• AngelList’s Naval Ravikant on His Syndicates Program, Two Months In

    navalEntrepreneurs Naval Ravikant and Babak Nivi have already done much to reshape the startup investing landscape with AngelList, their now four-year-old networking site that has largely replaced coffee meetings with Internet-based matchmaking. 

    In September, AngelList introduced another game-changer — its Syndicates program, which allows angel investors to syndicate investments themselves, work for which they receive carry. (An angel who syndicates a deal earns 15 percent of any upside, while AngelList collects 5 percent.)

    Though Syndicates is still nascent, I caught up with Ravikant yesterday afternoon to see who has begun using it and how it’s doing generally. Our chat has been edited for length.

    Can you give us a sense of the activity you’re seeing on Syndicates?

    I’d estimate that something like $5 million has moved through the platform already, with several million more dollars [committed but not yet closed]. About 24 deals have closed, and others are in various stages of closing.

    Do the deals involve many of the same people or are you seeing fairly disparate groups?

    A bit of both. Some people are using it more promiscuously to diversify their portfolio. Others are doing deals because the know the lead backer well and it’s a trust relationship. For example, you see [Path CEO and former Facebook exec] Dave Morin and other Facebook alums co-investing together and backing each other.

    Is anyone using the platform who you didn’t anticipate would?

    The biggest surprise has been VC interest. The response has been the highest from angels, but we’re in advanced stages of talking about how to do syndicates with four firms, and numerous others are using the platform as a way to scout out deals. As with their scout programs, they’re backing their portfolio CEOs when those CEOs go and find and fund great companies.

    Will we see a day when a person can raise $20 million via Syndicates to invest across numerous startups?

    The way it’s set up right now, you can [invest] deal by deal…So we’ll hold funds in escrow for one deal. What we’re not doing is [managing a] 10-year commitment. If [Google Ventures partner] Kevin Rose has $2 million in backing, that’s $2 million [for one] deal. But he can drop people, or they can drop out of the syndicate, any time.

    Has Kevin Rose made an investment through the platform yet? 

    There are three Google Ventures partners who have a lot of syndicate backing but haven’t done a deal yet.

    This whole thing seems like a great financial proposition for everyone but you. Is that true?

    The idea isn’t to make money in the short term. But yes, today, it’s a money loser. We take 5 percent of [any upside] so if a lead invests $100,000 personally in a company, then raises another $1 million off Syndicates, we get carry off that $1 million, or $50,000 [if the company sells for $10 million]. But most Syndicates are in the $250,000 or $300,000 to $750,000, so at the lower end, that’s about $10,000 for us. Meanwhile, our out-of-pocket fees – to set up the funds, handle customer accounting [and so forth] are $12,000. So we’re basically paying $12,000 for $10,000 in future profit.

    Why do it then?

    Because longer term, we think we can bring LLC costs down to $5,000. And as syndicate sizes grow, it starts to become marginally profitable.

    In the meantime, are you quietly investing a fund for anyone right now? At one point, you were talking about doing that after you’d invested a $20 million angel fund, Hit Forge.

    I’ve been offered to raise another; [Hit Forge included stakes in] Uber, Twitter and Stack Overflow. But investing is [just a side hobby] now, and I’m making all my investments through Syndicates. I get to follow my best friends into deals, and I don’t mind paying them for carry if it means I don’t have [as many] coffee meetings.

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  • StrictlyVC: November 20, 2013

    110611_2084620_176987_imageHappy Wednesday, and thank you for reading!

    —–

    Top News in the A.M.

    Tim Draper is leaving Draper Fisher Jurvetson, but not forever, he says, as was reported by Fortune yesterday afternoon. In an email to StrictlyVC last night, Draper said that Fortune “got it wrong. I am not leaving DFJ. Ever. I am just skipping a fund to do some work building Draper University and experimenting with new models for venture capital. I expect both my experimenting and my continued angel investing will provide great intelligence and deal flow to our team at DFJ. I will of course be an investor in any new fund we create.”

    Asked whether he will now be more involved with his personal investing vehicle, Draper Associates, which focuses on seed-stage opportunities, Draper wrote, “I started as an angel investor, and I continued throughout my career. It helps with deal flow, intelligence, etc.”

    Fortune reported yesterday that Draper isn’t the only one to be parting ways with the firm in the near future. According to its sources, cofounder John Fisher is also leaving, as are longtime managing directors Jennifer Fonstad and Don Wood and China investment chief Hope Chen. You can learn much more here. (Incidentally, StrictlyVC authored the now infamous cover story for which Draper posed as Captain America. For what it’s worth, it was the photographer’s last-minute idea, and Draper was very sporting about the whole thing.)

    —–

    In VC, Going it Alone, with Plenty of Company

    A growing number of venture firms have been springing up around a single general partner, including PivotNorth, led by Tim Connors; Acero Capital, led by Rami Elkhatib; Cowboy Ventures, led by Aileen Lee; and K9 Ventures, led by Manu Kumar.

    Now add to the list Cindy Padnos, the lone GP of Illuminate Ventures, an Oakland, Calif.-based outfit that is today announcing a new, enterprise-focused, $20 million fund. In a call on Monday, Padnos said she was able to raise the new pool after investing a “few million dollars” in an earlier, proof-of-concept “Spotlight Fund” that has taken off.

    Two of Spotlight’s five portfolio companies have been acquired: 3D game design platform Wild Pockets was purchased by Autodesk in 2010, and data and audience management platform Red Aril was acquired in 2011 by Hearst Corporation. (Terms of both deals remain private.) Meanwhile, the fund’s three other portfolio companies have been marked up considerably since Padnos invested. Among them: the SEO management platform company BrightEdge, which Illuminate backed as a Series A investor; the startup has gone on to raise nearly $62 million altogether, including from Battery Ventures, Intel Capital, and Insight Venture Partners.

    Padnos – a Booz, Allen consultant turned operator turned venture capitalist – gives a lot of credit for her success thus far to a venture partner in Seattle and an advisory counsel of roughly 40 people whom she has assembled over the years.

    She also believes she has struck on a strategy that clicks in a today’s market, investing in enterprise startups that are bootstrapped or angel financed but not quite ready for a large-scale Series A rounds.

    Indeed, Padnos — who says her “sweet spot” is writing initial checks of $500,000 as part of $1 million to $3 million rounds — has already made several new investments out of her new fund: Hoopla, a company that makes “workplace gamification” software; Influitive, a marketing company that analyzes data around social media; and Opsmatic, the newest startup by former Digg CEO Jay Adelson.

    Asked whether she is seeing any particularly interesting trends, Padnos tells me she’s most closely watching the “whole world of enterprise mobile.”

    But the growing group of single-founder firms that Illuminate has joined is fairly interesting, too.

    dropcam_300x250_learn

    New Fundings

    ALOHA, a two-year-old, New York-based company that makes nutritional supplements, has raised more than $4 million from a long list of investors, including First Round CapitalHighland Capital PartnersFF AngelKhosla Ventures and Forerunner Ventures. ALOHA’s funding comes just one month after a similar product, out of San Francisco-based Soylent, attracted $1.5 million in seed funding.

    Apartment List, a two-year-old, San Francisco-based company that consolidates the apartment listings of numerous services into a vast, searchable database, has raised a $15 Million Series A investment round led by Matrix Partners.

    August, a year-old, San Francisco-based maker of a “smart” lock for doors that can be controlled through a smartphone, has raised $8 million in Series A funding. Maveron led the round with participation from Cowboy VenturesIndustry VenturesRho Ventures and SoftTech VC. The company previously raised $2 million in seed funding from long line of angel investors.

    FinanceIt, a three-year-old, Toronto-based company whose software platform enables its customers to offer point-of-sale financing to their own customers, has raised a $13 million Series A round from TTV CapitalInter-Atlantic Group, and Second City Capital.

    LittleBits, a two-year-old, New York-based company that makes modular electronics that snap together for good-old user enjoyment, has raised a new, $11 million round of funding, according to an SEC filing that lists Joi Ito, True Ventures, and new investor Foundry Group. The funding appears to bring the capital that LittleBits has raised to date to around $15.5 million.

    —–

    People

    Chris Dixon, the angel investor-turned-VC, talked with investor-entrepreneur Semil Shah this past weekend about why he no longer tweets as actively as he once did. “I actually think Twitter has changed,” said Dixon. “Part of it is Twitter just got more popular…For me, the golden days of Twitter were 2010 maybe, 2011, where it was a bunch of early adopter/startup people…now, everyone realizes that if you say something wrong, it’s going to be excerpted and put on Business Insider…so I just think everyone is vastly more on guard, and it’s just not as fun.” (Click here to watch more of Dixon’s sit-down with Shah.)

    Andy Rachleff, the former Benchmark GP turned CEO of Wealthfront, argues against being stingy when it comes to follow-on equity grants for employees. Here’s what he specifically suggests.

    —–

    IPOs

    Yesterday, China‘s top securities regulator reiterated the country’s commitment to easing control over the IPO process, but he added that the government will intensify its audits of startups in order to prevent “more junk stocks.” (Reuters has much more here.) Last October, of course, the Chinese government banned IPOs because of volatility in the stock market and investor concerns over the financial reporting of some newly public companies.

    Trevena, a six-year-old, King of Prussia, Pa.-based clinical-stage biopharmaceutical company whose lead therapy is an intravenous treatment for acute decompensated heart failure, is scheduled to go public today. The offering is expected to raise $75 million and establish the company’s market cap at around $290 million. Trevena’s biggest shareholders include Alta PartnersHealthCare VenturesNew Enterprise Associates, and Polaris Venture Partners.

    —–

    Exits

    Tier 3, a seven-year-old, Bellevue, Wash.-based enterprise cloud management startup, has been acquired by the Louisiana-based telecommunications heavyweight CenturyLink. Terms of the deal were not disclosed. Tier 3 had raised $18.5 million over the years from Intel CapitalIgnition Partners, and Madrona Venture Group.

    —–

    Happenings

    Goldman Sachs Private Internet Company Conference gets underway in Las Vegas today. TechCrunch has its top-secret agenda, featuring the event’s speakers — who typically represent the startups that Goldman deems the most promising pre-IPO candidates. Unsurprisingly, the execs to present this year include Dave Goldberg of SurveyMonkey, Robert Hohman of Glassdoor, Carrie Dolan of LendingClub, Dave Gilboa of Warby Parker and, yes, Evan Spiegel of Snapchat.

    USB‘s annual, three-day Global Technology and Services Conference rolls into its second day in Sausalito, Calif. You can find the agenda here.

    —–

    Data

    According to CB Insights, all these investments in “quantified self” companies — startups whose technologies monitor consumers’ fitness and stress levels, among other things — are starting to add up. In fact, the research firm says venture investments in both hardware and software-related startups have reached $318 million over the last year. You can find more data on the trend here.

    —–

    Job Listings

    FT Partners, the San Francisco-based investment bank, is looking for an associate to join its SF office in a role that begins next July. According to the firm, associates are involved in “all aspects of originating and executing live transactions, including extensive financial modeling and analysis, company valuation, corporate and industry research, strategic analysis and recommendation, identification of business development opportunities, due diligence” etc. (You get the idea.) To apply, you need previous experience in investment banking, strategic consulting, venture capital, or in a similar industry that requires assigning value to companies.

    —–

    Essential Reads

    Let’s face it. We don’t know a single useful number about the hottest company in tech.

    FacebookPinterest? Puh-lease. Venture-backed Wanelo is where the action is happening now, suggests Buzzfeed.

    Touring the new, New York offices of payments startup Square.

    It’s too soon to break out the champagne, but two separate but similar patent troll bills are moving their way up in the Senate and House of Representatives.

    ——

    Detours

    George W. Bush is a surprisingly good artist, judging by this portrait of his daughter’s cat, Eleanor.

    —–

    Retail Therapy

    Japanese company EntreX created a chip dispenser for people who get their arms stuck in Pringles cans. Alas, the dispenser was recently discontinued; apparently the market wasn’t big enough, which is unfortunate, as you could see the product being a good fit for members of Congress. (Zing!)

    —–

    Please feel free to send us any and all story suggestions (anonymous or otherwise) by clicking hereIf you’re interested in advertising in our email newsletter, please click here. To sign up for the newsletter, visit strictlyvc.com.

  • In VC, Going it Alone, with Plenty of Company

    standing aloneA growing number of venture firms have been springing up around a single general partner, including PivotNorth, led by Tim Connors; Acero Capital, led by Rami Elkhatib; Cowboy Ventures, led by Aileen Lee; and K9 Ventures, led by Manu Kumar. 

    Now add to the list Cindy Padnos, the lone GP of Illuminate Ventures, an Oakland, Calif.-based outfit that is today announcing a new, enterprise-focused, $20 million fund. In a call on Monday, Padnos said she was able to raise the new pool after investing a “few million dollars” in an earlier, proof-of-concept “Spotlight Fund” that has taken off.

    Two of Spotlight’s five portfolio companies have been acquired: 3D game design platform Wild Pockets was purchased by Autodesk in 2010, and data and audience management platform Red Aril was acquired in 2011 by Hearst Corporation. (Terms of both deals remain private.) Meanwhile, the fund’s three other portfolio companies have been marked up considerably since Padnos invested. Among them: the SEO management platform company BrightEdge, which Illuminate backed as a Series A investor; the startup has gone on to raise nearly $62 million altogether, including from Battery Ventures, Intel Capital, and Insight Venture Partners.

    Padnos – a Booz, Allen consultant turned operator turned venture capitalist – gives a lot of credit for her success thus far to a venture partner in Seattle and an advisory counsel of roughly 40 people whom she has assembled over the years.

    She also believes she has struck on a strategy that clicks in a today’s market, investing in enterprise startups that are bootstrapped or angel financed but not quite ready for a large-scale Series A rounds.

    Indeed, Padnos — who says her “sweet spot” is writing initial checks of $500,000 as part of $1 million to $3 million rounds — has already made several new investments out of her new fund: Hoopla, a company that makes “workplace gamification” software; Influitive, a marketing company that analyzes data around social media; and Opsmatic, the newest startup by former Digg CEO Jay Adelson.

    Asked whether she is seeing any particularly interesting trends, Padnos tells me she’s most closely watching the “whole world of enterprise mobile.”

    But the growing group of single-founder firms that Illuminate has joined is fairly interesting, too.

    Sign up for our morning missive, StrictlyVC, featuring all the venture-related news you need to start you day.

  • StrictlyVC: November 19, 2013

    110611_2084620_176987_imageGood morning!

    —–

    Top News in the A.M. 

    Carriers flatly reject the notion of installing antitheft software onto phones, a move that would allow customers to deactivate their phones immediately when stolen. San Francisco’s district attorney, George Gascón, telling the New York Times the obvious, says he thinks the carriers are loath to give up the profits they make off insurance programs that consumers purchase to cover lost or stolen phones. Legislators are still trying to determine what action to take.
    —–

    Turning Bain Capital Ventures Into a West Coast Player

    Salil Deshpande, who spent seven years as a venture investor with Bay Partners, joined Bain Capital Ventures in March of this year, and he’s been working hard ever since. Deshpande is hoping to replicate his successful track record, with hits that include early investments in Buddy Media (acquired by Salesforce.com last year for $689 million) and the peer-to-peer lender LendingClub (now valued at more than $1.5 billion). Working alongside Bain’s one other West Coast managing director, Ajay Agarwal, in the firm’s Palo Alto office, Deshpande also wants to help Bain establish a stronger presence on the West Coast venture capital scene. I met recently with Deshpande to see how it’s going. Our conversation has been edited for length.

    How active is Bain Capital Ventures, and what size bets are you making?

    We’ve been very prolific; we’ve closed five deals in the last three months that haven’t been announced. We’ve announced a dozen others, including Aria Systems, a company that lets companies do recurring revenue management. We just led a $40 million round in the company.

    As for range, our smallest investment has been $250,000 and our largest has been $55 million in one company.

    How much are you investing, and how many partners does Bain Capital Ventures have altogether?

    We’re currently investing out of a $660 million fund raised in 2012. We raise a new fund every two-and-a-half years or so, so the pace of investing is high. We have nine managing directors: two here, six in Boston, and one in New York.

    Do the nine of you have to agree on every deal?

    First, we classify deals as early or growth. With growth deals, everyone who wants to come and do the work is invited. When it comes to early-stage deals, there are just five managing directors [who decide whether or not to move forward]. And the managing director who is sponsoring the deal decides on who the four other people will be.

    Don’t partners then choose only those individuals who they think will support a deal?

    Not necessarily. I always pick partners who will be critical and have the most knowledge and understanding about the deal. I don’t want to do bad deals. And these are some of the smartest guys I’ve worked with.

    Is it hard, trying to establish Bain as a venture entity in this crowded, West Coast market? 

    There are pros and cons. Bain is a very strong, positive brand. It stands for private equity, large deals, buyouts. It stands for discipline, thoroughness, thoughtfulness, [and] being data-driven. We’re also known for philanthropy work in the Boston community.

    The challenge is that the brand stands for something that doesn’t correspond exactly with what we’re trying to do [out] here, where you have to be a little faster [and] a little more responsive to the market. But the nice thing is that things are really working out here, so the brand will catch up.

    Do local entrepreneurs understand that Bain Capital Ventures is a venture firm and not a unit of Bain Capital?

    This market hasn’t been educated on a couple of things. First, that we exist. [Laughs.] Second, what is Bain Capital trying to accomplish? Sometimes it takes a conversation or two to let people know that we’re just like any other venture fund. We have carry and comp that’s just like other firms. We’re independent – our investment committee is just the nine of us. We have an overlap of limited partners with other Bain Capital funds, but some people incorrectly assume that we’re an evergreen fund with big Bain Capital as a solo LP. We’re like a lot of our peers, except that we happen to be part of a really big franchise.

    You’ve said the firm is very data driven. How is that impacting your investing style?

    There’s a value placed on being thorough and smart, which isn’t the case in all firms. They look at more metrics. Some [investors] are more intuitive and gunslinging. In the past I’ve relied on domain knowledge and intuition. So I think it’s been a very good education for me to be less intuitive and more thorough. When doing due diligence, I used to talk to a few customers. Now I talk to a dozen.

    dropcam_300x250_learn

    New Fundings

    Aria Systems, a 10-year-old, San Francisco-based company that offers its clients cloud-based recurring revenue management, announced today that it has raised $40 million in its fourth round of funding. The round was led by Bain Capital Ventures and included existing investors Hummer Winblad Venture PartnersInterwest PartnersTugboat Ventures, and Venrock as well as VMware, bringing the total funds raised to date to $83 million.

    BTC China, a two-year-old, Shanghai-based bitcoin trading platform, has raised $5 million Series A from Lightspeed China Partners and Lightspeed Venture Partners, reports TechCrunch. Until now, the company has been bootstrapped by founders Bobby LeeLinke Yang, and Xiaoyu Huang. You can learn more here.

    Collective IP, a two-year-old, Boulder, Colo.-based repository of tech transfer data, has raised $2.4 million from Tango/High Country Venture among others, according to an SEC filing. The company had previously raised a $1.05 million seed round last year.

    HipLogiq, a year-old, Dallas-based, Twitter data mining startup, has raised $7 million in Series B funding from Hadron Global Partners. The company has raised $12 million altogether.

    Index, a months-old, San Francisco-based retail software company, has raised $7 million in Series A funding led by Innovation EndeavorsKhosla VenturesAIMCo and 819 Capital. The company was founded by former Google Wallet executives Marc Freed-Finnegan and Jonathan Wall.

    Kabbee, a 2.5-year-old, London-based price comparison service for London’s minicabs, has raised $5.76 million led by Octopus Investments. In fall of last year, the company raised its first funding, $3.25 million, from Samos InvestmentsPentland Group, and Redbus Group, among others.

    LeCab, a year-old, Paris-based company that competes with Uber in Europe, has raised $6.8 million in Series B funding. The company isn’t disclosing who its investors are, but its CEO, Benjamin Cardosotells TechCrunch not to worry about such details, explaining that they are “fortysomething French entrepreneurs who created their startups around 10 years ago.” So French! The company has previously raised $4.1 million.

    LightSail, an 18-month-old, New York-based education technology startup, has raised $3.5 million in Series A funding, according to VentureWire. The company, which aims to improve students’ literacy in elementary and secondary schools, raised the money from a long list of individual investors, including Ricardo Sagrera of Viceroy Ventures; Joel Greenblatt of Gotham Capital; Chuck Strauch, former chairman and CEO of PairGain Technologies; and Seamless.com co-founder Paul Appelbaum.

    Mojave Networks, a two-year-old, San Mateo, Calif.-based company whose cloud-based software is used by enterprises to block malware or other threats from employee mobile devices, has raised $5 million. The round was led by Bessemer Venture PartnersSequoia Capital, which previously invested more than $1 million in seed funding in the company, also participated in the round.

    SimpliVity, a four-year-old, Westborough, Mass.-based company, has raised $58 million led by Kleiner Perkins Caufield & Byers and Draper Fisher Jurvetson. New investors Meritech Capital Partners and Swisscom AG also joined the round, along with previous investors Accel Partners and Charles River Ventures. SimpliVity has now raised more than $101 million for its OmniCube appliance, which can reportedly handle the work of multiple appliances — from server virtualization to networking to WAN optimization — and for less cost.

    TriVascular, a 15-year-old, Santa Rosa, Calif.-based company that makes stent grafts for treating abdominal aortic aneurysms, has raised $40 million in Series E financing. Investors in the round included New Enterprise AssociatesDelphi VenturesMPM CapitalKearny Venture PartnersKaiser Permanente Ventures, the Redmile GroupDeerfield ManagementRock Springs Capital and Permal Asset Management. The company has raised about $255 million over the years, according to Crunchbase.

    —–

    New Funds

    Crosslink Capital, a San Francisco-based venture capital and growth equity firm, is officially in the market for its seventh fund, according to an SEC filing first flagged by peHUB. The filing doesn’t list a target and it states that the first sale has yet to occur. Crosslink had closed its sixth, $200 million fund in September 2011 after two years of fundraising. That pool was slightly smaller than the firm’s fourth and fifth funds, which both exceeded $225 million. Though the firm invests in both young and more mature businesses, it typically aims to invest between $10 million and $30 million into each of its portfolio companies.

    —–

    People

    Dave Goldberg, CEO of SurveyMonkey, tells the San Jose Mercury News that his well-funded company has no plans to IPO anytime soon. “We’re never going to rule out going public, because there can be good reasons to go public. We just don’t feel like we have those reasons,” he says.

    Shirish Sathaye, who joined Khosla Ventures as a GP three years ago, has left the firm, says Fortune’s Dan Primack. A spokeswoman for the firm confirmed that Sathaye’s last day was Friday. You can learn a bit more here. Prior to joining Khosla, Sathaye spent nearly a decade with Matrix Partners. Before jumping into venture capital, Sathaye spent four years as the VP of engineering at Alteon Websystems.

    —–

    Happenings

    USB‘s annual, three-day Global Technology and Services Conference gets underway today at scenic Cavallo Point, a stone’s throw from the Golden Gate Bridge in Sausalito, Calif. The event provides investors the chance to hear from global tech giants; you can find the agenda here.

    It’s also day two of Salesforce.com‘s Dreamforce conference in San Francisco.

    —–

    Data

    According to Pitchbook, 35 funds raised between $250 million and $500 million in 2007. Their median IRR as of this writing: 4.02 percent. The top performers include ARCH Venture Fund VIIShasta Ventures IITechnology Partners Fund II, and Tenaya Capital V.

    —–

    Job Listings

    Capital One, the giant U.S. bank, has launched a new digital venture Investing group, and it is looking for a senior associate to evaluate and help lead strategic venture investments in “digital startups” on its behalf. To apply, you need at least three years of experience in management consulting or investment banking and an undergraduate degree. Preferred qualifications include some consumer financial services experience and a willingness to travel up to 30 percent of the time.

    —–

    Essential Reads

    Dropbox is in the market for a fresh $250 million, sources tell Bloomberg’s Ashlee Vance, and it plans to raise the money at a valuation of more than $8 billion.

    Finland’s technology startups have long viewed Silicon Valley as a gateway to funding and global recognition. But now, they’ve found an alternative closer by: Russia, whose venture firms are snapping up Web, software, and nanomaterials stakes.

    —–

    Detours

    Ruh roh. Most of the world’s solar panels are facing the wrong direction.

    There’s an iceberg roughly the size of Chicago floating around out there, and no one knows quite where it’s headed.

    Pictures of a toddler who naps with his two-month-old puppy every day. (We had to do it; it’s too cute.)

    —–

    Retail Therapy

    Pop open this mobile workstation at an airline gate and watch the TSA swarm!

    Would you ever dare, eat a Burt Reynolds éclair?

    —–

    Please feel free to send us any and all story suggestions (anonymous or otherwise) by clicking hereIf you’re interested in advertising in our email newsletter, please click here. To sign up for the newsletter, visit strictlyvc.com.

  • Turning Bain Capital Ventures Into a West Coast Player

    SalilSalil Deshpande, who spent seven years as a venture investor with Bay Partners, joined Bain Capital Ventures in March of this year, and he’s been working hard ever since. Deshpande is hoping to replicate his successful track record, with hits that include early investments in Buddy Media (acquired by Salesforce.com last year for $689 million) and the peer-to-peer lender LendingClub (now valued at more than $1.5 billion). Working alongside Bain’s one other West Coast managing director, Ajay Agarwal, in the firm’s Palo Alto office, Deshpande also wants to help Bain establish a stronger presence on the West Coast venture capital scene. I met recently with Deshpande to see how it’s going. Our conversation has been edited for length.

    How active is Bain Capital Ventures, and what size bets are you making?

    We’ve been very prolific; we’ve closed five deals in the last three months that haven’t been announced. We’ve announced a dozen others, including Aria Systems, a company that lets companies do recurring revenue management. We just led a $40 million round in the company.

    As for range, our smallest investment has been $250,000 and our largest has been $55 million in one company.

    How much are you investing, and how many partners does Bain Capital Ventures have altogether?

    We’re currently investing out of a $660 million fund raised in 2012. We raise a new fund every two-and-a-half years or so, so the pace of investing is high. We have nine managing directors: two here, six in Boston, and one in New York.

    Do the nine of you have to agree on every deal?

    First, we classify deals as early or growth. With growth deals, everyone who wants to come and do the work is invited. When it comes to early-stage deals, there are just five managing directors [who decide whether or not to move forward]. And the managing director who is sponsoring the deal decides on who the four other people will be.

    Don’t partners then choose only those individuals who they think will support a deal?

    Not necessarily. I always pick partners who will be critical and have the most knowledge and understanding about the deal. I don’t want to do bad deals. And these are some of the smartest guys I’ve worked with.

    Is it hard, trying to establish Bain as a venture entity in this crowded, West Coast market? 

    There are pros and cons. Bain is a very strong, positive brand. It stands for private equity, large deals, buyouts. It stands for discipline, thoroughness, thoughtfulness, [and] being data-driven. We’re also known for philanthropy work in the Boston community.

    The challenge is that the brand stands for something that doesn’t correspond exactly with what we’re trying to do [out] here, where you have to be a little faster [and] a little more responsive to the market. But the nice thing is that things are really working out here, so the brand will catch up.

    Do local entrepreneurs understand that Bain Capital Ventures is a venture firm and not a unit of Bain Capital?

    This market hasn’t been educated on a couple of things. First, that we exist. [Laughs.] Second, what is Bain Capital trying to accomplish? Sometimes it takes a conversation or two to let people know that we’re just like any other venture fund. We have carry and comp that’s just like other firms. We’re independent – our investment committee is just the nine of us. We have an overlap of limited partners with other Bain Capital funds, but some people incorrectly assume that we’re an evergreen fund with big Bain Capital as a solo LP. We’re like a lot of our peers, except that we happen to be part of a really big franchise.

    You’ve said the firm is very data driven. How is that impacting your investing style?

    There’s a value placed on being thorough and smart, which isn’t the case in all firms. They look at more metrics. Some [investors] are more intuitive and gunslinging. In the past I’ve relied on domain knowledge and intuition. So I think it’s been a very good education for me to be less intuitive and more thorough. When doing due diligence, I used to talk to a few customers. Now I talk to a dozen.

    Sign up for our morning missive, StrictlyVC, featuring all the venture-related news you need to start you day.

  • StrictlyVC: November 18, 2013

    110611_2084620_176987_imageGood Monday morning!

    —–

    Top News in the A.M.

    The Department of Justice and the SEC tell a U.S. Senate committee that bitcoins are legitimate financial instruments, boosting prospects for their wider acceptance.
    —–

    VCs Want to Know: What’s Next?

    It’s getting tough out there for entrepreneurs. No longer is it enough to create a sustainable, profitable, fast-growing product that’s beloved by customers.  These days, top VCs are placing a premium on what’s next.

    Andreessen Horowitz is “generally willing to take more risk on a product that hasn’t yet been built,” Marc Andreessen told me last month.

    “We want to be in the most extreme propositions — the sort of thing where it’s either a moonshot or a smoking crater in the ground,” he explained. Toward that end, he’d said, “We’re willing to impute value into [what’s coming next out of a startup] if we’re highly confident that the team can build it and that the market is really going to want it.”

    Ranjith Kumaran has seen this focus on the future vision first-hand. Kumanran, who cofounded the file sharing and online data storage company YouSendIt (renamed Hightail last July), is CEO of PunchTab, a nearly three-year-old loyalty and engagement platform that helps customers like Arby’s Restaurant Group create instant loyalty programs.

    PunchTab’s trajectory has been impressive. In addition to growing revenue five times over last year, it has expanded its enterprise customer base from 10 to more than 40. Nevertheless, Kumanran finds that the VCs with whom he meets care most about Punchtab’s “next-horizon solutions”; they want entrepreneurs to paint a picture.

    “I believe that wasn’t the case before,” he observes. “Series B was about how fast you’re growing and how you get to next revenue [milestones].”

    If VCs are no longer enamored of velocity alone, the shift likely owes to a number of factors, beginning with the fact that fewer venture firms have come to control greater amounts of capital and need bigger returns than ever to justify such pools.

    “It’s a very different dynamic today,” says Brian O’Malley, a general partner at Battery Ventures. “The market has gone from venture people sitting in their office, waiting for whatever company to come and pitch them, to chasing the companies that everyone else wants to invest in. If you’re part of that inner crowd, life is very good and there’s lots of money being thrown at you.”

    You just need some imagination to get there.

    dropcam_300x250_learn

    New Fundings

    Aileron Therapeutics, an eight-year-old, Cambridge, Mass-based clinical stage biopharmaceutical company that is developing cancer drugs, has raised $30 million in Series E equity financing from existing investors, including Apple Tree PartnersRoche Venture FundNovartis Venture FundsLilly VenturesSR One and Excel Venture Management. The company has raised more than $100 million since its founding, says Xconomy, which reports on the company and its new round here.

    Catabasis Pharmaceuticals, a five-year-old, Cambridge, Mass.-based clinical-stage company that’s focused on treating inflammatory and metabolic diseases, has raised $32.4 million in Series B financing. The round was led by Lightstone Ventures; previous investors SV Life SciencesClarus VenturesMedImmune Ventures, and Advanced Technology Ventures also participated in the round. The financing brings the total capital raised by Catabasis to roughly $100 million.

    GenapSys, a three-year-old, Redwood City, Calif.-based gene sequency startup, has raised $37 million in Series B funding. Investors in the round included Decheng Capital, IPV Capital, Stanford’s StartX fund, and early Facebook investor Yuri Milner. The company has raised $45.5 million to date, according to Crunchbase.

    Knozen, a months-old, New York-based startup that’s currently in stealth mode but sounds a bit like a newer Tickle — the personality-focused quiz site that was acquired by Monster in 2004 — recently raised $2.25 million in seed funding, according to TechCrunch. The company’s investors include FirstMark CapitalLerer Ventures and Greycroft Partners.

    MovieLaLa, a year-old, San Francisco-based social network for movie fans looking to discuss upcoming movies, has raised an undisclosed amount of seed funding. Investors in the round included Wealthfront COO Adam Nash; former HBO executive Jim Moloshok; and Larry Braitman, who cofounded Flycast Communications in 1996.

    Sittercity.com, a 12-year-old, Chicago-based source for in-home care, has raised $13 million in funding. Publicly traded Bright Horizons Family Solutions participated in the funding. (It now intends to work with Sittercity to help more families find child care.) Plenty of previous investors also joined in the round, including Apex Venture PartnersBaird Venture CapitalI2A FundsPoint Judith CapitalPritzker Group Venture CapitalState of Wisconsin Investment Board and new debt provider Square 1 Bank. SIttercity has raised just north of $30 million to date, according to Crunchbase.

    Slyce, a two-year-old, Calgary-based company whose technology invites users to photograph a product with their phones, after which it presents them pricing, reviews and the ability to buy the product, has raised $2.2 million. Its investors weren’t named, but the Calgary Herald has a feature story on the company here if you want to learn more.

    Station X, a three-year-old, San Francisco-based company whose software helps scientists and clinicians store, analyze and visualize large-scale genomic data, has raised a fresh $8.6 million, shows an SEC filing that suggests the company is hoping to raise up to $20 million for the round. The company’s existing investors include Runa Capital and Genomic Health. Station X has raised about $15 million to date.

    Talari Networks, a four-year-old, San Jose, Calif.-based company that works with enterprises to ensure their network reliability, has raised $15 million led by new investor Four Rivers Group. Existing investors, including Menlo Ventures and Silver Creek Ventures, also participated. The company has raised roughly $33 million to date.

    —–

    New Funds

    Mark Gorenberg, a managing director who joined the venture firm Hummer Winblad in 1990, is striking out on his own. According to a new SEC filing, Gorenberg is raising a $40 million fund under the new, San Francisco-based brand Zetta Venture Partners. The Form D shows the first sale has yet to occur; no one other than Gorenberg is listed on the filing. Before joining Hummer Winblad, Gorenberg was an executive at Sun Microsystems. Gorenberg most recently participated in the late October, $1.5 million seed funding of San Francisco-based Pixlee, which provides brands with a platform to create, manage and measure user-generated photo and short form video campaigns.

    —–

    IPOs

    A European IPO revival is under way, and London is seeing the most activity, reports Reuters.

    Share of Zulily, the four-year-old, Seattle-based flash deals site for mothers, soared 71 percent in trading on Friday. The WSJ has more here.

    —–

    Exits

    Latista, a 12-year-old, Reston, Va.-based company that makes workflow and collaboration software for the construction industry, was acquired late last week for $35 million by Textura, a publicly traded competitor. Latista’s investors include Blu Venture Investors, a Vienna, Va., venture capital firm focused on early-stage investments in the Mid-Atlantic region, and Berman Venture Capital, a Rockville, Md., firm.

    —–

    People

    Jeremy Hammond, the Anonymous hacktivist who released millions of emails relating to the private intelligence firm Stratfor, was sentenced on Friday in a Manhattan federal court to 10 years in jail. He told the Guardian that he sees his sentence as a concerted attempt by U.S. authorities to put a chill on political hacking.

    Business Insider founder Henry Blodget gets taken to lunch by the Financial Times and pitches his interviewer on the idea of combining enterprises. “We would actually be perfect for a merger. You can take that back [to the FT],” Blodget says.

    —–

    Happenings

    Salesforce.com’s four-day Dreamforce conference gets underway today in San Francisco, with founder Marc Benioff in conversation with Dropbox cofounder Drew Houston in late afternoon. You can find out more here.

    —–

    Data

    What happens in Vegas…sometimes draws venture funding. According to new data from Pitchbook, investment in the state is on the rise (surely with some thanks to the efforts of entrepreneur-investor Tony Hsieh). Since the beginning of 2009, 34 Nevada-based startups have attracted venture funding, and the amounts they’ve raised is growing by the year. Pitchbook says that the $32 million that local companies have raised so far in 2013 already surpasses that $30 million that Nevada startups raised in 2012.

    —–

    Job Listings

    Fenox Venture Capital, a two-year-old, San Jose, Calif.-based is looking to hire a venture partner to help the firm spot promising investment opportunities in the consumer Internet, retail and software sectors. A “distinguished educational and professional background, including executive management experience at well-regarded companies” is required. It’s a part-time position.

    Dow Jones reported last month that Fenox had raised $20 million toward its third fund, which is targeting $60 million from large corporations, funds of funds, and family offices. Part of the firm’s mission, said Dow Jones, is “landing and expanding startups in Asia.”

    —–

    Essential Reads

    Fighting an Internet risk that technology can’t fix: People.

    The New Yorker takes a look at self-driving technologies and the details are fascinating. Among them: Volvo has a full-time forensics team and whenever a Volvo gets into an accident within a sixty-mile radius of its Swedish headquarters, the team races to the scene with local police to assess the wreckage (and add to four decades of such research). Meanwhile, Nissan, Toyota and Mercedes are probably closest to developing systems like Google’s self-driving cars but hesitate to introduce them for different reasons, including aesthetics. Ralf Herrtwich, Mercedes’s director of driver assistance and chassis systems, tells The New Yorker: “One of my designers said, ‘Ralf, if you ever suggest building [a laser turret atop] one of our cars, I’ll throw you out of this company.’ ”

    Facebook addiction has given way to Facebook fatigue, among users, as well as developers, reports the New York Times.

    The rise of the Twitter bots.

    —–

    Detours

    Who gets into Stanford? In short, it’s complicated. “[O]ne year, being a tuba player might be really important. And another year, well, there are already these five even better tuba players and we don’t need another.”

    Fascinated with the idea that two totally unrelated people can look like twins, photographer Francois Brunelle set out to take portraits of 200 doppelgangers. (This blew our mind.)

    That clam in your chowder might be hundreds of years old.

    Art on a plate.

    —-

    Retail Therapy

    It’s almost Thanksgiving, a time for talking, a time for turkey, a time for, yes, says GQ, some new wool ties.

    Brass ID bracelets for men are now considered fashionable. We have no idea how this happened, but unless you are a soldier or a male model, just keep moving.

    —–

    Please feel free to send us any and all story suggestions (anonymous or otherwise) by clicking hereIf you’re interested in advertising in our email newsletter, please click here. To sign up for the newsletter, visit strictlyvc.com.

  • VCs Want to Know: What Else Have You Got?

    whatchou gotIt’s getting tough out there for entrepreneurs. No longer is it enough to create a sustainable, profitable, fast-growing product that’s beloved by customers.  These days, top VCs are placing a bigger premium on what’s next.

    Andreessen Horowitz is “generally willing to take more risk on a product that hasn’t yet been built,” Marc Andreessen told me last month.

    “We want to be in the most extreme propositions — the sort of thing where it’s either a moonshot or a smoking crater in the ground,” he explained. Toward that end, he’d said, “We’re willing to impute value into [what’s coming next out of a startup] if we’re highly confident that the team can build it and that the market is really going to want it.”

    Ranjith Kumaran has seen this focus on the future vision first-hand. Kumaran, who cofounded the file sharing and online data storage company YouSendIt (renamed Hightail last July), is CEO of PunchTab, a nearly three-year-old loyalty and engagement platform that helps customers like Arby’s Restaurant Group create instant loyalty programs.

    PunchTab’s trajectory has been impressive. In addition to growing revenue five times over last year, it has expanded its enterprise customer base from 10 to more than 40. Nevertheless, Kumaran finds that the VCs with whom he meets care most about Punchtab’s “next-horizon solutions”; they want entrepreneurs to paint a picture.

    “I believe that wasn’t the case before,” he observes. “Series B was about how fast you’re growing and how you get to next revenue [milestones].”

    If VCs are no longer enamored of velocity alone, the shift likely owes to a number of factors, beginning with the fact that fewer venture firms have come to control greater amounts of capital and need bigger returns than ever to justify such pools.

    “It’s a very different dynamic today,” says Brian O’Malley, a general partner at Battery Ventures. “The market has gone from venture people sitting in their office, waiting for whatever company to come and pitch them, to chasing the companies that everyone else wants to invest in. If you’re part of that inner crowd, life is very good and there’s lots of money being thrown at you.”

    But you need some imagination to get there.

    Sign up for our morning missive, StrictlyVC, featuring all the venture-related news you need to start you day.

  • StrictlyVC: November 15, 2013

    110611_2084620_176987_imageHappy Friday, everyone! Enjoy your weekend, and we’ll see you Monday.

    —–

    Top News in the A.M.

    U.S. computer and software companies say sales to China have abruptly cooled off, and they blame growing government hostility toward the U.S.
    —–

    Battery Ventures on CPG: It’s Simple, Great Product Wins

    Last week, I met up with Battery Ventures’ Brian O’Malley, who invests in a range of things but has been particularly successful leading some of the firm’s e-commerce investments. Among the related companies that O’Malley has championed at Battery are Skullcandy, the now public earphone maker; the fast-growing grooming products startup Dollar Shave Club; and high-end home furnishings company Serena & Lily. 

    While e-commerce has been falling in and out of fashion on an almost yearly basis, O’Malley suggests that making smart retail bets, including on consumer packaged goods companies, isn’t that complicated. He starts with knowing what not to do, like focusing on the “things that are already done versus the things that are yet to come.” He elaborated during our sit-down. Our chat has been edited for length.

    You seem to be a big fan of consumer packaged goods companies. But they have a spotty track record. What’s the appeal?

    The good thing about CPG is high-frequency purchase rates. Take Dollar Shave Club. Guys shave every day, and once you get that staple, you [then sell] the toothpaste and hair gel and aftershave. There’s a whole list of products that you can add on afterwards. With CPG, you can very quickly get to hundreds of dollars of spend per customer.

    Is the trick to avoid low-margin businesses?

    Low margins are part of the challenge. CPG companies are also logistically complicated, they take a lot of money and time to scale, and there’s a big change [required] in behavior. So if I’m a Gillette customer, I might not like the idea of spending $20 for razor blades, but I don’t go to Google and type in “razor blades.” So companies typically have to spend a fair amount of money to gain visibility and change consumer thinking.

    Is there a model way to invest in these types of companies then?

    Well, if you need to raise big money to scale them over time — $25 million to $50 million rounds – you’re at the whim of what’s exciting to big money at that time. That’s the issue. So the types of things we’ve invested in on the consumer side have very quick payback periods on the unit economics. So you’re either paying back your advertising in three to four months because the advertising is cheap and the margins are good, or there’s more of this shared-risk model where you’re paying either a sales rep or an affiliate based on what’s actually sold. That way you’re always kind of marginally profitable.

    You make it sound so easy. Where do you think some of the bigger-known names, like Beachmint and ShoeDazzle and Fab, have gone wrong?

    Each one is different, but at the end of the day, the old adage that retail is detail is very true. It comes down to running a really tight ship. So you need to be very proficient at logistics, and with marketing and so forth. But when a lot of money was flowing at these companies, many of them became professional fundraisers as opposed to professional operators.

    People grew enamored with the idea of changing a business model or selling online, when at the end of the day, great product wins. If you have a great product, it doesn’t matter if you have a flashy business model. People will tell other people to come back and buy it.

    Does it matter what the product is?

    I don’t really care what the product is. I’ve got companies that sell everything from custom men’s shirts to baby bedding to wine devices. The question is: how big is the opportunity, what’s the pain point, how do you tell people about what you’re doing, and then what’s the buying behavior from there. Is it viral? Will users tell more people about it?

    StrictlyVC02

    New Fundings

    Appia, a five-year-old, Durham, N.C.-based mobile ad network that’s focused on helping its customers acquire users (they pay Appia when one of their apps is downloaded), has raised $4.5 million. The money comes from the Portland, Me., venture firm North Atlantic Capital, and brings Appia’s total funding to date to roughly $35 million.

    BrightTag, a four-year-old, Chicago-based online marketing company that allow companies to mine real-time data about their customers, has raised $27 million in funding led by Yahoo JAPAN. Previous investors Baird CapitalEPIC VenturesI2APritzker Group Venture Capital and TomorrowVentures also participated. BrightTag has now raised around $43 million.

    CytoVale, a company that’s trying to pioneer a new class of biomarkers based on the mechanical properties of individual cells, has raised funding from Peter Thiel’s Breakout Labs. CytoVale spun out of UCLA Engineering, helped by the school’s Institute for Technology Advanced Placement, early last year. Founded in November 2011, Breakout Labs now supports 16 companies in areas ranging from food science and biomedicine to clean energy.

    Google  and KKR have agreed to acquire six solar farms being developed in California and Arizona in a deal worth $400 million. The companies are providing both equity and debt financing for the projects, which are expected to produce enough power for more than 17,000 homes.

    Greenhouse, a two-year-old, New York-based maker of recruiting software, has raised $2.7 million led by The Social+Capital Partnership and Resolute.vc. Numerous angel investors also participated in the round in the round, including Thomas Lehrman of Gerson Lehrman Group and Bill Lohse, a general partner at Social Starts.

    Kidaptive, a two-year-old, Palo Alto, Calif.-based education app maker that’s focused on storytelling, has raised $10.1 million in Series B financing. The round was led by Formation 8, which was joined by Menlo Ventures, the Stanford-StartX FundNewSchools Venture Fund and Prana Studios.

    Qloo, a 2.5-year-old, New York-based online recommendation engine, announced yesterday that it has now raised $3 million round of seed funding, including $1.6 million that it collected earlier this year. Among the many angel investors involved in the company is actor Danny Masterson.

    TinyCo, a nearly four-year-old, San Francisco-based game maker, has raised $20 million in fresh funding from Pinnacle Ventures and Andreessen Horowitz. The company, whose games include “Tiny Monsters” and “Tiny Castle,” has raised nearly $40 million to date, according to Crunchbase.

    Yesware, a three-year-old, Boston-based company that produces email productivity software for salespeople, has added $1.2 million to its Series B round, says Dow Jones. The money brings the total financing for the round, raised this fall, to $14.7 million. Yesware is backed by Battery VenturesFoundry GroupGolden Venture PartnersGoogle Ventures and IDG Ventures USA. The company has raised $19.7 million altogether.

    —–

    IPOs

    Hong Kong is getting a boost from China‘s 14-month-long freeze on domestic IPOs. According to bankers who spoke with Bloomberg, more than $5 billion in deals originally slated for China have moved to Hong Kong since September 2012, from car dealers to apparel makers.

    Relypsa, a six-year-old, Redwood CIty, Calif.-based pharmaceutical developer, has cut its expected IPO price range from $16-$19 per share to just $12 per share. The company still plans to sell 6.85 million shares when it debuts on Nasdaq. The company is majority owned by OrbiMed Advisors (it owns 44 percent), 5AM Ventures (22.6 percent), Delphi Ventures (11.4 percent), New Leaf Ventures (10.1 percent), Sprout Capital (9.4 percent) and Sibling Capital (6 percent).

    Shares of Zulily, the four-year-old, Seattle-based flash deals site for mothers, begin trading today at $22, up from an originally expected per-share price of $16-$18. Yesterday, the company sold 6.3 million shares, worth about $140 million worth of stock, roughly a fourth of which came from insiders, who sold 5.1 million shares for $112 million.

    Given demand for its shares, Zulily’s offering is expected to perform well, though the company has its skeptics. As Peter Fenton of Benchmark noted much earlier this year, companies like Zulily “are capital-intensive, face structural challenges to their margins, and if they do go public, they trade at low multiples.”

    Zulily posted a profit of $155,000 on $438.7 million in revenue during the first nine months of the year. During the same period last year, it lost $13.6 million on $202.8 million in revenue. Zulily’s biggest shareholders are Maveron (it owns 23.5 percent of the company),  August Capital (it owns 7.4 percent), and Andreessen Horowitz (it owns 7.3 percent).

    —–

    Exits

    Servio, a four-year-old, San Francisco-based company that focuses on content and search engine optimization, is being acquired by Swansea, Ill.-based CrowdSource, which outsources projects to online communities or workers with particular skills. Terms of the deal aren’t being disclosed. Servio had raised a little more than $9 million, including from Draper Fisher Jurvetson. CrowdSource is backed by Highland Capital Partners, which invested $12.5 million in the company last year.

    MapMyFitness, a nearly seven-year-old, Austin, Tex.-based company whose technology enables users to map, record, and share their workouts, has been acquired by the publicly traded company Under Armour for $150 million. Under Armour, based in Baltimore, makes footwear and apparel for athletes and will operate MapMyFitness as a subsidiary. MapMyFitness had raised $23.5 million over the years, according to Crunchbase. Its investors include Austin VenturesSquare 1 Bank, and Milestone Venture Partners.

    —–

    People

    Chi-Hua Chien, a partner with Kleiner Perkins Caufield & Byers, is talking with prospective investors about launching his own venture capital fund, reports Fortune’s Dan Primack. Last month, Fortune reported on a management shake-up over at Kleiner Perkins, which is narrowing its early-stage roster to five managing directors; Chien is reportedly not among that group.

    Jeremiah Daly and Alex Taussig were just promoted to partner at Highland Capital Partners. Daly, who joined Highland in 2012, was previously a principal at Accel Partners in London. Before Accel, Daly was an investor at Summit Partners and Gold Hill Capital and a banker at Silicon Valley Bank. Taussig joined Highland in 2009 straight out of M.I.T., where he nabbed an MS in materials engineering after graduating from Harvard College. Taussig also has an MBA from Harvard.

    Another day, another bloodbath at Fab, and AllThingsD is on it. The outlet earlier reported that Fab was planning to notify up to 100 employees this week that they are being laid off; yesterday, it learned that among those leaving are its chief product officer, David Paltiel, its head of human resources, Allison Rutledge-Parisi; and merchandising execs Grace Glenny and Tracy Doree. Writes AllThingsD’s Jason Del Rey: “Most of these execs will have the option to stay on three more months, but will not have a job at Fab after that.”

    —–

    Happenings

    Today is the last day of the Startup Phenomenon conference in Boulder. You might want to check it out if you’re in town.

    It’s also day two of the Women 2.0 conference. Speaking today: Tina Sharkey of Sherpa Foundry, Jeff Clavier of SoftTechVC, and Christine Tsai of 500 Startups, among others. Learn more about here.

    —–

    Data

    According to Cambridge Associates, U.S. venture firms returned 4.3 percent in the second quarter, a 1.8 percent improvement of their first-quarter performance. (Worth noting, the Nasdaq returned 4.2 percent during the second quarter, though VCs bested other major indices.) Overall, venture performance still markedly trails that of the public markets over the last decade. After that, things flip pretty dramatically, as you can see in this chart.

    —–

    Job Listings

    Yahoo is in the market for a Business Development Director, Yahoo Strategic Partnerships at its Sunnyvale, Calif., headquarters. Among other things, the role is “directly responsible for establishing, developing and executing key distribution, product, and monetization partnerships for Yahoo, with a focus on building and expanding Yahoo’s relationships with ISP and telecommunications companies in North America.” Minimum requirements include an undergraduate degree, though an MBA is preferred, and at least eight years of biz dev or equivalent experience.

    —–

    Essential Reads

    The inside story behind the iPad’s iconic design.

    The December issue of British Vogue features an apparently terrible story, titled “High Tech Heroines: The Silicon Valley Wives and Girlfriends,” (a lot into which Yahoo CEO Marissa Mayer is inexplicably thrown). Business Insider identifies just a few of the piece’s weakest points.

    —–

    Detours

    Did you know? There’s a secret science to successful stock symbols.

    Italians on average drink 13.6 gallons of wine a year, down from the 29 gallons a year that they drank in the ’70s. This is reportedly cause for concern.

    StrictlyVC may just be overtired, but this Tumblr made us laugh.

    —–

    Retail Therapy

    Sweater pants or swants, the latest trend in fashion nowhere (one hopes!).

    —–

    Corrections: On Wednesday, StrictlyVC featured what it thought was the perfect sweater for the rakishly handsome, Verbier skiing, European money launderer. Kyle, a VC, has since written into say that “no self-respecting international financier would be seen in such a sweater” but that we might find one wearing one of these, in red, “the color of the Swiss [mountain] guides, not blue, the color of the French guides.” We stand corrected.

    —–

    Please feel free to send us any and all story suggestions (anonymous or otherwise) by clicking hereIf you’re interested in advertising in our email newsletter, please click here. To sign up for the newsletter, visit strictlyvc.com.

     

     

  • Battery Ventures on CPG: It’s Simple, Great Product Wins

    mainimage_consumerpackagedgoodsLast week, I met up with Battery Ventures’ Brian O’Malley, who invests in a range of things but has been particularly successful leading some of the firm’s e-commerce investments. Among the related companies that O’Malley has championed at Battery are Skullcandy, the now public earphone maker; the fast-growing grooming products startup Dollar Shave Club; and high-end home furnishings company Serena & Lily.

    While e-commerce has been falling in and out of fashion on an almost yearly basis, O’Malley suggests that making smart retail bets, including on consumer packaged goods companies, isn’t that complicated. He starts with knowing what not to do, like focusing on the “things that are already done versus the things that are yet to come.” He elaborated during our sit-down. Our chat has been edited for length.

    You seem to be a big fan of consumer packaged goods companies. But they have a spotty track record. What’s the appeal?

    The good thing about CPG is high-frequency purchase rates. Take Dollar Shave Club. Guys shave every day, and once you get that staple, you [then sell] the toothpaste and hair gel and aftershave. There’s a whole list of products that you can add on afterwards. With CPG, you can very quickly get to hundreds of dollars of spend per customer.

    Is the trick to avoid low-margin businesses?

    Low margins are part of the challenge. CPG companies are also logistically complicated, they take a lot of money and time to scale, and there’s a big change [required] in behavior. So if I’m a Gillette customer, I might not like the idea of spending $20 for razor blades, but I don’t go to Google and type in “razor blades.” So companies typically have to spend a fair amount of money to gain visibility and change consumer thinking.

    Is there a model way to invest in these types of companies then?

    Well, if you need to raise big money to scale them over time — $25 million to $50 million rounds – you’re at the whim of what’s exciting to big money at that time. That’s the issue. So the types of things we’ve invested in on the consumer side have very quick payback periods on the unit economics. So you’re either paying back your advertising in three to four months because the advertising is cheap and the margins are good, or there’s more of this shared-risk model where you’re paying either a sales rep or an affiliate based on what’s actually sold. That way you’re always kind of marginally profitable.

    You make it sound so easy. Where do you think some of the bigger-known names, like Beachmint and ShoeDazzle and Fab, have gone wrong?

    Each one is different, but at the end of the day, the old adage that retail is detail is very true. It comes down to running a really tight ship. So you need to be very proficient at logistics, and with marketing and so forth. But when a lot of money was flowing at these companies, many of them became professional fundraisers as opposed to professional operators.

    People grew enamored with the idea of changing a business model or selling online, when at the end of the day, great product wins. If you have a great product, it doesn’t matter if you have a flashy business model. People will tell other people to come back and buy it.

    Does it matter what the product is?

    I don’t really care what the product is. I’ve got companies that sell everything from custom men’s shirts to baby bedding to wine devices. The question is: how big is the opportunity, what’s the pain point, how do you tell people about what you’re doing, and then what’s the buying behavior from there. Is it viral? Will users tell more people about it?

    Sign up for our morning missive, StrictlyVC, featuring all the venture-related news you need to start you day.

  • StrictlyVC: November 14, 2013

    110611_2084620_176987_imageGood morning and happy Thursday!

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    Top News in the A.M.

    Google’s latest transparency report is out and it shows, unsurprisingly, that local, state, and federal governments have been asking for far more information. In the second half of 2009, U.S.-based data requests numbered 3,580. By the first half of this year, that number had risen to 10,918, a 205 percent increase.
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    So Snapchat is Worth More than $3 Billion. Got It.

    Yesterday, there was lots of back and forth about Snapchat, the fast-growing messaging service, and the $3 billion all-cash offer from Facebook that it recently spurned, according to the Wall Street Journal’s sources. (Apparently, three sources also confirmed this account to the New York Times.)

    As the Journal reported, the “rebuff” came as Snapchat is “being wooed by other investors and potential acquirers. Chinese e-commerce giant Tencent Holdings had offered to lead an investment that would value two-year-old Snapchat at $4 billion.”

    It isn’t that Snapchat’s young founders — Evan Spiegel, 23, and Bobby Murphy, 25 – are strictly opposed to being acquired, suggested the Journal.  But they think if they wait until the next year, they’ll fetch an even richer valuation.

    If they do, they can thank the media for its help.

    I’ve read the numerous reasons why this deal makes sense: Facebook is losing steam with the younger demographic. Its Snapchat competitor, Poke, fell flat. Snapchat’s users access the service via their mobile phones, where Facebook wants to reach more of its own users.

    But there seem to be at least as many reasons why this Facebook deal doesn’t add up.

    For starters, Facebook’s modus operandi is to create a social operating system for the masses. Snapchat’s stated purpose is to prevent sharing. Facebook grows squeamish at the prospect of lactating mothers. One of Snapchat’s more prominent use cases is sexting.

    There’s also the size of the reported offer. With the exception of Facebook’s then $1 billion cash-and-stock acquisition of the photo-sharing service Instagram last spring – a deal that helped Facebook quash a growing threat on the verge of its IPO — Facebook isn’t in the habit of splashing out much on acquisitions.

    Maybe it’s been waiting for a growth opportunity exactly like the one that Snapchat presents, but Facebook knows as well as any that it’s very hard to buy or create a “category killer.” Instagram has grown from 30 million monthly active users to 150 million monthly active users under Facebook, but it’s no YouTube; there are still plenty of competitors out there. The same is true of messaging services. SnapChat may be processing 350 million “snaps” per day, but it doesn’t own its space.

    Which raises yet another point: This deal is expensive.  As far we know, Snapchat has no revenue or business model. We’re not even sure how many users it has. (It last reported 5 million users in April; according to the Guardian’s calculations, it probably has around 26 million U.S. users today.)

    Even if Snapchat is worth top dollar, Facebook has current assets of $10.5 billion in cash. Paying $3 billion in cash would significantly deplete its balance sheet. Observers have likened the offer to Google’s reported bid to buy Groupon. But with Google’s many tens of billions of dollars in cash, Google could have easily afforded to gamble on Groupon; not so with Facebook and Snapchat.

    As a reporter, I love acquisitions: they’re exciting, and they often involve very personal stories. Where the rubber meets the road, though, most acquisitions fail. This deal may have been in the cards at one point. But if I were Facebook, I might be happy it didn’t go through.

    StrictlyVC02

    New Fundings

    BBOXX, a three-year-old, London-based company that sells solar-powered battery boxes to people in developing countries, has raised $1.9 million in funding from the personal fund of venture capitalist Vinod Khosla — Khosla Impact — and Synergy Growth. The company aims to bring electricity to 20 million people by 2020.

    docBeat, a three-year-old, Las Vegas- based company whose messaging app helps healthcare teams communicate efficiently in real time, has raised $1.1 million in funding. The money comes from unnamed accredited investors, says a release about the round.

    CreativeLIVE, a three-year-old, online education platform whose operations are split between Seattle and San Francisco, has raised $21.5 million in Series B funding led by Social+Capital PartnershipGreylock Partners, an existing investor, also participated in the funding, which brings the company’s total funding to just less than $30 million. CreativeLIVE allows teachers to broadcast their classes live in HD video and to interact with thousands of students who are logged on to watch.

    Ezoic, a three-year-old, Carlsbad, Calif.-based company that optimizes the layout of its customers’ websites to maximize their ad revenue, has raised $5.6 million in Series A funding. Balderton Capital led the round and was joined by New Amsterdam CapitalSilicon Valley Bank and private investors.

    HDmessaging, a two-year-old, Burlingame, Calif.-based company that builds and powers white-label messaging systems for mobile operators, has closed $3 million in funding led by GrandBanks CapitalIDG VenturesNexit Ventures and Lighthouse Capital Partners also participated in the round.

    Househappy, a 2.5-year-old, Portland, Ore.-based real estate platform that invites users to post and search for properties around the world, has secured $1.5 million in seed funding from angel investors.

    MdotLabs, a months-old, Madison, Wi.-based platform whose software monitors advertising impressions and click fraud, has raised $1.25 million in funding led by Chicago Ventures and Great Oaks Venture Capital.

    Mustbin, a two-year-old, Waban, Mass.-based app for organizing, storing, and sharing personal information, has raised $4.5 million in Series A funding led by DAG VenturesGeneral Catalyst PartnersMohr Davidow VenturesNorthgate Capital, and individual investors, including Hubspot co-founder Dharmesh Shah, also participated.

    Quirky, a 4.5-year-old, New York-based app developer that makes it easier for its customers to access a range of connected devices from mobile devices, has raised $79 million in Series D financing. Much of the round — $30 million of it — comes from GE, which is taking a minority equity stake in Quirky. Filling out the round are Quirky’s previous investors: Andreessen HorowitzNorwest Venture PartnersRRE and Kleiner Perkins Caufield & Byers.

    Redfin, the nine-year-old, Seattle-based online real estate company, has raised $50 million led by Tiger Global Management. Tiger was joined by new investor T. Rowe Price and previous investors Greylock PartnersGlobespan Capital PartnersDraper Fisher JurvetsonVulcan Capital and The Hillman Company. The company, which is expected to go public, has now raised nearly $100 million.

    TouchBistro, a three-year-old, Toronto-based company that makes a digital menu and restaurant management app, has raised $4.5 million in seed funding. The round was led by Relay Ventures and included the participation of numerous angel investors.

    Yapta, a six-year-old, Seattle-based travel site that allows users to track price changes, has raised an additional $2 million as part of its Series D round. (It had closed on $4.22 million in July). The funding comes from two travel industry companies: Amadeus and Concur. Yapta, meanwhile, has now raised $22.4 million in equity and another $1.45 million in debt, according to Crunchbase.

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    New Funds

    Founders Circle Management, an 18-month-old, Menlo Park, Calif.-based firm, has raised $38.9 million since March, according to an SEC filing that lists the fund’s total offering amount as “indefinite.” The firm, which describes itself as a technology growth-stage fund, invests in privately held companies by buying the shares of the companies’ founders, employees, and early investors. Two of Founders Circles’ cofounders — Mike Jung and Chris Albinson — worked at Panorama Capital prior; a third, Ken Loveless, was a longtime managing director at Silicon Valley Bank.

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    IPOs

    Chegg, the eight-year-old, Santa Clara, Calif.-based textbook rental company, went public yesterday and, well, things didn’t go quite as planned. The company’s shares, priced at $12.50, opened at $11 on the NYSE and proceeded to fall 23 percent. Chegg’s biggest venture shareholders include Foundation Capital (it owns 6.5 percent), Gabriel Ventures (it owns 10.3 percent), Insight Venture Partners (it owns 14.3 percent) and Kleiner Perkins Caufield & Byers (which owns 11.7 percent).

    Zulily, the Seattle-based flash deals site for mothers, revealed in an SEC filing yesterday that it has increased its expected per-share price from $16-$18 to $18-$20. The company plans to go public on the Nasdaq on Friday. Among Zulily’s biggest shareholders are Maveron (it owns 23.5 percent of the company),  August Capital (it owns 7.4 percent), and Andreessen Horowitz (it owns 7.3 percent).

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    Exits

    TouristEye, a two-year-old, Mountain View, Calif.-based mobile app for planning trips, has been acquired by Lonely Planetreports TechCrunch. TouristEye had raised $500,000 from 500 StartupsPlug and Play Innovation Center and angel investors. Terms of the deal weren’t disclosed.

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    People

    Dev Ittycheria has joined the Boston-based venture capital firm OpenView Venture Partners as its third managing director. Ittycheria had joined Greylock Partners as a venture partner last year. Before coming to the firm, he was the president of BMC Software‘s enterprise service management division.

    Marissa Mayer is spending too much time promoting herself and not enough time fixing Yahoo, argues Variety.

    Alex Rainert, the 10th employee of Foursquare and its longtime product head, is leaving in the midst of a significant product rollout for the company, reports AllThingsD.

    Three Tesla Motors employees were injured yesterday when a low-pressure aluminum casting press somehow failed. One employee was seriously hurt and two others suffered minor injuries when the machine (eek) spilled hot metal on them. Tesla Motors CEO Elon Musk said in an email to Inside Bay Area. “(I) am going to visit them in the hospital later today and will personally ensure that they receive the best possible care.”

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    Happenings

    The L.A. Tech Summit happens today in Santa Monica. The one-day conference features Mark Suster of Upfront Ventures, Factual founder Gil Elbaz, Tinder founder Sean Rad and L.A. Mayor Eric Garcetti. You can find out more here.

    Going on in Las Vegas today and tomorrow: The Women 2.0 conference, featuring such heavy hitters as Google’s Megan SmithAileen Lee of Cowboy Ventures, and investor and Zivity CEO Cyan Banister. Learn more about the agenda here.

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    Data

    VCs heart e-commerce —  especially when it comes to clothing and accessories businesses. According to new Pitchbook data, investors have funded 80 U.S.-headquartered apparel and accessories companies since the beginning of 2008. From 2008 to 2010, an average of 9 to 10 deals were closed each year. But VCs doubled their activity in 2011, then doubled their activity again in 2012 (to around 40 deals a year). Meanwhile, 2013 has already seen more capital invested in related companies than in any of the five years prior.

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    Job Listings

    KPMG is looking for an “account relationship director, venture capital,” in New York. The firm says the role develops and manages relationships with C-level execs, board members and alumni at assigned accounts (presumably to help KPMG sell its accounting services to VCs and their clients?) To apply, you need ten years of venture capital experience and a background with a Big 4 accounting firm.

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    Essential Reads

    Quartz writes that Apple and Samsung‘s smartwatches are going to be way too cheap to be lucrative for either company.

    The U.S. government has weaponized the Internet. Here’s how they did it, in Wired.

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    Detours

    Video games, many of them military-themed, are becoming a way to keep young Iraqis indoors, and away from the chaos outside on their streets.

    An Argentine car mechanic has created a device that could save a baby who gets stuck during birth.

    The not-so-dark side of affluent Atherton, Calif., as seen through police blotter items.

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    Retail Therapy

    The Hövding invisible bike helmet is available for purchase. [Happy twirls.]

    The Baxter Base Camp X Straight Razor. Looking at its fine, artisan-crafted blade, we think, eh, maybe it’s best you just let the beard grow.

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