StrictlyVC: March 18, 2014

Good morning, and happy Tuesday!

A quick, enormous thank you to the thousands of you now reading StrictlyVC, which I’m realizing is six months old this week! (Thanks especially to those of who signed up before it launched.) If you enjoy it, feel free to spread the word about what we’re doing here. StrictlyVC’s strong suit isn’t promoting StrictlyVC. It’s giving you the news you need to start your day. And dancing to the edge of insanity. And tacos.

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Top News in the A.M.

The parent company of Institutional Shareholder Services, agreed this morning to sell the business to the private equity firm Vestar Capital Partners for $364 million. Dealbook has the story.

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Early-Stage Infrastructure Valuations “Up 30 Percent” in Last Year, Says Amplify Founder

In 2011, Sunil Dhaliwal was named to the Forbes Midas List. In 2012, he left Battery Ventures to start his own venture firm, Amplify Partners.

It hasn’t been a walk in the park, says Dhaliwal, who joined Battery in Boston almost straight out of college at Georgetown University and ultimately stayed 15 years, backing companies like Netezza, acquired by IBM, and CipherTrust, acquired by Secure Computing.

Yet today, after 18 months of on-again, off-again fundraising – Amplify has just closed its new micro fund with $49.1 million — Dhaliwal has a new home base in the Bay Area, where he moved his family in the summer of 2012. He has a strong partner in David Beyer, a cofounder of Chartio who joined as a principal in January. And Dhaliwal has lots of insights about nascent infrastructure startups, a world he has immersed himself in completely at Amplify, backing 11 startups so far, including Continuuity andKeen.io.

To learn more about what Dhaliwal is seeing in his particular niche of the market, StrictlyVC recently sat down with him at one of San Francisco’s many newer hipster hangouts, Sightglass Coffee, in SOMA. Our chat has been edited for length.

Why Amplify, why now?

If you look at Cisco, HP, IBM, Microsoft, Oracle, SAP, Dell – that universe of companies in and of itself is a trillion dollars of market cap. If you trace what that market cap looked like before the bubble of 2000, go back to 1998, it was still a trillion dollars. So these guys have basically failed to grow… and I feel like they’ll be more pressured to reinvent themselves.

Meanwhile, for [Battery's ninth fund], I think I made five investments over two-and-a-half years, and the largest one was $2.8 million. The others were $1.1 million, $700,000, $300,000 [in that range]. What I learned is that you can get meaningful results from infrastructure startups with small checks.

Why are the startups you want to back –distributed computing and developer-centric and data analytics companies — so much cheaper to launch?

In enterprise IT and in software, the transition is actually happening in stages. There’s the cost that it takes to develop, there’s the cost that it takes to acquire initial customers, then there’s the cost that it takes to scale enterprise buyers. The first and second stage have come down dramatically; our ability to get alpha and beta produced, reduce technical risk, and get basic validation of product-market fit off initial dollars has gone up a lot (to the point where it can be done for $1 million to $2 million). More, a lot of today’s tools allow technical buyers to discover things of interest to them, validate that they work with them, then begin using them without your sitting on top of them with an enterprise sales guy who makes $300,000 a year.

But it does cost money to ramp up.

When you want to go out and grow deal sizes, dramatically ramp up sales and expand your business, that takes more capital. In enterprise infrastructure, you’re still basically acquiring customers one at a time. But they don’t consume $10 million or $15 million or $25 million to get there. We have a lot of companies that have consumed less than $5 million that are thinking about how they go do the big scale-up round.

For us, as early investors, we find we suffer dramatically less dilution as result. And the value of the companies we’re able to develop, when we walk into the B round, C round, or expansion-stage financing, is markedly higher, not because it’s frothy or bubbly — though there’s some of that, too — but these companies are so much further ahead than companies were five or six years ago.

You raise a good point. When you conceived of Amplify in 2012, not a lot of people were focused on infrastructure deals. Now they are. How has that impacted your work?

It’s a big issue. I’ve seen safely 30 percent inflation on early-stage deals in the last year. And we continually ask ourselves, “How big can this get?” And for a lot of things that don’t seem like they can get that big, it’s not a rational conversation to have with the entrepreneur to say, “We think you’re worth less,” when someone else thinks [he or she is] worth more.

It’s not only uncomfortable for us, but I fear for what some entrepreneurs are going to have to deal with when they set really high expectations for their seed or A round and have to go back and deliver, in theory, some sort of appreciation to their early investors. There’s no way around that ending badly.

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New Fundings

AltSchool, a year-old, San Francisco-based company that’s creating a brand-new network of schools, has raised $33 million in Series A financing led by Founders Fund and Andreessen Horowitz, with follow-on investment from First Round Capital and Harrison Metal. Other investors in the company, which has now raised $36 million altogether, include John DoerrJonathan SacklerLearn Capital, and Omidyar Network. TechCrunch has much more on what has drawn widespread interest to the company, which plans to operate as a B Corp.

AbilTo, a five-year-old, New York-based provider of behavioral health programs designed to help adults overcome mild and moderate depression associated with major medical events, has raised $6 million in new funding from undisclosed investors. Last May, the company raised a $3 million Series A led by .406 Ventures.

Ataxion, a year-old, Cambridge, Ma.-based discovery-stage biopharmaceutical company that’s developing therapies for rare neurologic diseases, has raised $17 million in Series A financing from Atlas Venture and Biogen Idec.

Bluestone, a three-year-old, Bangalore-based e-commerce company that produces and sells jewelry, has raised $10 million from the India-focused fund Kalaari Capital. The Times of India has more here.

Boxfish, a four-year-old, Palo Alto, Ca.-based video discovery startup, has raised $7 million in new funding led by the Dublin, Ireland-based firm Atlantic Bridge Ventures. Other investors in the round include T-VenturesNaya Ventures, and Samsung. The latest financing brings the total capital raised by the company to $10 million.

C3 Jian, an 8.5-year-old, L.A.-based, clinical-stage biotech company that’s developing drugs focused on improving oral healthcare, has raised $60.5 million in Series D funding led by Renaissance Holding Company, a national dental insurance holding company. The latest financing brings the company’s total capital raised to roughly $105 million, shows Crunchbase.

Cloudera, a 5.5-year-old, Palo Alto, Ca.-based maker of open source database software, is raising at least $200 million at a valuation of $2 billion, say Bloomberg sources. The funding is reportedly coming from Intel, among others. Cloudera has raised roughly $140 million from investors to date, including Accel PartnersGreylock Partners and Ignition Partners. Its last round closed in December 2012.

FunPlus, a 3.5-year-old, San Francisco-based mobile social games company, has raised a whopping $74 million in Series B funding from Orchid Asia GroupGSR Ventures, and Steamboat Ventures. Among the company’s hits to date are the Facebook games “Family Farm” and “Royal Story” and “Family Farm Seaside” on iOS, Google and Amazon. FunPlus previously closed a $13 million Series A round in 2012.

Isto Technologies, a 17-year-old, St. Louis, Mo.-based orthobiologics company whose products regenerate and restore function to damaged cartilage and bone, has raised $8 million in debt and options, according to a new SEC filing. The funding appears to bring the company’s total capital raised to $28 million. Its investors include Ascension VenturesAlafi CapitalLife Sciences Partners, and Mid-American Transplant Services.

LiveMinutes, a three-year-old, San Francisco-based collaboration platform, has raised $1.8 million in a partial close, shows an SEC filing. The company has raised roughly $3.1 million altogether, shows Crunchbase, including from Great Oaks Venture CapitalPritzker Group Venture Capital, and entrepreneur and Match.com CEO Sam Yagan.

Personal Genome Diagnostics, a three-year-old, Baltimore, Md.-based company that engages in patient-specific analyses of cancer genome using digital characterization and monitoring technologies, has raised $2 million in funding, as part of a round that’s targeting $3.5 million, shows an SEC filing. The company had previously raised $100,000 in seed funding.

Qualtré, a six-year-old, Marlborough, Ma.-based maker of next generation silicon MEMS inertial sensors, has raised $8 million in Series C funding from a new, unnamed strategic investor and earlier investors Matrix Partners and Pilot House Ventures. The company has raised around $38 million to date, shows Crunchbase.

Wise.io, a two-year-old, Berkeley, Ca.-based machine learning startup, has raised $2.5 million in Series A funding led by Voyager Capital. GigaOm has more on the company here.

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New Funds

The California Public Employees’ Retirement System yesterday announced that it will allocate an additional $200 million to its emerging manager program and that it will use a new fund-of-funds to deploy the capital. The new allocation comes on the heels of a $100 million commitment made in 2012. CalPERS’ investment staff will select a manager to lead the new fund of funds later this year, says the pension giant, which has more than $280 billion in assets under management.

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IPOs

Agile Therapeutics, a 17-year-old Princeton, N.J.based specialty pharmaceutical company focused on the development and commercialization of new prescription contraceptive products, filed to go public yesterday. Its biggest shareholders include ProQuest Investments, which owns 30.4 percent of the company; Care Capital Investments, which owns 26.6 percent; Investor Growth Capital, which owns 26.6 percent; and Aisling Capital, which owns 8.9 percent.

Akebia Therapeutics, a 6.5-year-old, Cambridge, Ma.-based biopharmaceutical company focused on the development of proprietary therapeutics based on HIF biology, is expected to begin trading publicly on Thursday. Its biggest shareholders include Novartis Bioventures, which owns 23.9 percent of the company going into the offering; Venture Investors Early Stage Fund, which owns 11.0, percent; Kearny Venture Partners, which owns 9.9 percent; Novo A/S, which owns 9.9 percent; and Triathlon Medical Ventures, which owns 8.3 percent.

Paylocity, a 17-year-old, Arlington Heights, Il.-based provider of cloud-based payroll and human capital management software for medium-size organizations, is expected to go public tomorrow. Adams Street Partnersis among the company’s biggest outside shareholders.

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Exits

KitLocate, a three-year-old, Israel-based maker of low-power mobile geolocation technology. has been acquired by the Russian search giantYandex for “several million euros,” reports TechCrunch. KitLocate offers an SDK for iOS and Android developers to make their apps location aware; Yande will use it to improve its mobile search app.

Zulip, an 18-month-old, Cambridge, Ma.-based company that’s been quietly working on workplace chat applications, both desktop and mobile, has been acquired by the growing file-sharing giant Dropboxreports TechCrunch. Terms of the deal weren’t disclosed.

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People

Aneesh Chopra, the country’s first chief technology officer, is now an advisor to the cloud storage company Box. As the Washington Post notes, Box announced last year that its service is HIPAA compliant, paving the way to help doctors and other medical professionals to access their records in the cloud. Chopra is part of that effort as is Glen Tullman, the former CEO of electronic health record company Allscripts, who was also just brought in to advise the company.

Richard Hall has left his role as head of the $14 billion Teacher Retirement System of Texas to become the head of Harvard Management Co., which manages the university’s $32.7 billion endowment. Hall succeeds Lane MacDonald, who left after just four months on the job to oversee the family fortune of the Johnsons, who runFidelity Investments. The Boston Globe has much more here.

Bryan Roberts of Venrock is healthcare venture capital’s “billion-dollar man, ” with six(!) billion-dollar outcomes, including Castlight Health, which went public on Friday and is currently valued at $4 billion. Fortune asks him what his secret is.

D.E. Shaw is apparently bringing the Hamptons to Hudson Valley. According to the New York Times, the computer-scientist-turned-hedge-fund mogul and his wife are building a “contemporary structure and accompanying pool house [that] together measure more than 30,000 square feet” in Westchester County, N.Y. (Naturally, a guesthouse is also in the plans. And a garage measuring 3,572 square feet.)

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Job Listings

New Leaf Venture Partners, a New York-based healthcare-focused venture firm, is looking for an analyst.

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Data

U.S. venture capitalists completed 31 fundraising deals for consumer-electronics makers in 2013 — including JawboneRoku, and Lytro – beating the previous high of 29 in 1999, according to DJX VentureSource. Collectively, they pumped $848 million into hardware startups, nearly twice the prior record of $442 million set in 2012. The WSJ has much more here.

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Essential Reads

YouTube is going younger, says The Information, reporting that the online video destination is now developing a version of the site for kids under age 10 that would “wall off racier videos and comments and be deemed a safe place by parents.”

According to the WSJ, Amazon will begin shipping its long-awaited video-streaming device early next month, thrusting Amazon into an intensely competitive market in set-top boxes, which include the Roku device, Apple TV and Google’s Chromecast. TechCrunch sources say the gadget will be a stick or dongle as opposed to something bigger like the Apple TV.

In a decision that cities around the country are undoubtedly watching, Seattle’s city council voted yesterday to enforce a cap on the number of cars that app-based transportation companies — including UberXLyft, and Sidecar – can have in use at any one time. The new legislation limits each service to 150 cars on the road at any one time, the outcome, said the city council, of the services requiring more regulatory oversight.

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Detours

Wes Anderson’s films are even more perfectly symmetrical than you realized.

Nate Silver is back.

Gwyneth Paltrow singing “Happy.”

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Retail Therapy

Clever tea infusers.

Cheap, over-the-ear headphones for the budding DJ in your family.

Cloak, a new, free iOS app, arms you with the location data of Foursquare and Instagram users so that you can avoid all human contact with people you actually know.

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Corrections

Yesterday, we reported that Meican, a 3.5-year-old, China-based online food ordering site, had raised $10 billion in Series B funding, but that would be “million” with an “m.” We regret the error.

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