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True Ventures on Spotting Winning Teams
Since its 2005 founding, San Francisco-based True Ventures has been making seed-stage bets on startups, with an eye toward plugging up to $10 million into those that break out.
The firm’s strategy has worked with aplomb. True was the first investor in WordPress parent Automattic — one of the tech industry’s hottest private companies. True also wrote early, small checks to the video ad network Brightroll and the wearable device maker Fitbit, companies that have gone on to raise tens of millions of dollars from eager follow-on investors. I recently caught up with cofounder Jon Callaghan to discuss True’s model, how to know when a startup is souring, and what kinds of companies the firm is backing right now. Our conversation has been lightly edited for length.
True typically gets 20 percent of a company in return for a fairly small first check of $1 million to $2 million. How do you do it?
We’re investing a $200 million fund, so $1 million checks are half of one percent of the fund. If you think about that allocation, it lets us take on an incredible amount of risk. When things work, we have a large enough fund that we can support [the best investments] with $5 million or $10 million – and we do have $10 million in lots of companies. [With] our best companies, we’re the largest shareholder on the lowest cost basis because we were in there on day one.
Some of your founders have enjoyed success before and could presumably sell 20 percent of their company for a bigger check. Why don’t they?
We wouldn’t be doing them any favors by putting too much money in too soon. We’re actually much more aligned by saying, “Here’s $1 million to $2 million to take you through the next 18 to 24 months [to see if your idea works]. Is that worth 20 percent to you?” And it is. It’s a pretty good trade.
When you write a bigger check, you also start bumping into loss aversion. You really don’t want to lose that first check. If you’re in too heavy in the beginning, it’s really scary for any investor. And the last thing that any creative founder needs is a nervous investor.
True has now backed 120 companies. When do you know that you have a great team on your hands, and when do you know a startup is going south?
We like to see a constant thread through [founders’] experiences, meaning that when we hear their story, it’s really clear why they’re doing a particular company. We backed [former Wired editor] Chris Anderson [who founded the unmanned aerial vehicle company 3D Robotics last year] knowing there were a number of threads that led him to his company: his fascination with innovation; his kids’ curiosity in hacking Legos with remote control airplanes; and finally, just knowing that there’s nothing else in the world he’d rather be doing – and this is someone who could be doing anything.
When it comes to the downside, there are a lot of easy tells. Communication gets weird between a founder and the rest of the team. Things just don’t add up. When teams are in flow, you can see it and feel it. Their offices are alive with energy. Those are the good ones. If you spend time at a company and there’s not that energy, then you kind of have to say, “What’s going on here?” It’s usually because some basic stuff is missing. People aren’t on board the mission, or the founder or someone else took the product in a direction that isn’t really resonating with the rest of the team, or the team kind of didn’t have the trust required to get together in the beginning.
True first went after consumer Web companies, then SaaS companies, then infrastructure companies. What does your newest crop of portfolio companies look like?
We think this wave of software and mobile innovation will disrupt very large existing businesses. Hair color is one of two consumer packaged goods companies that we’ve done. In robotics, we’ve funded many interesting and wearable robotics companies that haven’t yet been announced. We now have one of the largest device and wearable portfolios that no one knows about. We also think the car industry, where there’s clearly a huge software opportunity, is really interesting.
It’s a big, scary market, and traditionally you might say, “What? You want to sell to automakers?” But we think there’s a really brilliant team doing something very bold and audacious, and we can and want to take a ton of risk with that first check.
(To read a previously published segment of our chat with Callaghan, on the “Series B Crunch,” click here.)
Lawdingo, a 22-month-old, San Francisco-based subscription service that connects people with attorneys who make themselves available by phone, has raised a fresh $690,000 in funding. The company, a graduate of the Y Combinator program, received the capital from Atsany Capital, Altair Capital, and numerous individual investors, including Nathaniel Stevens, Kartik Hosanagar, and Gene Alston.
LoopPay, a months-old, Woburn, Mass.-based company that’s working on a mobile payments platform, has raised $5.8 million of a $10.3 million offering, according to an SEC filing. The company has simultaneously been running a fundraising campaign on Kickstarter.
Musement, a year-old, Milan, Italy-based startup that providers users with information and ticketing services to museums, theater events, and even archaeological sites around Italy, has raised $950,000 in seed funding from 360 Capital Partners and Italian Angels for Growth.
PathoGenetix, a 16-year-old, Woburn, Mass.-based company that’s trying to commercialize some efforts around its genome sequence scanning technology, has raised $10 million in Series C funding. The round was financed by previous investors, including Ascension Health Ventures, Excel Venture Management and HealthCare Ventures. PathoGenetix last raised money in 2011, in an $11.5 million Series B round.
Revenew, a startup in Palatine, Ill. that has developed an online distributed marketing platform used largely by manufacturers, has raised $5 billion in Series B funding. The round was led by Allos Ventures, with TGap Ventures and Illinois Ventures also participating.
Runnable, a new, Palo Alto, Calif.-based startup that wants to make it easier to discover and reuse code snippets, has raised $2 million in seed funding from Sierra Ventures. Also joining in the round were Resolute VC, AngelPad, 500 Startups, and numerous individual investors, including Hiten Shah, cofounder of the analytics company KISSmetrics.
One of Israel’s newest venture funds appears to be raising fresh capital, possibly for a sidecar vehicle. Back in June, TechCrunch reported that Benchmark’s Michael Eisenberg and Genesis Partners’ Eden Shochat had joined forces to create a new, early-stage firm in Tel Aviv called Aleph. (According to an SEC filing, they raised $140 million for the effort this summer.) A new filing shows the duo has raised an additional $11.1 million of what is listed as a $14 million target
Kaiwu Capital, a China-based early-stage venture capital firm that last year set out to raise its first fund with a target of $150 million, is two-thirds of the way there, judging by a new SEC filing, which shows the fund has so far raised $98 million. The fund is also now called Kaiwu Walden Capital, suggesting that it’s now affiliated with the global venture firm Walden International. (In related news, the WSJ reports that venture activity in China is finally picking up, after a sluggish first half of the year.)
Montage Capital, an early-stage firm focused on investing in financial services, e-commerce, and resources like energy, food and water companies that are between their angel and Series A rounds, has raised $8 million in funding, according to a new SEC filing that shows the fund’s target as $25 million. Montage, based in Menlo Park, Calif., was founded by Todd Kimmel, who was most recently a general partner at Mayfield Fund, which he joined in 2009. Before Mayfield, Kimmel worked as a principal at Advanced Technology Ventures.
At least two very eager analysts have initiated coverage of Twitter‘s IPO with “buy” ratings.
Aggregate Knowledge, an eight-year-old, San Mateo, Calif.-based analytics firm, has been acquired by the 18-year-old telecom services firm Neustar for $119 million in cash and stock. Neustar was seemingly interested the audience segmentation and campaign planning services of Aggregate Knowledge, among other things. (Ad Age has a good write-up about the deal.) Aggregate Knowledge had raised about $64 million over the years, including from First Round Capital, Kleiner Perkins Caufield & Byers, DAG Ventures, OVP Venture Partners and Foundation Capital.
Avado, a three-year-old, Seattle-based maker of patient relationship management software, has been acquired by the publicly traded online health information provider WebMD. The price of the acquisition wasn’t publicly disclosed but TechCrunch sources say that Avado was purchased for an amount “in the $20 million to $30 million range.” Avado had raised just $1 million earlier this year, including from The Partnership Fund for New York City and healthcare-focused angel investors, including Andy Palmer.
ServiceMesh, a five-year-old, Austin-based cloud services management company, has been acquired by the publicly traded IT management company Computer Sciences Corp (CSC), in Falls Church, Va. Terms of the deal were not disclosed. ServiceMesh had raised $15 million from Ignition Partners in 2011.
The National Venture Capital Association and Cambridge Associates are releasing some new data through June 30 of this year, and they note that recent returns have boosted numbers across the 1-, 3-, 5-, 10- and 20-year horizons. They still don’t look great when compared with major public indices but it’s something! Click here to learn more.
There’s a new report out from UC Hastings law professor Robin Feldman, who surveyed roughly 200 VCs and their portfolio companies about patent assertion entities (PAEs). Law.com covers the news, but some highlights include that more than half of the VCs and 40 percent of the portfolio companies interviewed said the costs of defending against PAEs’ demands typically exceed $100,000. As for timing, Only 11 percent of companies surveyed said they were approached over alleged patent infringement within a year of their first round of funding. Nearly a third said they were approached before receiving any funding at all.
It’s Halloween! Enjoy it.
You might also want to check out the second day of Web Summit, in Cork, Ireland. If you don’t happen to strolling around Cork, you can catch some of the higher-profile presentations — including interviews with Atomico’s Niklas Zennström, DropBox CEO Drew Houston, and Tesla CEO Elon Musk — via a live stream at the Web Summit site.
Tassos Gianakakos is the new CEO of MyoKardia, a year-old, San Francisco-based company that’s developing therapies for genetic heart disease. Until now, the company has been led by interim CEO Charles Homcy, a venture partner at Third Rock Ventures, which invested $38 million in MyoKardia in a Series A round in September 2012. Gianakakos was most recently a senior VP and the chief business officer of the publicly traded biopharmaceutical company MAP Pharmaceuticals (since acquired by Allergan for $1 billion).
Actor and tech startup investor Ashton Kutcher has yet another new role: as a product engineer at Lenovo. It’s no joke.
It’s official. Star venture capitalist Michael Moritz received his knighthood from Queen Elizabeth yesterday at Buckingham Palace.
Yancey Strickler, a cofounder of the five-year-old, popular crowdfunding site Kickstarter, has been appointed as its chief executive, reports GigaOm. Meanwhile, cofounder Perry Chen, the company’s CEO until now, becomes its chairman.
Pinterest is looking for a partner operations manager to grow the number of businesses on the platform (and to recruit a team toward that end). Requirements include 10 years of experience in a related field, a love of both strategic and tactical work, and management experience.
Faced with inaction at the federal level, states are rushing to create privacy laws, creating a patchwork of rules that Internet companies will have to avoid overstepping.
Facebook released its third quarter numbers yesterday. The upshot, says AllThingsD: Marketers love us — teens, slightly less so.
Twitter was sued yesterday for $124 million by two financial advisers who say the company had them organize a private sale of its shares to stoke interest in its IPO, then canceled it.
Awkward Halloween photos.
These two win for best Halloween costumes ever.
Meet the guy who drove across the U.S. in a record 28 hours and 50 minutes.
In recognition of Movember, Esquire brings you the world’s longest moustache. This cookie duster began life 30 years ago and is now so long that its wearer has to wrap it around his neck several times before stuffing the rest of it deep into his turban. It’s a lot of work, but apparently, it is worth it. Says the man: “For me, the moustache is everything.”
Trongs and Dip Cups, for when you really want to eat, but you don’t want to touch your food like some lousy commoner.
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