StrictlyVC: February 12, 2014

110611_2084620_176987_imageGood morning, everyone!

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Top News in the A.M.

After last month’s landmark decision by a federal court to strike down key parts of the FCC’s Open Internet rules, FCC chairman Tom Wheeler now says the group is working to bring them back.

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Dana Stalder: Why $1.5 Million Seed Rounds No Longer Work

Dana Stalder, a Palo Alto-based general partner with Matrix Partners, is quick to note that he is “not a career VC.” In fact, he has spent much more of his career inside tech companies, from Netscape in the mid ‘90s, to the early online lead generation company Respond.com, to eBay, then PayPal, where he was a senior VP in charge of product, sales, marketing and technology when Matrix lured him away in 2008.

Still, Stalder isn’t shy about sharing some pretty specific ideas about the industry. When talking fund sizes, for example, he implies that funds that have grown far larger over time might be just a leetle motivated by management fees. Matrix, which has raised three $450 million funds in a row, is “less opportunistic about making money and more focused on helping build category-leading companies,” he says.

He also thinks that the days of the $1.5 million seed round – which became the norm around 2009, driven by ballooning numbers of seed investors – are nearing an end.

“It’s hard to build a business or prove that you can get a good markup off the back of that amount,” Stalder says. It’s also “terrible for the entrepreneur,” who winds up giving away up to 25 percent of the company over the course of a seed round and a seed extension round.

“Basically, they’re stuck in this no man’s land – running out of money without enough runway to take off – and they have the anxiety of having to bridge two rounds of seed funding for basically the same [dilution] as they’d [see with a Series A investment],” he says.

Stalder is an early-stage investor, so perhaps it’s no surprise that he thinks the “million-dollar seed round will come under pressure,” or that early-stage fundings will “revert back to the norm, which was the multimillion-dollar first round.”

A movement in the direction of larger first rounds would presumably benefit Stalder, who tends to invest in two companies a year and has led investments for his firm in both Zendesk, a help-desk software-as-a-service company, and online retailer Gilt Groupe, both of which are reportedly planning IPOs this year. Before seed-stage investors changed the ratio, entrepreneurs had no choice but to give their business to venture capitalists.

The news isn’t all rosy for Stalder. Thanks to seed investors, who have played a big role in grooming nascent companies and scaling them for investment, VCs now have the luxury of more information, Stalder acknowledges. They’ve grown “more accustomed to focusing on traction signals, and that wasn’t the case five years ago.”

Still, he suggests that that the trends towards larger deals will ultimately pay off for everyone.

“It might mean more syndication among the small seed funds,” says Stalder. “It might also mean that slightly fewer businesses get started.” Either way, he says, “Bigger rounds feel inevitable to me.”

money-ears

New Fundings

365 Retail Markets, a 4.5-year-old, Troy, Mi.-based vending and food service technology company, has raised a “multimillion-dollar Series A” round led by Plymouth Ventures.

Aviasales, a 6.5-year-old, Phuket, Thailand-based Russian online travel search engine, has raised $10 million from iTech Capital, a Russia-based private equity and venture capital fund, reports VentureBurn.

Bluefly, the 23-year-old, New York-based Internet retailer, has a new investor in CrunchFund, whose cofounder, Pat Gallagher, has joined the board. Terms of the investment aren’t being disclosed. Bluefly was long traded on Nasdaq, but was in the process of being delisted in February of last year after its shares fell below $1. By May, the special situations firm Clearlake Capital Group had purchased all of the shares of Bluefly’s common stock from its four principal shareholders – Rho Ventures,Quantum Industrial PartnersMaverick Fund, and Prentice Consumer Partners – for $0.0076 per share. Last August, Clearlake installed Clearlake operating advisor Neel Grover as Bluefly’s CEO and co-chairman. Grover is the former CEO and president of Buy.com and a former director of Rakuten USA.

CGTrader, a two-year-old, Vilnius, Lithuania-based company that operates a marketplace for 3-D models and content, has raised an undisclosed amount of funding from Intel Capital. Earlier investor Practica Capital also participated in the round.

Crowdfunder, a two-year-old, L.A.-based crowdfunding platform that helps connect entrepreneurs and investors, has raised $1 million in seed funding from a number of sources, including 500 StartupsK5 Ventures, and numerous individual investors. The company had raised an earlier, $400,000, seed round in 2012.

Kaltura, an eight-year-old, New York-based open-source video platform that helps clients host, analyze, and monetize video content, has raised $47 million in fresh funding, reports VentureBeatSAP VenturesNokia Growth PartnersCommonfund Capital, and Gera Ventures led the new funding, with participation from existing investors .406 VenturesNexus Venture PartnersIntel CapitalMitsui & Co. Global Investment, andSilicon Valley Bank. The company has now raised $115 million to date.

Lithera, a six-year-old, San Diego, Ca.-based clinical stage pharmaceutical company focused on lifestyle and medical indications (such as an injectable treatment to reduce fat tissue), has added $8 million to its Series C financing, bringing the round’s total to $35.6 million.The new funding came from earlier investors Alta Partners and Domain Associates, new investor AKS Capital, and undisclosed investors.

Makexyz, a year-old, Austin, Tx.-based 3D printing marketplace that connects people with nearby, consumer-grade 3D printers in their neighborhoods, has raised an undisclosed amount of funding from Intel Capital. “Our goal is to help people make stuff,” the company’s founder tells TechCrunch. “With a quickly growing, global network of 3D printers, a lot becomes possible.”

Tacit Innovations, a two-year-old, Toronto-based startup whose app lets users locate restaurants, browse menus, and manage and pay for their orders, has raised $700,000 in seed funding from BDC Venture Capital,Canrock Ventures, private unnamed investors, and the Canadian seed accelerator program Hyperdrive.

VoAPPs, a six-year-old, Atlanta, Ga.-based company that makes voice applications for mobile phones, including call center follow-up communications, has raised $1.5 million in Series B funding from earlier investor Buckhead Investment Partners, numerous angel investors and two new strategic investors.

Voyager Therapeutics, a new, Cambridge, Ma.-based spin-out of Third Rock Ventures that will focus on treatments for fatal and debilitating diseases of the central nervous system, has raised $45 million in Series A funding from Third Rock. The investment marks the firm’s third foray into genetic medicine and the treatment of rare diseases, notes the Boston Globe.

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New Funds

Robert W. Baird & Co., the Milwaukee-based investment firm, intends to raise $150 million for a fourth fund, according to a filing with the U.S. Securities & Exchange Commission. Baird raised more than $170 million for its third venture fund, closed in 2008.

Toronto growth-equity firm Georgian Partners has held a first close of $100 million for its second fund, according to Dow Jones.
The firm is looking to raise up to $116 million, according to a months-old regulatory filing.

Kleiner Perkins Caufield & Byers is planning to raise its sixteenth early-stage fund later this year, according to Fortune. The firm raised its fifteenth fund, which closed with $525 million, in 2012. That pool supplemented many of the other vehicles being managed by Kleiner, including a $1 billion Digital Growth Fund, a $200 million iFund, a $250 million sFund, and a $1 billion Green Growth Fund.

Tsai Capital Corporation, a New York-based global equity manager, announced the launch yesterday of Tsai Ventures, an internally funded seed and early- stage venture capital arm. Christopher Tsai, the president and chief financial officer of Tsai Capital, and Justin Soffer, a member of its advisory committee, will both be looking to back startups in finance, media, and travel on behalf of the firm. No word yet on how much the firm is willing to put to work or what size checks it will be writing.

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IPOs

Flexion Therapeutics, a 6.5-year-old, Burlington, Ma.-based maker of osteoarthritis drugs, began trading on the Nasdaq this morning. It priced its IPO late yesterday, becoming the 15th biotech to do so in 2014, notes Xconomy. The company’s principal shareholders include Versant Ventures, which owns 29.8 percent of the company, Sofinnova Ventures(19.25 percent), Pfizer (17.32 percent), 5AM Ventures (15.52 percent), andNovo A/S (11.20 percent).

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Exits

Easytobook.com, a 10-year-old, Amsterdam-based hotel booking site, has been acquired for $5 million by publicly traded MakeMyTrip, a 14-year-old, Gurgaon, India-based online travel company.

GetJar, a seven-year-old, San Mateo, Calif.-based free app store, is being acquired by Sungy Mobile, the newly public China-based mobile company, reports GigaOm. The outlet’s sources say Sungy is paying more than $50 million for GetJar, which had raised $42 million from investors, including Accel Partners and Tiger Global Management.

Klout, a 5.5-year-old, San Francisco-based startup that measures “social influence’ online, is about to be sold to the social customer service company Lithium Technologies for at least $100 million reports Re/code. Klout has raised at least $40 million from venture capitalists, includingKleiner Perkins Caufield & ByersVenrockGreycroft Partners, andInstitutional Venture Partners. It had also raised an undisclosed amount of funding from Microsoft in 2012. Lithium Technologies has meanwhile raised $150 million from investors, including Emergence Capital PartnersNew Enterprise AssociatesBenchmark, and Shasta Ventures.

Simplytics, a 20-month-old, London-based mobile ad server and analytics platform, has been acquired by Integral Ad Science, a provider of advertising intelligence for digital media buyers and sellers. No financial terms were disclosed. Simplytics never disclosed venture funding. Integral Ad Science, a four-year-old, New York-based company, has raised nearly $50 million to date, including from August CapitalFounder Collective,Atlas Venture and Pelion Venture Partners.

Wander, a two-year-old, New York based company that lets users create a series of photos and gifs in a package called a “Day” that can be shared with others, has been acquired by Yahoo for “over $10 million,” reports TechCrunch. The company had raised $1.2 million in funding.

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People

Len Schlesinger, formerly the president of Babson College, is joining the Internet-focused venture capital firm Data Point Capital as a special advisor. Schlesinger currently serves as a Baker Foundation Professor at Harvard Business School and previously served as the vice chairman and COO of Limited Brands (now L Brands), and executive vice president and COO of Au Bon Pain.

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Happenings

The Venture Summit Silicon Valley takes place tomorrow at Draper University in San Mateo, Ca. You can check out the agenda here.

The Women 2.0 Conference kicks off tomorrow in Las Vegas and features an impressive line-up of speakers, including Gwynne Shotwell, president of SpaceXSarah Friar, CFO of Square; and Julia Hartz, cofounder and president of EventbriteLearn more here.

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Data

Dow Jones has published a list of the five “things” that VCs “most loved in 2013.” On its list, unsurprisingly: hardware startups. According to its findings, some 31 deals were completed in the sector last year, beating out the previous high of 29 deals done back in 1999. Some of the biggest deals in the sector — which attracted $847.6 million last year, nearly double the $441.7 million seen in 2011 — included Jawbone, which raised $100 million in debt and equity, and Roku, which closed a $60 million round. Much more here.

Google has closed more deals than any company over the past three years, according to data compiled by Bloomberg through January. Advertising-firm WPP was second, followed by chipmaker Intel Corp.

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Job Listings

Airbnb is looking for a country manager in its Singapore office to be “fully responsible for the expansion and evolution” of the Singaporean market. Verbal fluency in both English and Mandarin is a must. Learn more here.

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Essential Reads

Two subsidiaries of Alibaba Group are creating a new U.S. e-commerce site called 11 Main, which will be a marketplace for local merchants to sell their goods online. The upcoming launch marks the latest signal that the massive Chinese Internet company is preparing a big splash in the U.S.online retail market.

Twitter is testing a major profile redesign that’s very reminiscent of Facebook and Google+.

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Detours

The rising cost of not going to college.

The iPhone 6 line starts here, evidently.

Awkward romantic photos.

The New Yorker’s George Packer says covering Amazon is a reporting challenge not much easier than covering national security and intelligence.

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Retail Therapy

The $45 In1Case for the iPhone. Tweezers? Check. Scissors? Check. Kickstand for viewing video? Sold!

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