StrictlyVC: April 14, 2014

Good morning; hope you had a great weekend!

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Top News in the A.M.

The New York Times looks at the ocean of late-stage cash washing over tech startups, and why, in most cases, VCs welcome it with open arms.

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Silicon Valley Banker to Buyers: Shop Like a VC

Kelly Porter isn’t terribly conventional. The Palo Alto native is a vivid storyteller. He has had more careers than most, including as a media planner, a CEO, a venture capitalist, and, today, as an investment banker. In fact, as a partner and managing director of the investment bank Woodside Capital Partners, Porter has become known for the firm’s annual, invite-only M&A conference, which is hosted at a Great Gatsby-esque, 30,000-square-foot mansion that Porter purchased in 1999 (and is now keen to sell).

Porter also has some provocative thoughts about what acquiring companies could do better, as I learned Friday morning when we met in a bustling restaurant in San Francisco’s Laurel Heights neighborhood. Here’s part of that conversation, edited for length.

The common perception is that M&A doesn’t work. How many tech-related deals are done each year, and what percentage fail, would you say?

There is an extremely high failure rate. According to [S&P] Capital IQ, when it comes to software and Internet services, there are between 3,000 and 5,000 acquisitions every year. And two-thirds to three-quarters of all acquisitions don’t achieve their [expected potential].

Interestingly, there’s this common wisdom in the innovation ecosystem that certain serial acquirers acquire most of the companies. But there’s a very long tail. Over the last five years, the top 25 acquirers have only made up about four percent of all acquisitions. Google is in the several-hundred-companies range, then it drops off as you [move down the list to] IBM, Oracle, Microsoft, Yahoo, Autodesk, Cisco, Apple. When you get down to the 25th largest acquirer – and these are announced deals – they’ve only done 11 acquisitions over a five-year period.

Is there a correlation between failure rates the number of companies a buyer acquires?

I think one of the reasons there’s such a high failure rate is that the acquirers are primarily acquiring out of the venture-ecosystem. And in that ecosystem, one or two startups pay for the rest. But if most acquirers are acquiring three or four or five companies over a five-year period, they’re not really assembling a portfolio.

Should they be, given that acquisitions are huge distractions? What of the counterargument that the more companies a buyer acquires, the worse off all of them will be?

Acquirers, since they are acquiring from that ecosystem, are subject to portfolio dynamics. They’re probably picking up the best companies that don’t go public, but they’re still picking up companies that are fragile, that are early-stage. And there are some unique dynamics in acquisitions that make success even more difficult, like differences in culture, poorly articulated goals, strategic visions that are different, entrepreneurs who want to get on to the next thing and so forth. It makes that portfolio piece even more important.

The real problem is the CEOs and CFOs are very focused on Wall Street, because if they acquire five or ten companies and five of them fail, they’ll get skewered. Google can afford to [acquire lots of companies] because of the concentration of ownership that Larry [Page] and Sergey [Brin] enjoy but also because Google is [adding] $1.5 billion to the bottom line every month, and you can bury a lot of mistakes in that kind of growth. Facebook is a similar situation.

Speaking of Facebook, what do you make of Mark Zuckerberg’s recent moves?

I think they’re very interesting. He’s in a unique position in that he has so much control over that company that he can make bold bets as he did with Instagram and WhatsApp. He’s getting skewered for having done them, but it’s like being an entrepreneur at a very large scale. And I think that’s an admirable thing that we don’t see much in this ecosystem.

DOD

New Fundings

Admittedly, a year-old, New York-based company whose “college advisory” software promises to help students improve their chances of admission, has raised $615,000 in convertible note funding, according to Crunchbase. The money comes from Quotidian Ventures and angel investor Joanne Wilson.

CarJump, a 14-month-old, Berlin, Germany-based company whose app aggregates data from Germany’s top car-sharing services, has raised an undisclosed amount of seed round of funding led by High-Tech Gründerfonds.

Julep, a 7.5-year-old, Seattle-based beauty brand, has raised $30 million in Series C financing from new investors Azure CapitalMadrona Venture Group and Altimeter Capital, as well as existing investors Andreessen Horowitz and Maveron. The new investment brings Julep’s total venture funding to $56 million.

Lucidity Lights, a 3.5-year-old Cambridge-based developer of next-generation lightbulbs, has raised $10.8 million in new funding, according to an SEC filing. Among its backers: New York-based New Legacy Capital.

NatureBox, a two-year-old, San Carlos, Ca.-based company that creates, packs and delivers healthy snacks to users’ doors, has raised $18 million in Series B funding led by Canaan Partners. Earlier investors General Catalyst Partners and Softbank Capital also participated in the round, which brings NatureBox’s total funding to $28.5 million.

Piqur Therapeutics, a three-year-old, Basel, Switzerland-based pharmaceutical company that’s focused on cancer-fighting drugs, has closed its Series A round with $36 million, $12.5 million of which came from Versant Ventures. The company has raised $42.2 million to date.

Slidely, a nearly two-year-old, Tel Aviv-based social platform where users can share photos, videos, and music, has raised $7.3 million in funding led by Benson Oak Capital.

Space Monkey, a nearly three-year-old, Midvale, Ut.-based maker of cloud storage devices, has raised a new, undisclosed amount of funding led by Alta Ventures Mexico. The company had previously raised $2.25 million from Google VenturesVenture51, and Data Collective, shows Crunchbase.

Storefront, a two-year-old, San Francisco-based startup that’s been described as the Airbnb of retail (it helps merchants find and rent store space for a few days to a few months), has raised $7.3 million in funding led by Spark Capital. The company has raised $8.9 million altogether, including from earlier investors Mohr Davidow VenturesGreat Oaks Venture Capital500 StartupsBoxGroup, and Sand Hill Angels, among others.

Ubiquitous Energy, a three-year-old Cambridge-based solar-energy materials startup, has raised $5.3 million, shows an SEC filing. According to Xconomy, has deep MIT ties and is developing coatings that it says could generate electricity from everyday surfaces, including windows.

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New Funds

Founder’s Co-op, a six-year-old, Seattle-based seed-stage venture firm, has raised $10 million for its newest fund and could raise up to $25 millionfor the effort, according to cofounder and general partner Chris DeVore. Founder’s Co-op closed its first, $8 million, fund in January 2012. StrictlyVC recently featured one of its portfolio companies: Lighter Capital. Others of its investments include Remitly, a mobile payments service that helps its users make person-to-person international money transfers from the U.S., and Shippable, a company that helps development teams ship software faster.

Station 12, a new, London-based venture capital firm, is raising a debut fund of up to $250 million to provide growth capital to Europe’s media, entertainment and media technology companies, the company tells Variety. The firm was founded by Patrick Bradley, the former chief executive ofIngenious Ventures, which backed Simon Fuller’s 19 Management, the company behind “American Idol” (it sold to CKX for $210 million in cash and stock); and video-games producer Lionhead Studios (which sold to Microsoft for an undisclosed sum). The firm says it has already identified a “pipeline of potential investments” and will start investing with an initial average of about $16 million per deal. Station 12, notes VentureBeat, is named after a U.K. intelligence hub of the 1940s.

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IPOs

Jumei, a 4.5-year-old, Beijing-based site that sells beauty products and perfumes, filed to go public in the U.S. on Friday, revealing plans to raise up to $400 million. Jumei is among the top 20 most visited e-commerce websites in China and its top shareholders include Super ROI Global, which owns 40.7 of the company; Sequoia Capital, which owns 18.7; K2 Partners, which owns 10.3 of the company; Success Origin Limited, which owns 8.8 percent; and Pinnacle High-Tech Limited, which owns 6.3 percent. Some 30 Chinese companies could list in the United States this year, according to Reuters.

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Exits

Colimetrics, a two-year-old, Bangalore-based startup that makes employee productivity software, has been acquired by the San Jose, Ca.-based mobile tech startup ActMobile Networks. Terms of the deal weren’t disclosed, but the Economic Times characterizes the deal as an acqui-hire.

GnuBIO, a five-year-old, Cambridge, Ma.-based developer of scalable DNA sequencing technology, has been acquired by publicly held Bio-Rad Laboratories, a maker of life science research and clinical diagnostic products. GnuBIO had raised $22.5 million in venture funding from undisclosed investors, according to Crunchbase. The terms of its acquisition weren’t disclosed.

RapidEngines, a 3.5-year-old, Minneapolis, Mn.-based company that collects and organizes log data for its customers, has been acquired bySevOne, a nine-year-old, Wilmington, De.-based company that monitors the performance of thousands of IT systems for large customers like Comcast. RapidEngines had raised at least $1.38 million in seed funding, show SEC filings. SevOne has raised $152 million from Osage Venture Partners and Bain Capital Ventures.

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People

Serial entrepreneur Rich Barton, a founder of ExpediaZillow, and Glassdoor, maintains a low profile, and that’s very much by design, he tells the New York Times. “Personally, I like living here better,” Barton says of Seattle. “People do other things. I can go to a soccer game, and I’m not standing with the co-founder of this and a venture capitalist at that.”

The America’s Cup left San Francisco a few million dollars in the red, but the spendy billionaire who brought the event to town, Larry Ellison, isn’t stepping up to cover the deficit, notes the New York Times.

Even the founder of a powerful law firm can lose a case every now and then. On Friday, Robert Gunderson, co-founder of Gunderson Dettmer, lost a bid to relocate a hiking trail near the multimillion-dollar Hawaiian vacation home of his family. The Gundersons had spent “many millions more” trying to ensure the home wasn’t visible from the trail, including moving the trail closer to the shoreline. But in 2007, after some hiking accidents occurred, it was moved back by the county, and there, apparently, it will stay. (The judge also ordered Gunderson to pay $200,000 in attorneys fees over the case.)

At Columbia University’s first entrepreneurship festival, venture capitalist Alan Patricof went rogue, politely suggesting the student attendees might want to consider working at a company rather than launching their own. As he told New York Business Journal afterward: “Everyone who graduates today wants to be an entrepreneur. They don’t want to go work for another company. Working for another company’s not so terrible.”

Yesterday, Business Insider published a Q&A with venture capitalist Fred Wilson about his career that’s very much worth reading. He explains, for example, why USV has brought a new person into each of its successive early-stage funds: “…that person drives a lot of the new investment activity in that fund because the existing partners have legacy portfolio companies we spend a lot of time on. There’s no way I could make eight investments, for example, in the next three or four years. But when someone comes in here without a legacy portfolio, they can do that. That model has worked really well for us.”

Niklas Zennstrom talks with Venture Capital Dispatch, including about whether Atomico is starting to back enterprise companies. “We’ve not done enterprise so far—our view is from the consumer side—but enterprise is becoming more consumerized . . .We’re quite careful chasing companies that are creating large user bases, so for example different apps; we’ve seen how hard it is to create a user base and turn it into a revenue stream.”

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Job Listings

Kickstarter is looking for a VP of operations and finance. The job is in Brooklyn.

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Happenings

The VentureBeat Mobile Summit kicks off today in Sausalito, Ca. Here is the agenda.

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Data

Sand Hill Road’s heaviest hitters have all made notable bets on New York City startups. But based on CB Insights‘s data, their share of New York deals has remained largely flat over the past five years. More here.

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Essential Reads

Confirming long-running reports that Amazon has been working on a smartphone, the WSJ reports that one is coming in the second half of this year. To differentiate the phone from the competition, the phone will feature a screen capable of displaying seemingly three-dimensional images without special glasses.

Tomorrow, in Yahoo‘s earning call, it will reveal revenue and profit numbers from Alibaba, helping to set the stage for Alibaba’s expected U.S. IPO, which may value the company at more than $100 billion, according to analysts.

The most dangerous word in tech?

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Detours

What sleep deprivation does to you, in one upsetting infographic.

Highy useful things you can learn in a few minutes.

The rich architecture hidden inside acoustic instruments.

How to buy college football players: “The rules of communication tend to follow your typical sleeper cell or drug-dealing outfit. Talk in person as much as possible, preferably in group settings. Don’t use email. Never interact with the media and avoid the university’s public relations or sports information departments whenever possible. And buy burners. Lots of burners.”

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Retail Therapy

The 2015 Ducati Diavel. [Sigh.]

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