StrictlyVC: April 22, 2014

Good Tuesday morning, everyone, and happy Earth Day!

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Top News in the A.M.

Amazon sales take a hit in states with online tax, according to new research out of Ohio State University.

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Inside Mysterious Mithril Capital

One of the best-known things about Mithril Capital Management is that it is named after a fictional metal from J. R. R. Tolkien’s fantasy writings. Put another way, the 22-month-old investment firm, cofounded by influential investor Peter Thiel and his longtime colleague Ajay Royan, remains mostly a mystery, even to those in San Francisco, where it’s based.

That’s probably because local investors don’t see much of the firm, suggests Royan, sitting in a modern conference room at the firm’s well-appointed offices in the Presidio, where roughly a dozen people — principals to vice presidents who’ve worked for one of Thiel’s past companies — are trying to create a kind of modern-day Berkshire Hathaway.

More specifically, Mithril is assembling a highly concentrated portfolio of companies that most in Silicon Valley have never heard of, let alone would ever fund. (Think underwater robots in Toulouse, France, and a Boston-based technology company that’s enabling travelers to book train tickets the same way for every rail line.) It’s going long on these companies, too. When the firm raised $540 million for its debut fund, it turned not to institutional investors but “larger family endowments and sovereigns,” who agreed to let Royan and Thiel lock up their money for as long as 12 years. The pair, who personally contributed up to a fifth of the fund’s capital, told investors they wanted the option to wait out markets if necessary.

Of course, Berkshire Hathaway’s founder Warren Buffett famously doesn’t invest in technology. But Royan, who speaks in elegant paragraphs peppered with scholarly references, says that’s a product of timing. Tech was a “boom and bust” industry once, not a long-term bet. Today, he says, “If you ran the Warren Buffett gambit in 2014 de novo, you’d probably only be doing technology-driven investing, because that’s where you build [today's] lasting franchises.”

StrictlyVC talked with Royan last week; here’s some of that chat, edited for length:

You were born in India, raised in Abu Dhabi and graduated from Yale – a degree in political economy in hand — by age 20. What did you want to do, and how did you wind up working alongside Peter Thiel?

I wanted to be an industrial designer; I wanted to be an entrepreneur. And I became aware of Peter through mutual friends around a friend’s wedding in New York. At the time, he’d recently sold PayPal to eBay and was thinking about [starting his hedge firm] Clarium [Capital Management] and our initial conversations were around my joining him as an entrepreneur in residence and starting a company.

And you did, eventually becoming a managing director at Clarium. Why leave to co-found Mithril with Thiel in 2012? What was the impetus?

With a hedge fund, people can invest whenever they want but they can also redeem whenever they want; it doesn’t matter how successful you are. And a big macro event like the 2008 financial crisis created a [system-wide need for liquidity] precisely when, because you have convictions and a view of the future, you wanted to invest more. That led to a conversation about permanent capital and longer-term investing.

What was the initial idea?

The initial idea was to have permanent capital, for it to almost be like a corporation that would go public 15 years down the line, and Peter and I would happily lock up our own capital for that period. [But] that turned out to be a very radical proposal. People were like, “Whoa.” [Laughs.] So we ended up defaulting to a more standard fund structure. But we asked for people to be thoughtful about how to make it a long term fund, so it has almost a six-year investment period [so we can wait out frothy markets if we want]. It’s also . . . almost a 12-year fund, so when we talk with entrepreneurs, we can say [that while] we started in 2012, we can have a view inside this balance sheet all the way to 2024.

You’ve made seven bets so far, in very disparate types of companies. One of them is C2F0, a collaborative cash flow optimization company in Kansas City that tries unlocking capital trapped in trade relationships. What kind of process led you to the company?

There was this question-asking process basically saying: Are there things other than credit underwriting that make sense in an economy where it’s hard to mobilize capital? Who’s thinking about this? And our team ran a screen and we looked at companies in the space; we looked to see if they were working with good investors and whether they had a technology DNA, because you do have a lot of financial people who think about stuff like this, but we didn’t want a transactional business. We didn’t want to do an exchange on Wall Street.

How many companies do you talk with, who at the firm ultimately decides what Mithril will fund, and what size checks is the firm writing?

I think we’ve [funded] less than 1 percent of what we’ve looked at in the last 20 months . . . The investment committee is Peter and myself [because] we want to be able to make decisions quickly . . . And we make investments between $20 million and $100 million-plus in size.

Have you written a $100 million check?

We have a $100 million exposure, including reserves, to a company, already [though I can’t say which]. It’s not in stealth, but we haven’t announced the investment at the company’s request. But we do have about 20 percent of the fund committed to a single name at this point.

(We’ll be running more of our interview with Royan this week, readers, so stay tuned.)

DOD

New Fundings

PX Labs, a 3.5-year-old, Washington, D.C.-area startup that’s helping businesses use wearable tech to boost worker productivity, has raised $10 million in Series A funding led by New Enterprise Associates. The WSJ has much more here.

Baoku, a 6.5-year-old, Beijing-based, corporate travel and expense management startup, has raised $10 million in Series A funding led by China Broadband Capital and the telecom software firm Asiainfo-Linkagereports Tnooz.

BigTeams, a 12-year-old, Warrenton, Va.-based company that creates sites for high school athletic programs, has raised an undisclosed amount of funding led by Capital Sports Ventures, which was joined bySWaN & Legend Ventures and individual investors. (StrictlyVC introduced readers to Capital Sports Ventures a few months ago.)

CrowdRise, 3.5-year-old, Royal Oaks, Mi.-based crowdfunding platform for charitable causes, has raised $23 million in funding led by Union Square Ventures. Other participants in the round included Spark CapitalIndex VenturesRatPac EntertainmentBezos Expeditions, and CAA Ventures and United Talent Agency‘s venture fund.

Electric Cloud, a 12-year-old, Sunnyvale, Ca.-based company that offers continuous delivery products, services and support to businesses, has raised $12 million in Series E round with participation from Siemens’ Venture CapitalUS Venture PartnersMayfield FundRRE Ventures and Rembrandt Venture Partners. As TechCrunch notes, the company had first announced its Series E back in September; at the time it had raised $8 million, but it opened up the round for additional funding afterward. Electric Cloud has raised roughly $25 million to date, shows Crunchbase.

ProNAi Therapeutics, a 10-year-old, Plymouth, Mich.-based life sciences company, has raised $59.5 million in Series D after clinical studies showed that its lead cancer-fighting drug, PNT2258, can help non-Hodgkin’s lymphoma patients. Vivo Capital led the round, which included other new investors Frazier Healthcare VenturesOrbiMed AdvisorsAdams Street PartnersRA Capital ManagementCaxton Alternative ManagementHopen Life Science VenturesSectoral Asset Management, and Janus Capital Management. Earlier investors including Capital Midwest FundApjohn Ventures FundAmherst Fund, and Grand Angels also participated in the financing round (which comes just three months after ProNai raised $12 million in Series C funding). The company has raised roughly $93 million to date.

SimpliSafe, a 7.5-year-old, Cambridge, Ma.-based company that makes a portable, wireless home security system, has raised an undisclosed amount of funding from Sequoia Capital following an intense bidding war, reports TechCrunch. The company was started by HBS graduates Chad and Eleanor Laurans after several of their friends’ homes were robbed; today Chad Laurans is the CEO, while Eleanor is a senior principal at the Parthenon Group.

Yik Yak, an eight-month-old, Atlanta, Ga.-based maker of an anonymous app akin to Whisper and Secret, has raised $1.5 million in seed funding from investors, including Vaizra InvestmentsDCMAzure Capital Partners, and other angels. TechCrunch has more here.

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New Funds

Yesterday, the U.S. Department of Agriculture announced a new $150 million for-profit program designed to provide venture capital to help small agricultural businesses in rural areas. Called the Rural Business Investment Company, its capital will be managed by Advantage Capital Partners, a New-Orleans-based firm with experience in investing in small rural businesses. Agriculture Secretary Tom Vilsack said examples of the types of businesses that could receive money include biotechnology companies and regional food hubs. The Associated Press has more here.

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IPOs

Ulthera, a 10-year-old, Mesa, Az.-based aesthetic device developer, has filed paperwork with the SEC to raise around $86 million in an IPO. Its biggest shareholders are Apposite Capital, which owns 33.8 percent of the company, and New Enterprise Associates, which owns 40.8 percent.

Shares of Weibo, the Chinese social network, are still priced attractively to investors, apparently. Last week, during the company’s first day of trading, it shares soared 19 percent; yesterday, on Weibo’s second day of trading, the shares closed up another 12 percent — about 38 percent above their IPO price, notes Forbes.

Dozens of Chinese companies have dropped plans to list in the mainland this year, owing to an opaque regulatory review that’s clouding what was touted as a banner year for new stock debuts, reports Reuters. In fact, there have been no new China listing applications published for the last eight weeks, it notes.

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Exits

DigitalPersona, a 17.5-year-old, Redwood City, Ca.-based company that helps private and public companies manage their digital personas, including via biometrics, has been acquired by another biometric identity company, Cross Match, a Florida-based Francisco Partners portfolio company. Terms of the deal were not disclosed.

Protenergy Natural Foods, a 10-year-old, Richmond Hill, Ontario-based private-label food maker, has been acquired for $154.3 million in cash by publicly traded TreeHouse Foods of Oakbrook, Il.

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People

Pavel Durov, the founder of VKontakte, Russia’s most popular social network, said yesterday that he had been fired and that the site is now “under the complete control” of two close allies of President Vladimir Putin. (You might recall that last month, Durov said he was quitting, then later said his resignation was an April Fool’s Day joke.) Buzzfeed has the latest here.

Foundry Group cofounder Brad Feld has moved to a new home and put his old home in El Dorado Springs, Co., on the market.

Serial entrepreneur Sean Parker is diving more deeply into politics, reports Politico, though his aspirations aren’t exactly clear yet. According to the outlet, Parker has met privately in recent months with some starkly different politicians, including both Kentucky Sen. Rand Paul and New York City Mayor Bill de Blasio. Parker is co-hosting a San Francisco fundraiser for state Attorney General Kamala Harris this week, along with Yahoo’s Marissa MayerLaurene Powell Jobs and investors Ron ConwayMarc Benioff and John Doerr. And Parker has hired Chris Garland, who recently stepped down as chief of staff to California Lt. Gov. Gavin Newsom, to work in a political director role. More here.

Tom Preston-Werner, cofounder of GitHub, the well-funded open source code platform, is out the door in the wake of the company’s investigation into allegations of gender-based harassment by Julie Ann Horvath, a former software designer and developer at GitHub who tied her very public resignation to the behavior of both Preston-Werner and his wife, who is not an employee of GitHub. The company said it found no evidence of harassment by either but “evidence of mistakes and errors of judgment.” In his own post, Preston-Werner wrote that “I’ve made mistakes, and I am deeply sorry to anyone who was hurt by those mistakes.” He added that he wanted to be “very clear about one thing: neither my wife, Theresa, nor I have ever engaged in gender-based harassment or discrimination. The results of GitHub’s independent investigation unequivocally confirm this and we are prepared to fight any further false claims on this matter to the full extent of the law.”

If you liked “The Social Network,” you’re going to love “Crocodile in the Yangtze: The Alibaba Story,” a new film directed and produced by former Alibaba insider Porter Erisman and slated to be released worldwide on May 28. The story follows China’s first Internet entrepreneur and onetime English teacher Jack Ma as he grows Alibaba from an apartment startup into an Internet giant, challenging and beating eBay in China along the way. Investors Business Daily has more here on the award-winning documentary.

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Job Listings

Want to spend the summer in Israel? Intel Capital is looking to hire a student to support its investment managers in Israel and Europe.

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Essential Reads

AT&T, the nation’s second largest broadband provider and wireless company, is getting into the streaming business with a $500 million joint venture created to acquire, invest in and launch a Netflix-style video streaming service, reports GigaOm. The deal reportedly marks the first time a big U.S. ISP has decided to go over the top with a TV service.

Apple has been interviewing senior payments industry executives to push ahead on a plan to build an electronic payments business, according to Re/code sources.

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Detours

Actor Robin Williams is trying to sell his Napa Valley estate for $29.9 million. If you’re in the market for a 20,000-square-foot Tuscan villa on 650 acres, you can check it out here.

Nine tricks that Elon Musk, Jeff Bezos, and other top execs use to run meetings.

How to make your cat an Internet celebrity. (Related: cats wearing sunglasses. We find this last clip to be ridiculously funny, though admittedly, we’re very tired at the moment.)

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Retail Therapy

The Cherner Task Chair is back.

What BMW has in mind for its future 7-series sedan.

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