StrictlyVC: October 27, 2014

Hi, and good morning, everyone! Hope you had a terrific weekend. Go Giants! (Hey, web visitors, here’s an easier-to-read version of today’s email.)

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Top News in the A.M.

The FCC “leapt into data security litigation” on Friday, levying a $10 million fine against two telecom companies that “allegedly stored personally identifiable customer data online without firewalls, encryption or password protection,” reports the Washington Post.

E-commerce sites are offering consumers different prices based on their operating system, browser history and device, shows new research.

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Gil Penchina Is Coming for You

Gil Penchina is a former eBay and Wikia executive. He’s also a longtime angel investor who has enjoyed cash-on-cash returns of 6x over the last 15 years, he says.

But the latest feather in Penchina’s cap is his place within AngelList’s universe of so-called Syndicates, which are essentially pop-up funds that allow angel investors to syndicate their investments in exchange for 15 percent of any upside. (AngelList collects another 5 percent. There are no management fees.)

Since the program was rolled out by AngelList roughly a year ago, Penchina has attracted 1,300 accredited investors who’ve committed to collectively plug up to $4.6 million into each deal he wants to make. Those numbers make his the largest Syndicate on the platform. They also give him the firepower, theoretically, of a mid-size venture fund.

Penchina, who has already invested “between $5 million and $10 million” in startups through his syndicate, says he’s just getting started, too. We caught up yesterday. Our chat has been edited for length.

You don’t have an office. You have no institutional investors. And yet you have a stunning amount of capital at your disposal suddenly.

Yes. We only started nine months ago, and [our commitments are up] to $4.6 million per deal, which is slightly frightening when you’re used to writing $25,000 checks [from your personal bank account]. We’ve now led two A rounds, for [the sales prospecting company] Datanyze and Contactually [a relationship marketing platform], and we’re trying to do more [lead investing].

We’ve also launched a SaaS syndicate, a bitcoin syndicate, an [Internet of Things] syndicate, and we’re launching a [financial technology] syndicate. And we’ve launched a late-stage syndicate for B and C rounds and we’re in the registration and comment period with regulatory authorities for a venture debt syndicate, which will be interesting once that’s up and running. Notionally, we want to [represent] every vertical, and every asset class – from bridge rounds to A and B and C rounds — so if investors want a more narrow thesis, they can invest in it. If they want a broader thesis, they can in invest in my main syndicate and get a more diversified pool of investments.

Wow. How much have investors committed to these vertical syndicates?

The SaaS syndicate has [commitments of] $1.8 million, the late-stage syndicate has $1.1 million, bitcoin has $700,000. All of these ideas are getting some traction. Ultimately, I’m trying to build Fidelity, with fund managers who specialize in certain sectors.

Who are all these investors?

We get a mix. When you democratize and reduce friction, everyone shows up. CEOs, dentists, young guys who are making their first investment. Six months ago, we had 200 investors. Today we have 1,300. If things continue [apace], we’ll have 10,000 investors in a year’s time.

And who’s the “we” when you refer to your syndicates?

There are two managers per syndicate. They aren’t full time but rather executives in each particular vertical. One is a chief revenue officer, another is a product executive, another is the CEO of a bitcoin company.

We also have 30 volunteers, from associates at venture firms, to executives who think these syndicates are a great way to learn about other industries, to people who want to work in venture and think [helping us] is a great training ground.

These managers and volunteers are essentially scouts? Do you promise them a percentage of your carry if they bring you something you eventually decide to fund?

It isn’t that structured. We aren’t making management fees, though, so I [will] share the carry with [everyone who helps me]. We want everyone’s interests aligned, so that if there’s a mediocre deal, we don’t do it.

By the way, we’re always looking for new recruits, if you can let your readers know.

How would you describe your pacing, and what size checks are you writing right now?

We did smaller deals at first, a couple hundred thousand dollars here and there to see how it works. Then we moved from $200,000 to $500,000 and now we’re writing checks of $1 million. Six months ago, we’d do a deal every two months and in October, we’ve already done three deals, two of which were $1 million, so the pace seems to be getting faster every month.

The public market has been been volatile. Meanwhile, unlike a traditional fund’s investors, Syndicate investors can opt out of deals or opt out entirely. You must be seeing some kind of pullback.

I’m not. The market was up last week; it was down the week before. You have to remember that AngelList is growing at a rapid rate itself, so every day, new people are joining the crowd, and a rising tide raises all boats. Even if my boat is a little leaky, I don’t notice it because I’m [moving up] and not down.

You’ve said before that the beauty of AngelList for an investor like yourself is not having to deal with attorneys and LPs. AngelList sets up the funds; it handles customer accounting. But AngelList has a lot of out-of-pocket fees as a result, something like $12,000 per fund, cofounder Naval Ravikant told me last year. Do you worry that it’s not sustainable, given that AngelList is not yet producing revenue?

No. Putting together an LLC is a bunch of legal docs. Costs are higher now because there are probably 75 different permutations of deal structures or term sheets, but at some point, they’ll have a template for every one of the damn things and it will be cheap. More and more of this will get automated – reporting, tax [considerations]. I’m really not sure why anyone would start a micro fund in 2014 when they could start a Syndicate for zero dollars instead and not spend a lot of time doing the annual accounting or figuring out the legal structure of this stuff.

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New Fundings

Capshare, a three-year-old, Sandy, Ut.-based online cap table management system, has raised $1 million in funding led by Draper Associates, with participation from Kickstart Seed Fund and individual investors, including Skullcandy CEO Jeremy Andrus.

D3 Banking, a seven-year-old, an Omaha, Neb.-based company that makes financial management software for regional and community financial institutions, has raised $7 million in funding from Route 66 Ventures.

Enjoy, a new, Menlo Park Ca.-based e-commerce startup from Apple’s ex-retail chief Ron Johnson, has raised $30 million in funding led by Oak Investment Partners and Kleiner Perkins Caufield & Byers, with participation from Andreessen Horowitz. The company, operating in stealth mode, aims to help shoppers develop a connection with new products, Johnson told the WSJ last week. More here.

LedgerX, an 11-month-old, New York-based company that says it’s building the “the first regulated, compliant derivatives exchange” for cryptocurrencies, has raised an undisclosed amount of funding from Google Ventures and Lightspeed Venture Partners, reports VentureWire. The company had previously raised at least $1.5 million in seed funding from Crypto Currency Partners and entrepreneur Eric Kagen, shows Crunchbase.

GovX, a three-year-old, La Jolla, Ca.-based e-commerce platform for active duty, reserve and retired members of the U.S. Armed Forces and related government agencies, has raised $7.9 million from investors, according to an SEC filing that shows a $10 million target.

Moka5, a nine-year-old, Redwood City, Ca.-based company that develops and markets virtual computer technology, has raised $16.3 million in new funding, according to an SEC filing that shows a $23.4 million target. The company had previously raised at least $43 million in equity and debt, including from Khosla Ventures and Highland Capital Partners.

Payoff, a five-year-old, Costa Mesa, Ca.-based startup that makes loans to people looking to pay off credit card debt, has raised $12 million in new funding, shows an SEC filing that lists Mohamed El-Erian, the former CEO and co-CIO of PIMCO, as a director. The company had previously raised $16.9 million, show earlier fundings. Its backers include Great Oaks Venture Capital, FirstMark Capital, and Anthemis Group.

Syros Pharmaceuticals, a 1.5-year-old, Watertown, Ma.-based company looking to develop gene control therapies in cancer and other diseases, has raised $53 million in Series B funding led by a large, Boston-based public investment firm, with participation from Polaris Partners, Aisling Capital, and Redmile Group. Earlier investors Flagship Ventures, ARCH Venture Partners, WuXi PharmaTech Corporate Venture Fund, and Alexandria Venture Investments also joined the round, which brings the company’s total funding to $83 million.

Wysada, a 1.5-year-old, Amman, Jordan-based online home furnishings store, has raised $5 million in Series A funding by Badia Impact Fund, a venture capital fund owned by Silicon Badia. Strategic investors from the Kingdom of Saudi Arabia and the Gulf Cooperation Council (GCC) also participated alongside earlier investors. TechCrunch has more here.

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New Funds

Pantera Capital, the 11-year-old, San Francisco-based firm founded by Tiger Management veteran Dan Morehead, is raising an “indefinite” amount for a venture capital fund, shows a new SEC filing that shows Pantera has already raised $10.4 million for the effort. Until 2011, Pantera was a macro hedge fund but in recent years, the firm has narrowed its focused around bitcoin and now advertises itself as an “investment firm focused exclusively on bitcoin, other digital currencies and companies in the space.” Its investors include Ribbit Capital, Benchmark, and Fortress Investment Group.

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IPOs

Roku, the 12-year-old, Saratoga, Ca.-based streaming TV startup, is working on plans to confidentially file for an IPO, the WSJ reported late last week. Roku has raised at least $128 million over the years, shows Crunchbase. Its investors include Luminari Capital, BSkyB, Menlo Ventures, Globespan Capital Partners, News Corp and Hearst Ventures.

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Exits

Revolv, a two-year-old, Boulder, Co.-based smart-home automation device maker, has been acquired by Google-owned Nest Labs for undisclosed terms. Nest co-founder and VP of engineering Matt Rogers told Recode of the deal: “We are not fans of yet another hub that people should have to worry about. It’s a great team, an unbelievable team. There’s a certain amount of expertise in home wireless communications that doesn’t exist outside of these 10 people in the world.”

Stitcher, a six-year-old, San Francisco-based online radio service, was acquired by Paris-based Deezer for undisclosed terms. According to Crunchbase, Stitcher had raised $18.7 million from investors, including Great Oaks Venture Capital, New Enterprise Associates, BenchmarkNew Atlantic Ventures, and SV Angel. TechCrunch has more here.

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People

Alan Eustace, 57, a senior vice president of Google, parachuted from a balloon near the top of the stratosphere on Friday, falling faster than the speed of sound and breaking the world altitude record set just two years ago. The New York Times has his story here. “It was amazing,” Eustace tells the outlet. “It was beautiful. You could see the darkness of space and you could see the layers of atmosphere, which I had never seen before.”

Google CEO Larry Page is transferring leadership of core Google products to Sundar Pichai, reports Recode. Pichai will now have purview over research, search, maps, Google+, commerce and ads and infrastructure and maintain responsibility for Android, Chrome and Google Apps.

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Job Listings

Noosphere Ventures is looking for an analyst. The job is in Menlo Park, Ca.

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Essential Reads

Rite Aid and CVS have moved to disable what are called NFC (near field communications) terminals in their stores, meaning they will no longer support either Apple Pay or Google Wallet. The reason: They’re participating instead in Merchant Customer Exchange (MCX), a retailer group that’s thumbing its nose at the tech giants and developing its own mobile payments system known as CurrentC. (TechCrunch has a nice piece on that “clunky attempt” here.)

Machine-learning maestro Michael Jordan on the delusions of big data.

“The Uber experience is just so much easier for African-Americans . . . When I need a car, it comes. It takes me to my destination. It’s amazing that I have to pay a premium for that experience, but it’s worth it.”

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Detours

The “advanced” seven-minute workout.

Jim Carrey does his best Matthew McConaughey.

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Retail Therapy

Ejection seats.

Chic pet beds.



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