StrictlyVC: February 19, 2014

110611_2084620_176987_imageIs it really Wednesday already?

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Top News in the A.M.

Amazon and Apple struggle with ad growth because they’re “slow, cocky and downright stingy,” reveal media buyers.

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Waiting on Seed Funds to Sprout Cash

Over the weekend, venture capitalist Marc Andreessen tweeted, as part of a broader conversation, that there are “definitely too many new small angel funds. That seems clear.”

The comment kicked off a spirited debate on Twitter about small funds and their perceived merit. But if anyone knows what’s happening in the broader world of seed funds, it’s Michael Kim of Cendana Capital, a four-year-old investment firm that has made its name by backing micro funds, including Freestyle Capital, Founder Collective, IA Ventures, K9 Ventures, PivotNorth Capital, Lerer Ventures, SoftTech VC, and Forerunner Ventures. Kim, whose firm is managing around $90 million and is raising a fresh $55 million, talked with StrictlyVC yesterday about what he’s seeing.

You’ve backed lots of micro VC firms. What’s your criteria?

We look for groups that lead or co-lead their deals. There are plenty that just chip a bit into a seed round. But for us, it’s really important that the funds we invest in focus on ownership and on being the largest investors [in a startup's seed round], as well as having substantial reserves. We’re looking for a firm that does three to five deals a year, putting in a million dollars [into each deal] and owning 15 to 20 percent.

Most of your funds are in the Bay Area. Is that by design?

We do think about the ecosystem: it has to feature high-quality entrepreneurs, high-quality co-investors, and lots of opportunity for follow-on capital. So L.A., for example, doesn’t have a good seed ecosystem; it’s too reliant on the Sand Hill Road crowd to fund its companies.

More funds has meant more specialization. Is that a good thing or do some micro VC fund managers run the risk of backing themselves into a corner?

I think it’s very important to stake out what your value-add is. Forerunner Ventures specializes in digital commerce, so pretty much anyone who starts in that space wants to meet with [founder Kirsten Green]. IA Ventures is known for being a big data investor; Founder Collective is known for being [comprised of] ex-entrepreneurs who want to help other entrepreneurs. Assuming it will become a much more competitive world, any seed fund really needs to think about its market positioning.

How many micro VC funds are you aware of?

A lot. When I started Cendana, the clear pioneers were Steve Anderson [of Baseline Ventures], Michael Dearing of [Harrison Metal] and Mike Maples [of Floodgate]; but I’ve probably met with or interviewed more than 260 groups since then, mostly in the U.S., because we don’t invest outside of the U.S., but also from Russia, Turkey, Berlin, China.

It seems like many more micro VC funds are being founded by venture capitalists.

A subset of them are definitely younger VCs from more established firms, which is an indictment of a lot of big firms that haven’t done enough about succession issues.

Tim Connors [of PivotNorth] was at Sequoia and [U.S Venture Partners]; Chris Rust was at USVP and is starting a fund; Mamoon Hamid [also formerly of USVP] quit to join [former Mayfield Fund and Facebook exec] Chamath Palihapitiya at The Social+Capital Partnership; Aileen Lee left Kleiner Perkins to start Cowboy Ventures; Matt Holleran left Emergence Capital to start a fund [called Cloud Apps Management, which focuses on cloud business applications management]; Ullas Naik left Globespan Capital Partners to start [Streamlined Ventures, a seed-stage investment firm focused on infrastructures software]; Kent Goldman has left First Round Capital to start his own thing.

Do you think VCs who launch seed funds have an advantage over ex-operators who launch seed funds?

We think entrepreneurs have the most credibility with other entrepreneurs, because they’ve built their own companies.

The one element I’m wary about is a lot of ex-entrepreneurs’ [experience]. A lot of them haven’t seen investing cycles, and one of the quickest ways to destroy a portfolio is through follow-on rounds – investing so that you suddenly have a $2 million hole instead of a $500,000 hole [from an initial investment]. So they have to have discipline about follow-ons, bridge financings and the like.

How are all of these funds doing? Is it still too early to know?

They look promising. A lot of the established players I mentioned [like Baseline Ventures and Floodgate] and older groups like First Round have promising portfolios. But in terms of returns – aside from [Baseline], which had a huge hit in Instagram – I suspect a lot of it is [high but unrealized IRRs]. Things have been marked up hugely on paper, especially if you’re in Uber or Pinterest. But LPs are very focused on cash returns, and while last year was a great year for venture firms like Greylock, Accel, and Benchmark, which returned substantial capital back to LPs, there aren’t a lot of seed funds that could say [the same].

In the meantime, can things possibly remain as collegial as they have in past years between seed investors?

A lot of new seed funds are relatively smart about focusing on ownership. At the same time, you can’t have four funds trying to get 10 percent [of a startup]. I do think we’ll see some sharper elbows.

money-ears

New Fundings

Duolingo, a 2.5-year-old, Pittsburgh, Pa.-based online language learning plaform, has raised $20 million in funding led by Kleiner Perkins Caufield & Byers. Others of its investors include Union Square VenturesNew Enterprise Associates and individuals Tim Ferriss and Ashton Kutcher. The company has raised roughly $38 million to date, shows Crunchbase.

Extreme Reach, a six-year-old, Needham, Ma.-based video platform for integrated TV, online and mobile advertising, has raised $49 million, according to a new filing. The company’s investors include Village VenturesLong River VenturesGreycroft Partners, and Spectrum Equity. It has raised roughly $111 million so far, according to Crunchbase.

GuestDriven, a 4.5-year-old, Montreal-based SaaS platform that hospitality brands use to build guest engagement, has raised $3 million in Series A funding led by PlazaCorpReal Ventures and Structure Capital.

Lithera, a 6.5-year-old, San Diego-based aesthetic biotech whose lead, injectable drug is intended to reduce belly fat, has raised an additional $8 million to close its Series C round of financing that began more than a year ago with $35.6 million, reports Xconomy. Existing investors Alta Partnersand Domain Associates participated in the round, as well as new investorAKS Capital and additional undisclosed investors.

LoginRadius, a year-old, Edmonton, Canada-based “social login” company, has raised $1.3 million in financing from Accelerate Fund,Yaletown Venture PartnersReal VenturesBDC Capital and several individual investors. The company manages a unified social API platform that combines 30 social networks, enabling sites and mobile apps to more easily implement social login, capture user social data, enable social sharing, and add single sign-on.

LumaStream, a 4.5-year-old, St. Petersburg, Fla.-based LED lighting company, has raised $10 million in Series B funding from an unnamed investment group in Ontario, Canada. LumaStream uses speaker wire to carry low-voltage power to LED fixtures; the same wire controls and dims the LEDs, eliminating the need for secondary control wiring, according to the company.

MD Revolution, a three-year-old, San Diego-based company whose online platform helps patients manage their health by integrating different technologies that track their cardiovascular health, nutrition, exercise, and other healthy practices, has raised $7 million in Series B funding from unnamed individual investors. The financing brings the company’s total funding to date to $8 million.

Postmates, a 3.5-year-old, San Francisco-based mobile delivery service that aims to drop off goods like groceries in less than an hour, has raised $16 million in Series B funding led by Spark Capital. The company has now raised $22 million altogether, including from Crosslink Capital,SoftTech VCFounders Fund, and Matrix Partners.

Renaissance Learning, a 28-year-old, Wisconsin Rapids, Wi.-based K-12 assessment and learning analytics companies, has raised $40 million from Google Capital, the search giant’s late-stage investment vehicle. TechCrunch has more on the deal, which marks Google Capital’s first foray into education, here.

Socialbakers, a 5.5-year-old, Prague-based, social media analytics and optimization company, has raised $26 million in Series C funding led byIndex Ventures, with existing investor Earlybird participating. To date, the company has raised $34 million, shows Crunchbase.

StoryVine, a two-year-old, Boulder-based startup that’s trying to disrupt the professional video production market by automating the process of creating a brand videos, has raised an undisclosed amount of capital fromPavonis Capital in New York. The deal marks the first tech investment for Pavonis, which typically invests in real estate technology companies and property.

To8to, a 4.5-year-old, Henan, China-based online interior decoration platform, has raised $16.5 million in Series B funding led by Sequoia Capital and followed by Series A investor Matrix Partners. To8to is a third-party platform for customers, decoration companies, designers and construction material providers.

Tictail, a nearly three-year-old, Stockholm-based, do-it-yourself e-commerce platform that invites users to quickly and easily set up virtual storefronts, has raised $8 million in Series A funding led by Thrive Capital. Other investors in the round included Balderton CapitalProject A VenturesCreandum, and individual investors. The company has raised roughly $9.6 million to date, according to Crunchbase.

UrbanSitter, 3.5-year-old, San Francisco-based online and mobile service for parents and sitters to connect through people they know, has raised $15 million in Series B funding led by DBL Investors with participation from the IAC division Match Group and Aspect Ventures, the new venture firm of Theresia Gouw and Jennifer Fonstad. Earlier investors Canaan PartnersFirst Round CapitalMenlo Ventures and Rustic Canyon Partners, also participated in the round, which brings the company’s total funding to roughly $22 million.

Versartis, a 5.5-year-old, Redwood City, Ca.-based biotech company focused on developing a treatment for growth hormone deficiency, has raised $55 million in Series E funding from five undisclosed new investors. Previous investors, including Sofinnova VenturesAisling CapitalNew Leaf Venture Partners and Advent Life Sciences, also participated in the round, which brings the company’s total funding to $132 million.

Weedingtech, a three-year-old, London-based maker of an herbicide-free weedkiller, has raised $1.25 million in a deal backed by private investors including Chelsea football club owner Roman Abramovich, through his venture firm Millhouse. Other investors in the round included venture capitalist Jon Moulton and Ben Goldsmith, founder of green investment firm WHEB Group.

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New Funds

ClearVue Partners, a two-year-old, Shanghai, China-based early-stage venture firm, announced today that it has raised $262 million for its first fund, ClearVue Partners, L.P., well exceeded its target of $200 million. ClearVue Partners focuses on investment opportunities in the fast growing consumer market in Greater China, specifically in the food & beverage, consumer products, and consumer internet & mobile sectors.

Mayfield Fund has finished raising its second Indian fund, and is closing it with $108 million, says VentureBeat. The Sand Hill Road firm began marketing the fund one year ago. It closed its first India-focused fund, a $111 million pool called Mayfield India I, in 2008.

Sequoia Capital, the 43-year-old, Menlo Park, Ca.-based venture firm, has registered official paperwork for two new venture funds focused on growth investments in China and the United States; meanwhile, Sequoia Capital India, which is independent of U.S.-based Sequoia, is raising its fourth fund. Fortune has reported that Sequoia expects to raise up to $1 billion for the U.S. growth fund, up to $600 million for the China growth fund and up to $600 million for the India fund.

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IPOs

Versartis, a 5.5-year-old, Redwood City, Ca.-based biotech that’s developing treatments for growth hormone deficiency, has filed to raise up to $80 million in an IPO on the heels of a big fundraise. (See above.) Its principal shareholders include New Leaf Ventures, which owns 24.4 percent of the company; Index Ventures, which owns 22.4 percent;Advent Life Sciences, which owns 16.3 percent; Aisling Capital, which owns 11.9 percent; and Sofinnova Venture Partners, which owns 6.8 percent.

Wave goodbye to the biotech wave, says Renaissance Capital; tech is about to take over.

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People

Legendary Silicon Valley investor Ron Conway is selling his San Francisco home, a 5,360-square-foot flat that takes up the entire floor of a historic co-op building. The home, listed for $9.5 million (down $500,000 from its original asking price) is truly stunning; StrictlyVC headed over once for a story and would have been perfectly happy to live out her life in its expansive living room. Take a tour here.

Peter Magnusson, a former engineering director at Google, has joinedSnapchat as a vice president of engineering, co-founder Bobby Murphytold the WSJ yesterday. Snapchat could add as many as 50 engineers this year to its current team of just 15 developers, Murphy said.

Mindy Mount, who joined the smart devices company Jawbone last May, is out, reports Re/code. Jawbone CEO Hosain Rahman announced the news in an all-hands meeting yesterday morning. Mount came to Jawbone from Microsoft, where she was most recently a corporate VP and CFO at its Online Services Division, and was seen as part of Jawbones attempt to upgrade its management before an IPO. But sources tell Re/code it wasn’t a good fit for the company or for Mount, who leaves as Jawbone is reportedly raising a $250 million round that values it at $3.3 billion. Much more here.

John Pleasants, the former co-president of Disney Interactive and former COO of Electronic Arts, has joined the new seed-stage investment fund SparkLabs Global Ventures as an advisor. Pleasants left Disney in areorganization last November.

Chelsea Stoner has been promoted to general partner at Battery Ventures, which she joined in 2006 from the private equity firm Key Principal Partners. Stoner, who specializes in software and healthcare technology, was trained as a chemical engineer at Northwestern University, but told the WSJ in 2012 that it was “too lab-intensive. I was not out talking to folks. It did not fit with my personality, although I loved the math and science behind it.” Stoner is the first female general partner in Battery’s 31-year history.

Graham Younger, who runs SAP’s SuccessFactors unit, is joining the cloud storage and collaboration company Box as executive VP for worldwide field operations. Box CEO Aaron Levie tells Re/code that Younger will take charge of Box’s sales force as the company looks to convert its many international free users into paid users.

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Happenings

Coming up on March 4, you might be interested in a panel discussion at SRI International in Menlo Park, Ca., centering on whether Apple‘s best days are ahead. Panelists include Leander Kahney, the publisher of CultofMac.com; Yukari Iwatani Kane, author of Haunted Empire: Apple after Steve Jobs; and Fred Vogelstein, contributing editor at Wired and author of Dogfight: How Apple and Google Went to War and Started a RevolutionThe program starts at 7 p.m.

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Data

Curious to know the average number of days companies spend confidentially discussing their IPO plans with the SEC? The magic number is 74 days, says the WSJ, which analyzed the confidential filings of 209 US. companies that have submitted documents to the SEC since October 15, 2012. More on its findings here.

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Job Listings

Omidyar Network is looking for an “experienced and entrepreneurial professional” to serve as its first Director of Impact. The job is in Redwood City, Ca. Apply here.

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Essential Reads

Doh. Security researchers recommend people stop using Belkin’s WeMo home automation products after uncovering a variety of vulnerabilities thatattackers can exploit to take control of home networks, thermostats, or other connected devices.

CFOs say they are facing a surge of inquiries from companies seeking to be acquired. Behind the influx is the shrinking pool of financing available to late-stage startups and the huge piles of cash held by many larger companies that are looking to buy growth.

Don’t be a Glasshole and ruin it for the other Explorers, capisce?

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Detours

Life in the nineties, by the always sharp Roger Angell. (This may be the most beautiful essay on aging we’ve ever read.)

If you didn’t already do this upon graduating, it’s time to say goodbye to Hot Pockets, forever.

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Retail Therapy

collapsible lawn mower that folds up and out of the way. We are in love.

Jewelry that looks and smells like food. We can’t think of a better idea, other than maybe this chicken sandwich USB hub. We’ll take one egg pendant, please, hold the bacon!

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