StrictlyVC: April 24, 2014

Happy Thursday, everyone!

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Top News in the A.M.

Goodbye net neutrality; hello net discrimination? FCC Chair Thomas Wheeler has reportedly proposed a new rule that would permit broadband carriers to act as gatekeepers, charging different Web sites different prices to access customers through a “fast lane.”

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Roger Lee of Battery Ventures: This Ain’t No Bubble

Roger Lee has some specific ideas about what’s going on in the market these days. For example, the longtime general partner at Battery Ventures thinks the “entire enterprise stack is getting rewritten right now” and that there’s “a trillion dollars up for grabs.” One major driver of the trend, he notes, is the “consumerization of IT. Part of the success of Box and Dropbox and Zendesk is their embrace of consumer design. I’d guess that from day one, they had designers on their founding team, whereas if you looked at an enterprise software company ten years ago, a designer was, like, your 55th employee.”

Battery — which is currently investing a $900 million fund and writing checks that range from $500,000 to $60 million – also believes in doubling down when the opportunity calls for it. For example, Battery made big bets on both on Angie’s List, the site for local service providers, and Groupon, the daily deals phenomenon, that paid of “very, very well,” for the firm, says Lee. (Battery invested $50 million in Angie’s List and $60 million in Groupon, both of which are now publicly traded.)

Maybe it’s no wonder then that Lee thinks the recent string of outsize bets by firms like T. Rowe Price and Tiger Global Management – bets that have everyone from reporters to hedge fund manager David Einhorn fretting about a second tech bubble – are “actually pretty rational.” We talked about it last week over coffee in San Francisco’s SoMa neighborhood.

Battery has a long history of investing in growth-stage companies. What do you make of the flood of mutual fund and other late-stage money pouring into the industry? Good? Bad?

I’m not sure if it’s good or bad, but I’m not surprised. The markets are so much bigger now, and the opportunity to create multibillion dollar companies much more present today than historically.

When you’ve seen these huge funding rounds in the past, people have laughed at them. Think of Yuri Milner’s investment in Facebook six or seven years ago at a $10 billion valuation. People thought he was crazy. When we did the Groupon investment, people thought it was crazy. Well, lo and behold, both turned out to be great investments.

Another good example: When T. Rowe Price [first] invested in Twitter [in 2009], that was probably a relatively risky investment for it to make because Twitter was still a relatively immature company. But if you look at where Twitter is today, it’s probably a 25 or 30x return [for T. Rowe] and makes [its New Horizons’s fund manager] Henry Ellenbogen look incredibly smart that he was so early.

It’s important for people to recognize that the opportunities in these markets dwarf what has historically been available to investors. So it makes sense for pubic market investors– be it Tiger Global or someone else – to try and cherry pick which companies in an era 10 years ago would probably already be public and that, once they are [public], [will] have a chance to become multibillion dollar companies because they’re selling into markets measured in the billions.

What do you make of these shorter periods between fundings? Eventbrite, for example, raised two enormous rounds less than a year apart from the same investors.

Investors’ job is to allocate capital, and when they see a chance to allocate capital to a winner – to double down because they think the risk-adjusted return is better than their alternatives — it’s a very rational decision. So that’s what they do. They’re always looking at their portfolio and looking at the alternatives and saying, “We’ve got X amount of money to put to work. Where do we think we can generate the biggest return?” Sometimes they put a dollar in, they watch it for six or nine months, see that a company is doing great, then decide they want even more exposure to it. It’s the same way they operate in the public markets.

You have no concerns about the market?

I really focus on each company at a time. Is any one company overvalued relative to where it should be? That’s a very company specific discussion. In terms of the broader market, I could argue both sides frankly. With certain companies, the opportunities are so large that we’re underinvesting in them.

DOD

New Fundings

2Checkout, a 15-year-old, Columbus, Oh.-based payment services company, has closed a $60 million round of funding, led by Chicago Growth Partners and Trident Capital, with participation by management and strategic individuals. The company says it provides online-payment processing for more than 22,000 e-commerce businesses around the world.

Aerpio Therapeutics, a 2.5-year-old, Cincinnati, Oh.-based biopharmaceutical company focused on therapies for vascular diseases, has raised $22 million in funding led by OrbiMed. Earlier investors who also participated in the round included Novartis Venture FundsSatter Investment ManagementKearny Venture PartnersVenture Investors,Triathlon Medical Ventures and Athenian Venture Partners. The company has raised $63 million altogether, shows Crunchbase.

Avalanche Biotechnologies, a 7.5-year-old, Menlo Park, Ca.-based clinical-stage biotechnology company focused on retinal disorders like age-related macular degeneration, has raised $55 million in Series B financing led by Venrock. Other participants in the round included DeerfieldAdage Capital ManagementRedmile GroupRock Springs CapitalSabby Capital, an affiliate of Cowen & Company, and two undisclosed blue chip health care funds.

BioDatomics, a 3.5-year-old, Bethesda, Ma.-based bioinformatics and analysis software and services company, has received a grant from the National Institutes of Health, along with an undisclosed amount of funding from the venture firm of the Maryland Department of Business and Economic Development.

Codasip, a 7.5-year-old, Brno, Czech Republic-based company behind a new application-specific processor design tool, has raised a $2.8 million round of funding led by the regional firm Credo Ventures. Individual investors, including Codasip’s co-founders, contributed $1.3 million of the overall round.

Connectivity, a two-year-old, L.A.-based company whose customer intelligence software aims to help businesses identify their best customers (and strongest competitors), has raised $6.35 million in Series A funding led by Greycroft Partners. Other participants in the round included Rincon Venture PartnersDaher CapitalDouble M Partners,TenOneTen VenturesEytan Elbaz and SLP Ventures.

CorvisaCloud, a three-year-old, Milwaukee, Wi.-based cloud-based contact center company, has raised $30 million in funding from its publicly traded parent company, Novation Companies.

Kala Pharmaceuticals, a 4.5-year-old, Waltham, Ma.-based biotechnology company that’s developing drugs to treat eye conditions, has raised $22.5 million in Series B financing led by new investor Ysios Capital. The round also included a new, unnamed strategic investor and earlier investors Crown Venture FundLux CapitalPolaris Partners and Third Rock Ventures. The company has raised $46.2 million altogether, shows Crunchbase.

InVisage Technologies, a 7.5-year-old, Menlo Park, Ca.-based fabless semiconductor company the claims to improve the quality of pictures taken with mobile phone cameras, has raised $18 million from GGV CapitalNokia Growth PartnersRockPort CapitalInterWest PartnersIntel Capital and OnPoint Technologies. The company says it has raised $100 million altogether.

Quibb, a two-year-old, San Francisco-based company whose service helps industry professionals share and discuss relevant news stories, has raised $650,000 in seed funding from Bloomberg BetaBetaworks,Lightbank, and angel investors. The company says it is also looking to raise an additional $100,000 via Alphaworks, a new crowdfunding platform created by Betaworks earlier this year.

Placester, a 3.5-year-old, Boston, Ma.-based real estate advertising network, has raised $5.5 million in Series A fundng led by Romulus Capital, with participation from earlier investors, including Angel Street Capital. Placester has raised $8.9 million altogether, according to Crunchbase.

Recon Instruments, a six-year-old Vancouver-based startup behind an increasingly popular smart glasses platform that’s largely used by athletes, has raised an undisclosed amount of funding from Motorola Solutions Venture Capital. (Worth noting: the company filed a Form D, disclosing a $7 million investment from unnamed investors, last month.)

Renewable Funding, a 5.5-year-old, Oakland, Ca.-based clean energy finance company, has raised $20 million in funding led by Prelude VenturesAngeleno Group and Apollo Investment Corp., with participation from NGEN Partners and Claremont Creek Ventures.

ShopKeep, a 5.5-year-old, New York-based point-of-sale technology company, has raised a $25 million Series C round led by Thayer Street Partners. Earlier backers also joined the round, including Canaan PartnersTribeca Venture PartnersTTV Capital, Contour Venture Partners and individual angel investors. The WSJ has much more on the company here.

Synack, a 20-month-old, Menlo Park, Ca.-based company that acts as a middleman between companies and the researchers they bring in to test their Web applications for security flaws, has raised $7.5 million in funding led by Kleiner Perkins Caufield & Byers. Other participants in the round — which brings Synack’s funding to $9 million — included Google VenturesAllegis Capital, and Greylock Partners.

Tubular Labs, a two-year-old, Mountain View, Ca.-based online video marketing platform, has raised $11 million in Series B funding led by Canaan Partners. Earlier investors, including FirstMark Capital and Lerer Ventures, also participated. The company has raised $15.2 million to date, shows Crunchbase.

Wish, an 18-month-old, San Francisco-based mobile commerce platform founded by Google and Yahoo alums Peter Szulczewski and Danny Zhang, have raised $19 million in fresh funding led by GGV Capital and Formation8. Existing seed investors also participated, including Yahoo co-founder Jerry Yang.

Workforce Software, a 15-year-old, Livonia, Mi.-based workforce management software company that targets customers with complex policies and compliance concerns, has sold a majority equity position in its business to Insight Venture Partners for an undisclosed amount of funding.

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New Funds

Artiman Ventures, a 14-year-old, East Palo Alto, Ca.-based venture firm, has begun raising its fifth fund, Artiman Ventures 2014, according to SEC filings first flagged by peHUB. The filing does not state a target for the new fund, which is being packaged with a second vehicle called Artiman Ventures Select 2014. Artiman, which has raised $385 million across its first four funds, says it prefers to fund startups at the “concept stage,” when founders are still refining their key ideas and concepts. The firm, which typically invests as little as $100,000 and as much as $10 million in its startups, most recently funded Crossbar, a Santa Clara, Ca.-based start-up that says it’s pioneering a new class of non-volatile resistive RAM memory technology.

Merus Capital, a 6.5-year-old, Palo Alto, Ca.-based early-stage firm has raised a new, $43 million fund, reports the WSJ. Merus was founded by three former corporate development executives: Salman Ullah and Sean Dempsey of Google and Peter Hsing of Microsoft. The firm, which focuses on commerce, cloud, and mobile startups, most recently re-upped in the ad tech company AdRoll, raising a separate, $10 million, special opportunity fund in order to participate in a $70 million round that AdRoll announced earlier this week. Merus’s newest fund is slightly bigger than its last fund, which closed with $37.5 million.

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Exits

Grand St., a year-old, New York-based startup that sells indie electronics online, has been acquired by Etsy, the online marketplace for handmade items, for less than $10 million in cash and stock, reports Re/code. Grand St. had raised $1.3 million in seed funding from First Round Capital,BetaworksQuotidian VenturesMesa+, and angel investors.

Quantason, a 4.5-year-old, Philadelphia-based company that has been building a platform technology for diagnostic imaging and active screening, including to detect breast cancer, has filed for Chapter 11 protection,reports VentureWire. In court papers, Quantason said its “precarious financial position” drove its decision to seek a quick sale in bankruptcy. The company had raised $4.6 million from backers, including individual investors Martin SarafaCarolyn BivensMichael DiGregorioPeter Seidel, and Jeffrey LeSage.

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People

Facebook CFO David Ebersman is stepping down from the job on June 1, Facebook announced as part of its first-quarter earnings statement yesterday. Ebersman, who took the company public and has overseen its acquisitions of Instagram and WhatsApp (and is managing its acquisition of Oculus VR), is expected to move back into the healthcare space, sources tell Re/code. Ebersman had joined Facebook from Genentech, where he’d long been CFO.

Zynga founder Mark Pincus is formally dropping any operational duties at the 6.5-year-old social gaming company, he disclosed publicly yesterday. As part of the change, he’s giving up his title as chief product officer. Ultimately, he tells Re/code, a “ship is better with one captain putting a hand on the wheel.”

Felix Salmon, a popular financial columnist for Reuters (earlier this week, he wrote a widely read piece asserting that “Silicon Valley is gripped by a mass delusion, compounded by a deep ‘fake it til you make it’ attitude toward success”) is leaving the media giant. Salmon is joining the cable network Fusion for a role that he says will allow him to “communicate in the ways that people are going to consume information in the future. Which is not 1,500-word blocks of text.” The New York Times has more here.

Stanford graduate Douglas Tarlow is in a heap of trouble, after trying to extort money from billionaire venture capitalist Vinod KhoslaAccording to the Smoking Gun, Tarlow, who dated Khosla’s daughter Nina for two years, threatened to distribute private pictures of her if he wasn’t paid to suppress them, even sending the pictures to her mother with the message: “[I]t seems you’re going to be the mother of the next Paris Hilton,” according to Smoking Gun’s report. In another email, he wrote that, “Everything is going to reddit. From there, it will be impossible to remove from the internet forever.” FBI agents arrested 27-year-old Tarlow last week in connection with the alleged extortion plot. He’s scheduled for a U.S. District Court preliminary hearing today.

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Job Listings

The Chinese conglomerate Fosun Group is looking for a managing director to develop its Africa-focused investment business.

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Happenings

TechDay NYC kicks off today; it could be a mob scene but it might be worth swinging by as 450(!) startups are expected to be on hand.

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Data

More Baby Boomers are embracing smartphones. According to Nielsen data, as of the first quarter of this year, a majority of Americans of all age groups own smartphones for the first time, including 51 percent of adults over the age of 55. (That number is up 10 percent from the first quarter of last year.) More here.

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Essential Reads

The rise of the mobile addict.

And now we know: Facebook had a great first quarter.

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Detours

Michael Pollan on Wall Street’s powerful influence over what we eat.

The future of luxury: Avoiding people.

Basic etiquette tips for New Yorkers.

Action Movie Kid.”

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Retail Therapy

You may not be the Most Interesting Man in the World, but you can look the part with one of these bags. H/T: InsideHook.

Modern Sprout windowsill planters, because not everyone has a green thumb. (Ask our plants.)

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