ve been peacefully coexisting in China for the last couple of years — Tencent [Holdings] is really a social and entertainment gaming company; Baidu is search; and Alibaba has largely been e-commerce — the intensity of the competition amongst them is increasing as the China market matures. Particularly around mobile, where they’ve all been pretty aggressive about finding ways to increase their business, they’re bumping into each other more and more.

So they see the U.S. as the next frontier.

It might be odd for someone in Silicon Valley to think of the U.S. as a second frontier. But the Chinese market, as it relates to mobile, is bigger than the U.S. And while there is still room for [these companies] to grow in China, they’re thinking about international expansion and the U.S. makes sense. They also want access to companies in the U.S. that they can learn from to re-import opportunities to China.

How directly are they looking to copy U.S. companies?

Many companies look something like U.S. companies, but they have a very unique flavor. Qunar, for example, has elements of its business that are extremely local, and the entrepreneur who started it is very Chinese. He’s very worldly, but he grew up in Beijing; he went to a Chinese university.

Another example is the video chat service YY.com. It’s a social network, but its primary form of communication is voice, so it’s synchronous, rather than asynchronous, and it’s thriving. People are increasingly using it to play “World of Warcraft”; you have performers performing to large audiences on the platform; and the economic model is virtual items, which most people in the U.S. didn’t quite understand when the company went public. [YY.com debuted on Nasdaq at roughly $10 per share; it’s now trading at $71 per share.]

Would you say Chinese companies are ahead of U.S. companies when it comes to revenue?

In many ways, yes, entrepreneurs are importing techniques from China, including free-to-play, with calls to action within applications that produce virtual item revenue. That’s much more developed in China and that model came out of Asia, but you’re seeing more and more of it in the U.S. In fact, if you go to [Apple's] App Store on your phone, you’ll see that the 20 top-grossing apps are free; it’s because they do a very good job of monetizing that small segment of the base who play the game or use the app, whatever it might be.

Where is China on the enterprise side of things?

It’s early days in enterprise. I’d say China is three to five years behind the U.S., but we expect it to emerge as a big opportunity, so we’ve been investing in some younger software-as-a-service companies and the like.

Other trends to watch?

The M&A market is more active than in the past. An example would be Baidu, which has a large strategic interest in Qunar; we expect we’ll see more M&A and strategic investing in China.

There’s also a more active angel community, which is good for our business, as we primarily invest in B and C rounds. It’s not quite as fashionable as it is here [to be an angel investor], but things are changing.

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New Fundings

Adapteva, a five-year-old, Lexington, Ma.-based semiconductor manufacturer, has raised $3.6 million in Series B funding from Carmel Ventures and Ericsson. The company claims to have developed a highly energy efficient and scalable multicore processor chip, designed for parallel computing.

Alcyone Lifesciences, a 3.5-year-old, Concord, Ma.-based medical device company focused on treating neuropathological conditions, has raised $4 million in Series B financing led by earlier investor Edgar Jannotta (long the chairman of investment bank William Blair & Co.), with Harbor Light Capital Partners, also a previous investor.

AqueSys, a seven-year-old, Aliso Viejo, Calif.-based medical device company focused on treating glaucoma, has raised $43.6 million in Series D funding. The investors included Accuitive Medical VenturesThe Carlyle GroupLongitude CapitalRho Ventures, and SV Life Sciences.

Evocalize, a two-year-old, Seattle-based company that has developed a customer-service SaaS platform, has raised $3 million in Series A financing from Madrona Venture Group.

ProNAi Therapeutics, a 10-year-old, Plymouth, Mich.-based life sciences company at work on a new cancer drug, has raised $12 million in new funding led by Capital Midwest Fund, a venture capital firm based out of Milwaukee. Other VCs involved in the deal include Apjohn Ventures, based in Kalamazoo, and Grand Angels, an angel investor group based in Holland, Mich. The company has raised roughly $33 million to date.

Salesfusion, a six-year-old, Atlanta, Ga.-based maker of marketing automation software, has raised $8.25 million in Series B financing. Noro-Moseley PartnersBLH Venture Partners and Hallett Capital led the round.

Teespring, a two-year-old, Providence, R.I.-based crowdfunding platform for custom-made apparel, has raised $20 million in funding led byAndreessen Horowitz. The company has raised $21.9 million to date, including from Y Combinator and FundersClub.

Twice, a three-year-old, San Francisco-based online consignment shop for women’s clothing, has raised $18.5 million led by Andreessen Horowitz. Previous investors also participated in the round — including IA Ventures,Felicis VenturesLerer Ventures and WTI – along with angel investorsMike LazerowJoe Greenstein and Maria Thomas. Twice has raised $23 million altogether.

X-Bolt Orthopaedics, a six-year-old, Dublin, Ireland-based company whose medical device — an expandable bolt — is used to repair hip fractures, has raised €1.8 million in funding led by AIB Seed Capital Fund. Other, unnamed individual investors, also participated in the round.

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New Funds

OMERS Ventures, the venture capital arm of one of Canada’s largest pension funds, is raising a second, larger round of funding to invest in Canadian technology startups, its CEO John Ruffolo told Reuters yesterday at a tech conference. Ruffolo said his group has already secured some funding from the Ontario Municipal Employees Retirement System; he also said it’s looking to outside funding sources, as well. The new fund will be “very large fund,” he told Reuters. “It will be larger than our first fund, which was [$183 million].”

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People

Accel Partners just announced a host of promotions in its London office, including that of Philippe Botteri and Michiel Kotting to partner. The firm has also hired three new VPs, two associates and an executive-in-residence. Accel says the team is now the largest it has been since it entered the European market in 2000.

Marc Andreessen, who has handily mastered Twitter, defends the NSA in a series of tweets: “If I worked for the NSA, I’d be so confused right now. #1, catch the bad guys. #2, don’t spy. OK, now you go figure it out.”

According to Bloomberg, an invite-only Power Breakfast returned to the renovated Loews Regency Hotel New York yesterday morning, with politicians and financiers returning “after a year of making do with lesser venues.” Among those in attendance: Greycroft Partners founder Alan Patricof with colleague Zander Farkas, who talked football. (Apparently, Patricof is taking his grandson to the Super Bowl next month in New Jersey.)

Kleiner Perkins partner Trae Vassallo didn’t receive much notice in news accounts about Google’s $3.2 billion acquisition of Nest, the maker of smart thermostats and smoke detectors. But Fortune’s Jessi Hempl says Vassallodeserves plenty of credit for Kleiner’s involvement in the company. “Vassallo had been obsessed with thermostats well before she and and Komisar met former Apple executive Tony Fadell,” she writes. Hempl adds that “Vassallo knew Fadell from Apple networks, so when he and cofounder Matt Rogers came in to pitch the idea to her and Komisar, she knew it made sense.” Not last: “Vassallo negotiated the Series A round on behalf of Kleiner Perkins, and then supported the management team through introductions to utilities, particularly in the competitive Texas market.”

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Exits

CloudUp Networks, a nine-month-old, San Francisco-based application security startup, has been acquired by CipherCloud, a San Jose, Ca.-based security company. Terms of the deal aren’t being disclosed. CloudUp never publicly disclosed any funding; three-year-old CiperCloud has raised $30 million from Andreessen HorowitzIndex Ventures andT-Venture, the venture capital arm of Deutsche Telekom.

Impermium, a 3.5-year-old, Redwood City, Calif.-based cyber security startup, has been acquired by Google for undisclosed financial terms. Impermium had raised roughly $9 million in funding from Accel Partners,AOL VenturesCharles River VenturesData CollectiveFreestyle CapitalGreylock PartnersHighland Capital PartnersMorado Ventures and the Social+Capital Partnership.

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Job Listings

Rasmussen Reports, an Asbury Park, N.J.- based national public opinion survey company, has a new position open for a senior data scientist / statistician. (This could be a dream job for a numbers-crunching political junkie.)

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Data

Investments in software companies hit $11 billion in 2013, the highest level since 2000, according to MoneyTree’s annual report. The software sector attracted 37 percent of total venture capital for the year — the highest percent since MoneyTree’s inception in 1995 — and was up 27 percent from 2012. More here.

Uh oh. Nearly 44 percent of 137 LP respondents in a recent survey by placement agency Probitas Partners reported they were avoiding venture capital entirely. In 2007, just 17 percent said they were eschewing venture. More here.

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Essential Reads

Henrique De Castro may be walking away from Yahoo with $109 million. (What, who, how the..?)

The average value of a tech company is decreasing.

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Detours

Why sugar makes us feel so good, in a smart, short, video.

Special effects you had no idea you were witnessing in “The Wolf of Wall Street.”

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Retail Therapy

Made a fortune? Kind of a jerk? Feeling paranoid for other reasons? This Audi with VR 7 ballistic protection and explosion resistance, an armor-plated communication box in the trunk, optional emergency exit, and fire extinguisher could be just the number for you.

A one-wheeled, self-balancing electric skateboard? Sign us up!

Oh sweet sassy molassy.

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