StrictlyVC: January 20, 2014

110611_2084620_176987_imageHappy Monday! Hope you can find time today to celebrate the great Martin Luther King, Jr., and his mission. As former President Bill Clinton tweeted this morning, “Dr. King reminded us that we are all part of ‘an inescapable network of mutuality.’ We cannot go forward if we don’t do it together.”

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Top News in the A.M.

Wowsa. The world’s 85 richest individuals now own as much as the poorest half of the 7 billion global population, according to a report released by Oxfam this morning.

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The Case for the $250 Million Fund

As you may have noticed, there aren’t a lot of independent, active venture funds in the neighborhood of $250 million these days. Many of them, raised in the late ‘90s, failed to produce the returns needed to raise another pool of capital. Meanwhile, most of the successful firms that once operated in that range – think Kleiner Perkins, Institutional Venture Partners, Greylock Partners — went on to raise far larger funds as LPs emerged from all corners, their checkbooks in hand.

You might not think it matters, particularly given today’s booming private markets. But a dearth of mid-range venture funds could have fairly serious repercussions, according to Jim Feuille, a longtime venture capitalist with Crosslink Capital. I met with him recently at the firm’s 22nd-floor Embarcadero Center office in San Francisco, where we discussed the incredible shrinking venture market.

Here’s Feuille’s thinking: Years ago, Crosslink, which is in the process of raising its seventh venture fund – in the $250 million range – used to have a number of syndication partners. That’s no longer the case, he told me. “In [the year] 2000, there were 1,000 firms in business,” he said. “Today, 350 have a shingle out, but probably closer to 80 firms are doing more than two deals a year. Now, let’s say half of those 80 firms are doing more than five deals a year, and of those 40, some have to put $30 million, or $40 million, or $50 million to work [in each deal] because they have a $2 billion fund to invest.

“Five years ago, and in the 20 years before that, you could syndicate a pretty capital-intensive deal, like a hardware or a semiconductor deal that would require $50 million to get a product to market,” says Feuille. Because the number of partners available to do such deals has “really shrunk,” the “only people who can get these deals done are the megafunds,” he adds.

Crosslink has adjusted its investing strategies to deal with this shortage of syndicate partners, preferring to back companies that are generating revenue rather than those that are still in the product development stage. It’s far from alone; according to Ernst & Young, the share of investment going to revenue-stage companies jumped from 56 percent in 2006 to roughly 70 percent by 2012.

Still, it could be bad for the U.S., says Feuille, noting that with rare exceptions, you “can’t start a semiconductor company here anymore; no one wants to buy a partially developed semiconductor product” by a company that has run out of capital. “I don’t follow biotech and medical devices, but you can imagine a similar kind of problem,” he adds. And when it comes to developing any hardware device that’s relying on a custom semiconductor chip, good luck. “It’s going to cost you $100 million bucks” to develop the product.

“We [as an industry] are funding a lot of innovation in terms of the Internet, and media software and so forth,” notes Feuille. “But we’re no longer funding innovation that’s manufacturing-driven and more capital intensive and could potentially employ more people or a different kind of people.”

Such innovation now has to happen in big companies – the Intels and Broadcoms and Googles of the world. That might not bother a lot of people. But maybe, suggests Feuille, it should.

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New Fundings

AdQuota, a 3.5-year-old, Copenhagen, Denmark-based mobile advertisement platform, has raised $3.2 million from Northcap, a venture firm in Denmark that backs Northern European startups.

Angel Group Holding Company, a Chengdu, China-based company that operates women’s hospitals, has raised an undisclosed amount of capital from Sequoia Capital, reports China-based outlets. The Series B round comes on the heels of a $16.7 million Series A that the outfit raised in 2010 from CDH Venture and Zero2IPO Ventures.

Bluebox Security, a two-year-old, San Francisco, California-based mobile security startup, has raised $18 million in Series B funding round, including from Tenaya Capitalsays Security Week. Earlier investors who also participated include Andreessen HorowitzSun Microsystems co-founder Andreas Bechtolsheim, and SV Angel. The company has raised $27.5 million altogether.

Business Insider, the 6.5-year-old, New York-based news outlet, is likely raising a new round from existing investors, including Amazon CEO Jeff Bezosreports Re/code. The company turned down an informal offer of $100 million from AOL last year. Business Insider has raised $18 million to date, including from Allen & Co.RRE VenturesInstitutional Venture PartnersPilot Group and Marc Andreessen.

DrivingSales, an 11-year-old, Sandy, Utah-based social network for car dealers, has raised about $3 million in equity, shows an SEC filing. No investors are listed.

Dropbox, the 6.5-year-old, San Francisco-based online storage company, has closed on about $250 million in a funding round that values the company at $10 billion, according to WSJ sources. A BlackRock fund led the deal, which included previous investors. Dropbox’s backers – Goldman SachsSequoia CapitalIndex Ventures and Accel Partners, among them — have now invested slightly more than $500 million in the company.

FieldEz, a three-year-old, Bangalore-based company that makes on-demand software for field sales, has raised an undisclosed amount of funding from IDG Ventures India and IvyCap Ventures, reports The Economic Times.

Firstcry, a three-year-old Pune, India-based online store that sells baby and children’s products, has raised $15 million in Series C funding led byVertex Venture Holdings, a subsidiary of the Singapore-based investment firm Temasek Holdings. The company has now raised roughly $33 million altogether, including from IDG Ventures and SAIF Partners.

Med Fusion, a three-year-old, Lewisville, Tex-based company, has raised $61.2 million, according to an SEC filing. The company was formed by Baylor Health Care System, Texas Oncology PA, Pathologists Biomedical Laboratories, and US Oncology to integrate advanced laboratory services and clinical trials services. You can learn more about it here.

OTI Greentech, a seven-year-old, Zug, Switzerland-based company that focuses on cleaning, recovering and disposing of oil in a range of applications, has raised $1.9 million from Green Gateway Fund, an outfit that had provided the startup with funding about a year ago, alongside Wermuth Asset Management.

Promentis Pharmaceuticals, a six-year-old, Milwaukee, Wi.-based pharmaceutical company whose compounds aim to treat central nervous system disorders, has raised $2.9 million in Series B funding. The round was led by Black Horse Investments, based in Düsseldorf, Germany. Other participants included the Milwaukee-based angel group Golden Angels Investors.

QuanDX, a three-year-old, Menlo Park, Calif.-based molecular diagnostics startup has raised $950,000 in funding from undisclosed investors, reports VentureBeat. The company is hoping to add another $550,000 to the offering. Last year, it raised $300,000.

Surewaves, a seven-year-old, Bangalore-based company, has raised $5.7 million led by Canaan Partners, which was joined by earlier investors, including Accel Partners and India Innovation Fund. Surewaves has created an advertising platform that serves hundreds of media outlets, including cable TV networks.

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New Funds

We told you in mid-December that Andreessen Horowitz‘s fourth fund was right around the corner. On Friday, Dan Primack of Fortune confirmed that account, reporting that the fund is raising “around” $1.5 billion that will structured in ways similar to its last pool of money, raised in 2012. That third fund included a $900 million slug for early-stage investments and a $600 million parallel fund for later-stage opportunities.

Inventus Capital Partners, a Menlo Park, Calif.-based early-stage venture firm, has raised $106 million for its second vehicle. The firm backs digital services startups primarily and expects to invest in 20 to 25 companies with its new fund. Inventus was founded by Kanwal Rekhi, who founded a computer networking company called Excelan in the early ’80s; he went on to become a prolific angel investor before founding Inventus in 2008. The fund was conceived to back entrepreneurs who leverage Indian talent in Indian markets, including entrepreneurs in Silicon Valley. (One of the firm’s first investments, for example, was a scalable data storage company that was based in the Bay Area but whose employees were largely based in Bangalore.)

WestSummit Capital, a 3.5-year-old venture capital firm with offices in Menlo Park, Calif.; Beijing; and Hong Kong, has raised $325 million for two new venture funds, reports VentureWire. WestSummit will use a $225 million pool called Fund II to invest in U.S.-based companies that have the potential to expand into China. A separate, $100 million fund called Summit Bridge Capital Fund will be co-managed with Atlantic Bridge Capital, a growth-stage firm that has offices in Dublin and London and invests in Irish, European, and U.S. tech companies.

World Innovation Lab, or WiL, a Palo Alto, Calif.-based venture investing outfit, has raised a $300 million venture fund, reports the Nikkei Asian Review. WiL is a seven-month-old platform that 10 large Japanese corporations have joined as a way to invest in startups — and to get a better look at what’s happening inside them. Among other things, reports Asian Review, WiL will provide its investors — including SonyNissan, and Daiwa Securities Group - with R&D status reports so that they can influence the startups’ development plans or otherwise collaborate with them. WiL was cofounded by Gen Isayama, who spent nearly a decade with DCM. It will write checks of up to $50 million and back six to eight companies a year, both in the U.S. and in Japan.

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People

Suranga Chandratillake, who founded the San Francisco-based Internet media platform Blinx in 2004, has joined Balderton Capital as a general partner. Suranga is returning to his native London for the job. Before founding Blinx, Chandratillake was the U.S.-based CTO of Autonomy and before that, he held a variety of roles at Morgan Stanley.

Michael Sippey, Twitter’s VP of Product, is moving on, posting his goodbye letter to his colleagues on his blog on Friday. “Over the past few weeks I’ve talked with [CEO] Dick [Costolo] and [COO] Ali [Rowghani] about what I want next in my career, and what Twitter needs at this stage of its life. And I’ve decided that it’s time for me to move on. Sippey joined the company in 2012. More here.

Last week, before an audience at the Churchill Club, investor-entrepreneur Peter Thiel interviewed the highest-rated chess player of all time, Magnus Carlsen (video). Carlsen told Thiel he took an interest in chess at age eight, when his father began teaching the game to his older sister. “One of my main interests at that time was to beat my sister at everything she did,” said Carlsen, eliciting laughter from the crowd. During his visit to Silicon Valley, Carlsen also took time out to play chess with Facebook CEO Mark Zuckerberg.

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Job Listings

AdKnowledge, a digital marketing company that has raised $250 million over the last 10 years, including a $200 million slug from JMI Equity and Bank of America in 2011, is looking for a director of corporate development and strategy.

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Data

CB Insights has begun tracking startup “death trends.” Among its findings so far: In each year since 2010, 70 percent of all failed tech companies have been Internet startups. Roughly 55 percent of failed startups raised $1 million or less, and 71 percent of the now-shuttered companies lasted less than two years after their last funding round. CB Insights also notes that the average company has fizzled out around 20 months after its last funding round, and that acquihires tend to happen up to four months earlier in a startup’s lifecycle, adding that “if you haven’t seen either more capital or an interested acquirer by the 15-month mark, things are not looking good.”

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Essential Reads

Andreessen Horowitz partner Scott Weiss on succeeding at work — and failing at home.

New York’s magazine’s Kevin Roose writes about Whisper, a platform that’s quickly and quietly becoming one of the most “interesting” social networks around, with more than 3 billion page views per month. (We missed this piece last week; if you did, too, it’s worth a read.)

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Detours

Sam Polk, a former hedge fund trader, writes incisively on Wall Street’s addiction to money. “It’s staggering to think that in the course of five years, I’d gone from being thrilled at my first bonus — $40,000 — to being disappointed when, my second year at the hedge fund, I was paid ‘only’ $1.5 million.”

Taken aback by Richard Sherman’s adrenaline level last night? You weren’t alone. (H/T: Josh Felser)

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Retail Therapy

After 9,000 hours of testing across 2,000 prototypes at an expense of roughly $12.3 million, the new Dyson Cinetic vacuum, can reportedly run for 10 years without having to have its dust collector replaced. Totally worth all the trouble.

This camera bag is made of bison leather, which both looks better and is more durable than cowhide — and that’s no bull. (Thank you! We’ll be here for two more nights…)

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  1. […] told you about the new fund of Silicon Valley venture capitalist Gen Isayama last Monday; now, BusinessWeek takes a closer look at Isayama’s […]

  2. […] who opened DCM’s office in Tokyo in 2009, left last year to launch a new fund, which StrictlyVC wrote about in […]

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