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Starting a Venture Fund? Your Timing Could Be Better
Last Friday, at a conference in San Francisco organized by the fund and incubator program 500 Startups, a group of institutional investors took the stage to discuss their perspective on the venture industry. Much of what the limited partners had to say was fairly predictable. But the comments of one LP in particular — Fred Giuffrida, who joined Horsley Bridge Partners in 1995, after serving as the firm’s general counsel for 12 years — struck us as particularly interesting, partly because Giuffrida has seen more cycles than many of his peers.
While some of the panelists sounded enthusiastic about the potential of venture mega funds, for example, Giuffrida noted that the bigger the fund, “the ability to hit the kind of returns [that LPs expect] gets more difficult.”
When the LPs were asked about general partner commitments, some of the panelists remarked that they expect to see general partners contribute between two and five percent of a fund from their own pockets. Aaron Gershenberg, a managing director at Silicon Valley Bank, said he gets particularly “excited if I see someone willing to put up 10 percent” (and much less excited, he noted, when someone who is raising a subsequent fund reduces his or her GP commitment).
But Giuffrida was more of an outlier on the topic, saying that “if you push too much, you inject too much risk aversion into the program,” adding that “the last thing I want is a risk averse venture capitalist.” Giuffrida isn’t in the charity business, he made clear, but he also stressed that “there should be a balance and that it should be meaningful within the context of people’s net worth.” Today, he said, a venture capitalist’s bank balance can determine his or her fund’s size, “which doesn’t necessarily seem to be rational.”
Yet Giuffrida stood apart from his fellow panelists most notably when it came to broader market conditions. While several of the investors talked optimistically about the “macro opportunity,” Giuffrida observed that “there are two things that VCs do: They invest and they exit. It is a great time for exits,” he said, “and I think it’ll be a good time for a while more.”
Based on traditional market cycles, though, Giuffrida doesn’t think the good times will continue uninterrupted for much longer. Using the hypothetical boiled frog as a metaphor – the one that’s placed in a pot of warming water and doesn’t realize the danger it’s in and is boiled alive – Giuffrida said the “heat is slowly rising. I kind of think we’re at 160 degrees, give or take, which maybe means . . . a correction in the next two to four years.”
A crisis could strike, compressing that period, he said. “Or you could have a series of softer corrections that push it out further. But if it is two to four years out, this is the most dangerous time to start a fund,” he continued. “Now, and over the last couple of years — because by the time [that correction] hits, you’ll have spent all your money and your reserves.”
And you’ll be cooked.
Capillary Technologies, a six-year-old, Bangalore, India-based customer relationship management software company, is reportedly raising $15 million in Series B funding from earlier investors Norwest Venture Partners, Qualcomm Ventures, Sequoia Capital, and American Express Ventures. The company has raised at least $20.1 million previously, shows Crunchbase.
CoreOS, a two-year-old, San Francisco-based company that makes a scalable version of Linux custom-tailored for servers, has raised $8 million in Series A funding led by Kleiner Perkins Caufield & Byers. Earlier investors investors Sequoia Capital and Fuel Capital also participated in the round. CoreOS, a Y Combinator alum, had raised an undisclosed amount of seed funding last year, including from Andreessen Horowitz.
Earshot, a two-year-old, Chicago Heights, Il.,-based company whose technology helps brands identify and engage with customers who are located near their physical business location, has secured $1.7 million in seed funding, including from Birchmere Ventures, Centerboard Group, Mohr Davidow Ventures, Point B Capital, Serra Ventures and TriplePoint Ventures.
The Fancy, a five-year-old, New York-based online shop with eclectic goods curated by customers, is raising a new round of funding at a valuation of as much as $1.2 billion, says a Bloomberg source with “direct knowledge” of the matter. Such an investment would double the value of the company from last July, when it raised $53 million from investors, including American Express, billionaire Len Blavatnik and actor Will Smith.
Lisnr, a two-year-old, Cincinnati, Oh.-based company whose mobile applications, which employ ultra-sonic frequencies, aim to help users connect with brands at the right moment, has raised $3.5 million in funding, Venture Capital Dispatch reported on Friday. Progress Ventures led the round; other participants included CincyTech and Mercury Fund.
MapR, a five-year-old, San Jose, Ca.-based Hadoop vendor that competes with better-known companies like Cloudera, has raised $80 million in venture capital led by Google Capital. Qualcomm Ventures also participated in the round, along with earlier investors Lightspeed Venture Partners, Mayfield Fund, New Enterprise Associates, and Redpoint Ventures. As part of the round, MapR also raised $30 million in debt financing. The company has now raised $174 million altogether. GigaOm has much more here.
Mattermark, a year-old, San Francisco-based deal intelligence company focused primarily on venture-backed startups, has raised $2 million in seed funding, says CEO Danielle Morrill, who writes candidly about the process of landing the new round here. Mattermark has raised $3.4 million altogether from investors, including Andreessen Horowitz, Version One Ventures, Felicis Ventures, Flybridge Capital Partners, Slow Ventures, The Gramercy Fund, and many individual investors.
Milk Mantra Dairy, a five-year-old, Orissa, India-based consumer dairy foods company, has raised $13.08 million in Series C funding by Fidelity Growth Partners India. Earlier investor Aavishkaar India II Company also participated in the round. The company produces a range of dairy products under the brand Milky Moo.
MiRagen Therapeutics, a seven-year-old, Boulder, Co.-based biopharmaceutical company that’s developing therapeutics to treat cardiovascular and muscle disease, has received $7 million in funding as part of a $20 million Series B round raised in 2012, with the final $6 million expected to come in the next year to 18 months, depending on when certain therapies reach clinical trials. The company’s investors include Remeditex Ventures, Atlas Ventures, Boulder Ventures, Amgen Ventures and Broadview Ventures. The company has raised $45 million to date, according to Crunchbase.
Osper, a year-old, London-based banking service designed to be used by young people with their parents’ help and control, has raised $10 million in Series A funding led by Index Ventures. Horizons Ventures also participated in the round, along with numerous individual investors, reports TechCrunch. The company, which participated in TechStars London last year, has raised $11.2 million altogether.
Seriously Digital Entertainment, a 10-month-old, Finnish mobile game developer that was founded by two former Rovio executives last summer, has doubled its seed funding to $5 million led the Lebanon-based venture capital firm Daher Capital, which was joined by earlier investors Upfront Ventures and Sunstone Capital. Some of its first games are coming soon, its chief creative officer tells the WSJ, saying, “We will be showing and announcing them later this summer.”
UrgentRX, a four-year-old, Denver-based company that sells line of fast-acting, portable over-the-counter medications in powder form, has raised $17.5 million in Series C funding, including from earlier investors and billionaires Sam Zell and David Bonderman. New investors in the round include William Morris Endeavor, the talent agency. The company has now raised $27 million altogether, shows Crunchbase.
Wish, a nearly three-year-old, San Francisco-based mobile-shopping app owned by parent company ContextLogic, has raised $50 million in new funding from new investor Founders Fund and earlier investors Formation 8, GGV Capital, Legend Capital, and Yahoo Inc . co-founderJerry Yang. The company has raised $78.8 million to date, shows Crunchbase. Techcrunch has more here.
Yik Yak, an eight-month-old, Atlanta, Ga.-based company that acts as an anonymous community bulletin board, letting users view and reply to comments posted within a 1.5-mile radius, has raised $10 million in fresh funding led by earlier investor DCM. Azure Capital, Renren Lianhe Holdings, and investor Tim Draper also participated. The company has now raised $11.5 million altogether.
ZetrOZ, a 4.5-year-old, Trumbull, Ct.-based ultrasound technology company whose small, wearable device uses ultrasound therapy for pain relief, has raised a little more than $2 million a few months after securing 510(K) clearance from the FDA, according to a Form D. Among its backers are Connecticut Innovations, Standard Oil Ventures, Angel Investor Forum, Mass Medical Angels, Boston Harbor Angels and Launchpad Venture Group. The company has raised $6.8 million altogether, shows Crunchbase.
Kleiner Perkins Caufield & Byers, the 42-year-old, Sand Hill Road firm, is raising $450 million for its newest, early-stage fund, KPCB XVI, shows a new SEC filing. It’s separately raising a $750 million growth-stage fund, KPCB Digital Growth II. The funds are substantially smaller than their predecessors: the $525 million KPCB XV fund, raised in 2012, and the $1 billion inaugural Digital Growth fund, raised in 2010.
Rakuten, the 17-year-old, Japanese e-commerce giant, has just announced a new, $100 million fund designed to invest in startups across Asia-Pacific, as well as in Israel and the U.S. The vehicle will be overseen by managing partner Saemin Ahn, who is based in Singapore, reports Techcrunch. Rakuten is already an active startup investor and acquirer. In September of last year, it shelled out $200 million for Viki, a video site that has been described as Hulu for the rest of the world. It also acquired the messaging service Viber for $900 million in February of this year. Rakuten also led a $100 million round in the social bookmarking service Pinterest in 2012. Rakuten, which largely focuses on investing in discovery and social tools and large marketplaces, was founded by Hiroshi “Mickey” Mikitani, who is now one of Japan’s richest men.
SoftTech VC, a 10-year-old, seed-stage firm with offices in Palo Alto, Ca., and San Francisco, announced the closing an $85 million fourth fund on Friday. The firm had kicked off its fundraising last October. Founded by Jeff Clavier, SoftTech raised its first institutional capital — $15 million — in 2007. Bolstered by some earlier successes, including Mint.com, SoftTech VC added Charles Hudson as a venture partner in 2011 before closing on $55 million. The firm is now operated by Clavier; Hudson, who is now a partner; and Stephanie Palmeri, a principal. Its bets include the wearable fitness tracker Fitbit and Eventbrite, the event ticketing company.
Susa Ventures, a new, seed-stage firm with offices in San Francisco, New York, and L.A. , is announcing a $25 million debut fund this morning. The firm has four general partners: Eva Ho, who was most recently the VP of marketing and operations at venture-backed Factual and a senior product marketing manager at Google for five years before that; Leo Polovets, most recently a senior software engineer at Factual who also logged time at Google and was one of LinkedIn’s earliest engineers; Seth Berman, who was most recently the VP of strategic marketing at the Richemont Group, a publicly traded company that owns luxury brands like Cartier and Chloe; and Chad Byers, who was most recently a senior director at the advertising company Integrate and a marketing analyst at Silver Spring Networks before that. LPs include investors “from the venture and private equity sector, as well as CEOs and founders from the tech community,” says Ho, who tells StrictlyVC that the firm has already backed 20 companies, 17 of which are listed on its site. The firm says it backs startups focused on data platforms, analytics, and tools that produces network effects.
Lending Club, the eight-year-old, San Francisco-based online credit marketplace, has started the process for going public, tapping banks including Morgan Stanley and Goldman Sachs Group to work on an IPO for later this year, reports WSJ. The offering could reportedly raise more than $500 million.
Several biotech companies missed their expected IPOs last week, suggesting that a recent slump in the sector isn’t over. Silicon Valley Business Journal has more here.
HowAboutWe, a 4.5-year-old, Brooklyn, N.Y.-based online platform that recommends dating activities for singles, is on the cusp of being acquired by IAC, which owns dating properties Match.com, OK Cupid and a stake in the mobile dating site Tinder, reports Business Insider. The deal is expected to close today and to include layoffs.
Orkut, Google’s early social network, is shutting down roughly 10 years after it was started.
TalkBin, a customer feedback platform for businesses that was incubated at Y Combinator and then acquired by Google in 2011, is being shut down owing to “dwindling usage.” TalkBin was just five months old at the time of its acquisition; terms of the deal were never publicly disclosed.
Ulthera, a 10-year-old, Meza, Az.-based company that makes non-invasive ultrasound-based devices for aesthetic medical procedures, is being acquired for up to $600 million by the hundred-year-old, international healthcare company Merz Pharma Group. Ulthera had been planning to go public. The company raised at least $34.2 million in venture capital, shows Crunchbase. Its backers include Apposite Capital, New Enterprise Associates, and 3i Group.
Y Combinator‘s president, Sam Altman, says he is strongly opposed to co-working spaces or resident programs once a startup is up and running. “[T]he data shows pretty strongly that most of the really big companies started with their own door . . .It’s so important for startups to get their culture right at the start. They need to feel unique and that they are on their own important mission in the world.” The Silicon Valley Business Journal has more here.
Andreessen Horowitz general partner Chris Dixon believes Bitcoin’s army of mostly volunteer computer developers represents the largest R&D community in the world, telling the WSJ: “We bet on computer science innovation and since this is how computer science innovation happens today, this is the kind of stuff we bet on . . . I certainly wouldn’t want to bet against the 10,000 smartest people.”
Business Insider takes a look at the “fabulous life of Bill Gates.”
Anne Wojcicki, the 23andMe co-founder, charms the Washington Post, which just profiled Wojcicki’s “Washington charm offensive.” From the story: “Wojcicki considers herself a ‘freshman’ in Washington (she laughed, noting that she showed up at the roundtable in flip-flops because she’d arrived with only one dress shoe in her bag.) ‘I’m clearly just learning the system,’ she said.”
Airbnb is hiring a corporate development associate in San Francisco.
HarbourVest, the Boston-based private equity firm, is looking for two or three pre-MBA associates.
Meet Project Ara, the modular Google phone of the future.
Have we been interpreting quantum mechanics wrong this whole time?
Your Instagram photos aren’t where they used to be.
Real people, painted to look like two-dimensional works of art.
“In the face of the yelling, B. J. Perlmutt hesitated, then took the plunge. After all, this was boot camp, and wasn’t the point to break you down and make you a man? He was sweating a little but competently finished the task . . . The shrieking stopped. Mr. Perlmutt had changed his first diaper.”
The new Sony RX100 pocket camera. (David Pogue calls it “incredible.”)
Feeling grouchy? These might cheer you up.