StrictlyVC: March 26, 2014

Good morning, everyone! Is it really just Wednesday? Crikey.

—–

Top News in the A.M.

Facebook’s deal to buy the virtual reality headset maker Oculus VR for $2 billion happened “relatively quickly and the negotiations were hammered out over the last five days during the industry’s Game Developer Conference in San Francisco,” reports TechCrunch.

—–

Riding the Hardware Wave, Lemnos Labs Raises a $20 Million Fund

Lemnos Labs, a hardware accelerator in San Francisco, is taking the wraps off a new, $20 million fund this morning. It’s quite an accomplishment. Three years ago, when founders Jeremy Conrad and Helen Zelman pitched investors on the idea of a hardware incubator, they were brushed off time and again.

Then the pair, both M.I.T.-trained mechanical engineers, sat down with AngelList’s Naval Ravikant. “We got in front of him, and he said, ‘I love this, and I’m going to introduce you to other people,’” recalls Conrad. “And of course, because it’s Naval, it was like a 15-minute long discussion so he could get to another meeting.”

It was long enough. After raising $1.85 million from investors to launch Lemnos Labs, Conrad and Zelman have spent the last two years investing $50,000 to $100,000 in promising teams, the first 10 of which have gone on to raise over $35 million in funding. One is Airware, which makes logic boards, sensors and actuators for drones; another is Local Motion, a company whose device helps enterprises manage their fleet of vehicles. Andreessen Horowitz led the funding of both.

I recently stopped by Lemnos’ new 8,000-square warehouse — a former fish factory — to learn from Conrad what’s next.

You have a new fund, and a new partner, Eric Klein, a former entrepreneur-in-residence who you promoted in February. Have the three of you begun investing the new fund?

We started investing a few months ago, and we’ve made three investments, one of which is still stealth. The first, Ceres, is a drone company that monitors crops. The other is 6Sensor, which is building a handheld device that you can use to test food for gluten and that will eventually test dairy, shellfish, and peanuts.

You’ll be writing bigger checks, in the range of $100,000 to $250,000. What kinds of companies will you back?

We focus on five areas. About 20 percent is in aerospace: we’ve already [backed] three drone-related companies and a satellite company. Watching the growth in those areas over the last two years has been phenomenal. Robotics is also a big focus area for us, as is the “Internet of things,” transportation, and general consumer electronics.

Is there any hardware sector you’d actively avoid investing in because it’s overdone?

One area that’s pretty overheated right now is wearables, and wearables that are narrowly focused. Also, fashion tech. There’s some stuff that’s interesting, but we’ve seen a bunch of applications for things like clothes that light up.

A couple of years into this, what patterns are you starting to see? What’s a common mistake young hardware startups make?

One mistake centers on brand, interestingly. This is [advice dating back to] Proctor & Gamble, but brand is everything, and if you pick the wrong brand, and it’s too small of a target market, you can’t get the traction you need to get further funding.

Take Jawbone, which is almost a meaningless brand but [has come to represent] quality. It has this huge market because basically everybody can buy from it. But startups often make branding choices early on that limit their market size. If you go to a venture capitalist and say, “Every skater in the world want this,” the investor’s question is going to be: “Okay, but are there enough skaters in the world to [rationalize this investment]?

Also, there’s almost this mythology that you do this prototype, and it goes to China and gets manufactured. People always undervalue how much on-the-ground work you need to do in China to ensure your product meets your quality standards and that you’ve done the right testing.

How are you helping them solve those issues?

We have a set of contract manufacturers who we feel work well with startups. We also make [our startups] do a product requirements document, which gets really into the details of not just design for manufacturability but also design for usability. We have a company, Bia, that does a sports watch for female triathletes, and at the end of the day, it has to go into salt water and to survive cold and heat. It’s very different than 6Sensors, which will go in a pocket or purse. There’s no expectation that I can dunk [its product] in salt water for 45 minutes and that it will still work.

How have you gone about forming the kinds of relationships with investors that help ensure your companies get seen?

It’s just good old-fashioned hustle. I spent a year going to every event I could possibly attend and hustling everyone and convincing them that we’re interesting enough to visit. After you get traction, you get more introductions. And after Airware’s funding happened, a couple of VCs who hadn’t responded to emails were definitely like, “I don’t know how I missed [your note], I’d love to come by.” [Laughs.]

dropcam_300x250_learn

New Fundings

Ahonya.com, an 18-month-old, Ghana-based online shopping platform, has raised an undisclosed amount of seed funding led by Rio Technology Partners, a Dubai-based investment firm. Rio was joined by the Nairobi-based Savannah Fund, along with other unnamed investors.

Assay Depot, a seven-year-old, San DIego-based marketplace for scientific services, has raised $3 million in Series B financing led by Bootstrap Venture Fund. The company has raised $6.5 million altogether, shows Crunchbase.

Axonics Modulation Technologies, an Irvine, Ca.-based developer of implantable neuromodulation technology, has raised a $32.6 million Series A round. Edmond de Rothschild Investment Partners of Paris, was the lead investor. Other participants in the round included Geneva-based NeoMed Management; Beijing-based Legend Capital, a venture capital arm of Legend Holdings; and a select group of private individuals.

CircleUp, a three-year-old, San Francisco-based equity-based crowdfunding platform, has raised $14 million in Series B funding led byCanaan Partners, with additional investment from Google Ventures,Union Square VenturesMaveron and Rose Park Advisors. The company has raised $23 million altogether.

Clio, a 6.5-year-old, Vancouver-based legal practice management software has raised $18 million in Series C funding led by Bessemer Venture Partners with participation from Acton Capital PartnersPoint Nine Capital, and new investor Version One Ventures.

EnVerv, a five-year-old, San Jose, Ca.-based fabless semiconductor company, has raised $15.4 million in Series C funding from Cassiopeia Capital PartnersCiscoUMC Capital and existing investors Benchmark CapitalNEA and Walden International. The company has raised $27.4 million altogether, shows Crunchbase.

Forter, a new, Tel Aviv, Israeli-based startup that real-time fraud prevention software, has raised $3 million in Series A funding from Sequoia Capital.

LiquidHub, a 14-year-old, Wayne Pa.-based systems integration and technology consulting company, has raised $53 million in Series B funding led by ChrysCapital. The company has raised $75 million altogether, shows Crunchbase, including from PPM America Capital PartnersNewSpring Capital, and Credit Suisse.

Locish, a year-old, Athens, Greece-based Q&A mobile app, has raised $820,000 in seed funding led by the Athens venture firm Odyssey Jeremy Partners. The Athens-based seed-stage firm OpenFund also participated, along with unnamed individual investors from Silicon Valley.

NeuroPhage Pharmaceuticals, a 7.5-year-old, Cambridge, Ma.-based biotechnology company, has raised $17 million in Series D financing from (undisclosed) existing and new investors to advance its newest drug, which aims to treat a wide range of neurodegenerative diseases like Alzheimer’s disease, Parkinson’s disease, and Huntington’s disease.

Nuji, a 2.5-year-old, London-based fashion and lifestyle e-commerce site, has raised $2 million in seed funding from early-stage investors The Accelerator GroupSamos InvestmentsSeedcamp and various undisclosed angel investors.

RelateIQ, a 2.5-year-old, Palo Alto-based big-data startup, has raised a $40 million Series C round led by Redpoint Ventures, with Kleiner Perkins Caufield & ByersFelicis Ventures, and News Corp participating. RelateIQ helps businesses and employees track client relationships by analyzing numerous communication streams in real-time.

Tactile, a new, Redwood City, Ca.-based enterprise company that aims to automatically synchronize email, calendar, tasks, Salesforce data, LinkedIn contacts, Twitter and other functions for salespeople, has raised $11.2 million in Series A funding from Redpoint Ventures and Accel Partners.

TouchBistro, a 2.5-year-old, Toronto-based point-of-sale application for restaurants, has raised a second tranche of seed funding from Walden Venture Capital and Kensington Capital. The company, which raised its first round from Relay Ventures, has now raised roughly $6 million to date.

Vend, a 5.5-year-old, Auckland, New Zealand-based Web-based point-of-sale and retail management software company, has raised $20 million in Series B funding from Peter Thiel’s Valar Ventures, as well as the Australian venture firm Square Peg Capitalreports TechCrunch. Vend has now raised about $30 million altogether.

—–

New Funds

OneVentures, a seven-year-old, Sydney, Australia-based firm that makes early-stage bets on technology companies based in Australia, has begun raising a second, $100 million fund, according to Financial Review of Australia. The firm looks for companies that are already making $5 million to $15 million in annual revenues, with a proven ­business and active customers.

The University of New Mexico is looking to raise a $1 million fund to invest up to $100,000 in startup companies working to take UNM inventions to market, reports the Albuquerque Journal. The UNM Foundation and the directing board of the Science and Technology Corp., which manages UNM’s technology commercialization, agreed to create the fund if regents approve it.

—–

IPOs

Ariosa Diagnostics, a six-year-old, San Jose, Ca.-based molecular diagnostics company whose DNA test detects common fetal trisomies as early as 10 weeks with a simple blood draw, has filed with the SEC to raise up to $69 million in an IPO. The company raised a $52.7 million round fromVenrockDomain Associates, and Meritech Capital Partners in 2012; they now own 39.1 percent, 24 percent, and 9.4 percent of the company, respectively, shows Ariosa’s prospectus. Another entity, FMR, owns another 6.5 percent of the company.

King Digital Entertainment, the mobile and social game developer, largely due to the wild success of Candy Crush Saga, has raised $500 million by offering 22.2 million shares (30 percent of them insider shares) at $22.50, the midpoint of it price range, says Renaissance Capital. The company’s fully diluted market cap as of last night was $7.5 billion, with enterprise value of $6.9 billion, making it the highest valued pure-play game developer in the world, with an enterprise value only 14 percent below Electronic Arts, notes Renaissance. Apax Partners owns 48.2 percent of King; Index Ventures owns another 8.3 percent.

—–

Exits

Edison Ventures announced yesterday that it has exited JTH Holding, the parent company of Virginia Beach, Va.-based Liberty Tax Service, of Virginia Beach, Va. Edison had invested $3.3 million in Liberty Tax before it listed on the Nasdaq in the summer of 2012; the investment generated a return of “just under 14x” for Edison.

Facebook announced yesterday that it’s acquiring the virtual reality technology company Oculus VR for $2 billion, including $400 million in cash and roughly 23 million shares of Facebook common stock. The agreement also provides for an additional $300 million earn-out in cash and stock based on certain milestones. Facebook CEO Mark Zuckerberg explained the unexpected move in a Facebook post, writing, “After games, we’re going to make Oculus a platform for many other experiences. Imagine enjoying a courtside seat at a game, studying in a classroom of students and teachers all over the world or consulting with a doctor face to face — just by putting on goggles in your home.” Oculus had raised $93.4 million from Spark CapitalMatrix PartnersFounders FundFormation 8Big Ventures, and Andreessen Horowitz.

KnowledgePath, a 3.5-year-old, Boston-based firm that focuses on integrating companies’ e-commerce storefronts with the back-end systems, was acquired yesterday by DMI, a Bethesda, Md.-based enterprise mobility company. The purchase price was $22 million, reports Fortune.

—–

People

Frank FrankovskyFacebook’s vice president of hardware design and supply chain optimization, who helped oversee the development and growth of the company’s custom server effort, has left the company to form an optical storage startup. GigaOm has the story.

David Karp, the founder and chief executive of Tumblr, sold his company to Yahoo for $1.1 billion last year and now he’s plugging some of his proceeds into New York-based startups, reports the WSJ. He recently invested $500,000 in Sherpaa, whose app connects employees to physicians; another investment is Superpedestrian, whose device helps turn regular bikes into hybrid electric ones. Lest other entrepreneurs get the wrong idea, Karp tells the outlet that he’s “not trying to become an angel investor. And I have no aspiration to become a venture capitalist. But insofar as I can give to this community, to support my friends, I’m very happy to.”

Uri Levine, a cofounder of the map software startup Waze, which sold to Google for $1.1 billion last year, has started a new company called FeeX in New York. According to Bloomberg, the company’s mission is shedding light on hidden financial fees, which cost Americans roughly $600 billion annually and can eat up as much as 30 percent of a person’s retirement savings. More here.

—–

Happenings

If you want more news and views about bitcoin, you’re in luck. CoinSummit rolls into it second and final day this morning in San Francisco. You can find the agenda here and watch a live stream of the event here.

Also, Money2020, a five-day conference “dedicated to innovations in money,” announced yesterday that it has lined up Cameron and Tyler Winklevoss as keynote speakers. You can learn more about the event, held in Las Vegas in early November, here.

—–

Data

Bloomberg Beta, the venture fund that counts Bloomberg as its sole LP, recently teamed up with data platform Mattermark for an interesting project: to predict who, based on geography, work experience, and proximity to other startups and founders (among other things), might be inclined to start a company at some point in their lives. As Mattermark co-founder and CEO Danielle Morrill writes about the effort: “The goal of the project was to use big data, machine learning, and public sources of data to answer the following question: Who are the people who have not yet started a venture-backed company, who are most likely to start one?”

Whether or not you believe it possible to target future founders — or if it’s even worthwhile to try — Mattermark’s research, which spanned 1.5 million people connected to tech startups, produced some unexpected findings, says Morrill. Among them: that only 15 percent of venture-backed founders have a computer science degree and that working for the same company for a long time, even a decade, in no way diminishes one’s likelihood of becoming a founder.

—–

Essential Reads

Late last week, TechCrunch founder Michael Arrington wrote that he was “nearly certain” Google once hacked into his email to root out the source of a Google-related piece he’d written. Now Google is responding to the allegation directly.

Caught in what seems like an unending economic crisis, a growing number of Greeks are taking matters into their own hands and starting their own companies, reports the New York Times.

—–

Detours

Base jumping off One World Trade Center.

Fun with old album sleeves.

A new use for unmanned aerial vehicles: pulling out baby teeth.

—–

Retail Therapy

Emoji-inspired slippers.

For just $3,000, your very own “social media concierge” will make your wedding as nauseatingly public as possible. Services include “live tweeting the wedding and reception,” “curating a unique wedding hashtag,” and gently encouraging guests to “utilize the hashtag and handles” before posting all their selfies to social media. It is your special day, after all.

—–

Random Update

Yesterday, StrictlyVC suggested that you to treat yourself to a slingshot. Do not do this if you live in New Jersey, where they are considered unlawful weapons and “the penalty is imprisonment for not more than 18 months,” per one of our favorite attorney readers. (He adds that you can buy a crossbow as long as you’re 18, no license or permit necessary!)


Leave a Reply

Your email address will not be published. Required fields are marked *

*

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>