Good Tuesday morning, everyone! (Web visitors, here’s an easier-to-read version of this morning’s email.)
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Top News in the A.M.
What today’s mid-term elections will hold for tech policy.
Three judges at one of the nation’s most powerful appellate courts will hear oral arguments today in the only legal challenge to result in a judicial order against the NSA’s vast telephone metadata collection program. Ars Technica has the story.
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Late-Stage Investor: “Funding Acceleration Doesn’t Add Up”
In a recent piece in TechCrunch, writer and investor Danny Crichton highlighted an emerging trend: that of investors treating A and B rounds more like mezzanine rounds when it comes to funding promising startups. Called the tendency “funding acceleration,” Crichton used Slack — an enterprise collaboration software startup that just raised $120 million at a $1.12 billion valuation — as a prime example. (Slack publicly rolled out its product just eight months ago.)
Yesterday, we talked with one of the industry’s most successful late-stage investors about whether or not the shift makes sense. The investor spoke candidly; he also asked not to be identified by name. (Apologies.) Our conversation has been edited for length.
Many VCs now subscribe to this “winner’s circle” theory that there are 15 or so companies formed each year that produce all the returns. Do you believe that?
I still remember seeing a report by Mary Meeker – then an equity research analyst – during the depths of the post-bubble recession that said only a few companies over the previous few years had really succeeded despite how many were funded. It wasn’t 15, though.
Well, that’s the number that Andreessen Horowitz often cites, which is tied to some earlier research of investor and entrepreneur Andy Rachleff.
Right. Andreessen Horowitz became the first to loudly declare that they wanted to be in the 15 good companies created each year, saying if you got into those companies, it would make up for all the others. But you’ll notice they quit that a couple of years ago; they’ve retracted from that and are now more focused on early-stage companies.
Marc Andreesssen told me about a year ago they had largely jumped out of late-stage investing, saying the firm was going to let the “hot money” do its thing.
And that was smart. If you look at the number of $3 billion-plus exits we’ve seen since the start of 2012 – and I say $3 billion because that constitutes a venture return if you’re investing at a $1 billion valuation – there have been 19 companies to go public or get acquired. Meanwhile, something like 60 private companies have been assigned $1 billion-plus valuations over the same period. If the flow at one end isn’t equal to the other end, you know something is wrong. Either the markets will be more receptive in future years, or there will be some disappointing outcomes.
Sounds like you’re anticipating the latter.
There were seven tech IPOs in the third quarter. The markets aren’t wide open, yet there’s a tremendous amount of investing going on at high valuations.
Did you look at Slack?
We did. Slack is a really interesting collaboration platform. But as quickly as it’s become available — and people are adopting it very quickly — therein lies part of the longer-term risk. There have been dozens of collaboration tools to pop up because they’re easy to develop, and it’s easy to see what has worked in the past and improve on it. I think we’ll see a tremendous amount of innovation in the space. But people will use whatever is best at the moment. It isn’t like a viral network like Facebook or Linkedin, where everyone is using it and you can’t drag the network over to the next new product.
What do you make of the general idea that it makes sense to pay up early for a young company that looks to be taking off?
You see companies that have a great start, but that doesn’t predict ultimate high-valued outcomes. We don’t think it makes sense to [make a big bet] until you have an awful lot of things that are proven and visible: rapid growth, great margins, a sustained track record of performance, a tangibly large market. For every [online retailer] Zulily, there are several Fabs – companies that raised a lot of money and never quite delivered.
It’s troubling, what you’re seeing. It makes it very difficult for investors – and much less so for entrerepreneurs. We’re really out of balance right now, but this is a cyclical business. We’ll reach a point [as an industry] where several companies that are considered destined for success fail, then we’ll revert back to more proven ways.
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New Fundings
Avegant, a two-year-old, Ann Arbor, Mi.-based company that’s developing a headset called Glyph that can project video directly in front of a user’s eyes, has raised $9.37 million in Series A funding led by Intel Capital andNHN Investment of Seoul, South Korea. Venture Capital Dispatch hasmore here.
Blueshift Labs, a months-old, San Francisco-based company that sells a predictive marketing software service to e-commerce customers, has raised $2.6 million in seed funding led by New Enterprise Associates and Nexus Venture Partners, with participation from unnamed angel investors.
CashCashPinoy, a four-year-old, Makati, Philippines-based e-commerce membership club that offers flash sales on everything from restaurants to stores and hotels, has raised $2 million in funding from Hera Capital. The company had previously raised $1.4 million in seed funding, shows Crunchbase.
DeltaDNA, a four-year-old, Edinburgh, Scotland-based company that sells game makers software that helps them analyze their players, has raised $3 million led by Edge Performance VCT, with earlier investors Par Equity, STV Group and the Scottish Investment Bank participating. The round brings the company’s total funding to date to $5 million.
Emaze, a five-year-old, Tel Aviv-based online presentation platform, has raised $2 million in Series A funding led by FirstTime Venture Capital. The company has raised $2.8 million altogether.
Imago BioSciences, a 2.5-year-old, San Francisco-based biotech company developing therapeutics for orphan diseases, has raised $26.5 million in Series A funding led by Clarus Ventures, with participation from Frazier Healthcare, Amgen Ventures, and Merck Research Labs Venture Fund.
MX, a 4.5-year-old, Provo, Ut.-based company that develops omnibanking technologies, has raised an undisclosed amount of funding that it says brings its total capital raised to $20 million. The new capital comes from Commerce Ventures, North Hill Ventures and TTV Capital. MX also counts former Omniture CEO Josh James as a backer, along with half a dozen other angel investors.
Namely, a 2.5-year-old, New York-based end-to-end HR and payroll platform, has raised $12 million in Series B funding led by Matrix Partners, with participation from earlier backers True Ventures, Lerer Hippeau Ventures, and Bullpen Capital. The company has now raised $21.8 million to date, including a $4.7 million round closed just last June.
Nitro Software, a nine-year-old, San Francisco-based digital document company, has raised $15 million in Series B funding from Battery Ventures. The company, which was founded in Australia, has now raised $21.6 million altogether, including from Starfish Ventures.
Paracosm, a nearly two-year-old, Gainesville, Fl.-based company whose cloud-based application converts scanned locations into three-dimensional models, has raised $3.3 million in seed funding led by Atlas Venture, with participation from iRobot, Osage University Partners, BOLDstart Ventures, New World Angels, Deep Fork Capital and unnamed angel investors.
Riffsy, an eight-month-old, Berkeley, Ca.-based company that makes a free app that enables users to search and share GIFs, or animated image files, across Twitter, Facebook, iMessage and text messaging, has raised $3.5 million in seed funding from Redpoint Ventures, Initial Capital, and John Riccitiello.
VideoSelfie, an 18-month-old, Mountain View, Ca.-based company whose video-messaging app allows users to record videos and decorate them with text or graphics, has raised $900,000 in seed funding from investors, including East Ventures, Klab Ventures, Cyberagent Ventures, and earlier investor 500 Startups. The company has raised $1.2 million to date. TechCrunch has more here.
Rover.com, a three-year-old, Seattle-based online network connecting dog owners with dog lovers for hire, has raised an undisclosed amount of new funding from A-Grade Investments. The company had earlier raised $25.9 million from investors, including Menlo Ventures, Petco, Madrona Venture Group, and Foundry Group. (StrictlyVC talked with the company last year when it was looking to raise its next round.)
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New Funds
Boost VC, a three-year-old, San Mateo, Ca.-based accelerator that makes seed investments, has raised $6.6 million in new funding from Marc Andreessen, Ben Davenport, Barry Schuler, Rothenberg Ventures, Maven II, and Kilowatt Capital, among others. The outfit, which has already worked with 69 companies, plans to work with another 200 startups over the next three years — half of which will be focused on bitcoin. Boost was cofounded by Adam Draper, whose father and grandfather, Tim and Bill, are also, famously, venture capitalists. Tim Draper has also become a major proponent of bitcoin in recent years. Coindesk has more here.
Versant Ventures, a 15-year-old, Menlo Park, Ca.-based life sciences investor, is rising its fifth fund, with up to $25 million coming from Germany-based Bayer HealthCare. Versant hasn’t disclosed yet how big its fund will be. It has partnered in the last year with Bayer on opthalmology research; together, they formed Inception Sciences, a drug discovery incubator. MedCity News has a bit more here.
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IPOs
EHi Car Services, a Shanghai-based car rental and chauffeuring company, plans to raise around $130 million by selling 10 million of its American Depository Shares at a price of $12 to $14 per share in an IPO, according to a new SEC filing.
Reval Holdings, a New York-based cash management software provider, has withdrawn plans to go public, citing unfavorable market conditions.
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Exits
Apalon, a seven-year-old, New York-based mobile and game development outsourcing company, has been acquired by Mindspark Interactive Network, an IAC subsidiary. Terms of the deal were not disclosed.
BlogHer, a nine-year-old, Belmont, Ca.-based network of women’s blogs, has been acquired for undisclosed terms by SheKnows Media, a women’s lifestyle media company. BlogHer had raised at least $15.5 million from investors, shows Crunchbase. Its backers included NBC Universal, Peacock Equity, and Venrock.
Bswift, an 18-year-old, Chicago-based creator of an online benefits enrollment system, is being acquired by the insurance giant Aetna for $400 million. Bswift had raised $51 million earlier this year from the private equity firm Great Hill Partners.
Doremi Labs, a 29-year-old, Burbank, Ca.-based developer and manufacturer of digital servers and format converters, has been acquired by Dolby for undisclosed terms.
Fanhattan, a four-year-old, San Francisco-based startup that makes a set-top box and interface designed to provide a next-generation experience for cable TV services, has been acquired by Rovi, a publicly traded maker of TV guide software. Terms of the deal weren’t disclosed. Fanhattan had raised at least $8.4 million from investors including New Enterprise Associates, Redpoint Ventures, BV Capital and Greycroft Partners.
Fuze Network, a four-year-old, Salt Lake City, Ut.-based payments technology startup, has been acquired by its payments peer Ingo Money for an undisclosed amount. Fuze had raised at least $3.7 million from investors, including Ribbit Capital, Matrix Partners, Deciens Capital, Insikt Ventures, Kickstart Seed Fund, and Metamorphic Ventures. Ingo, in Roswell, Ga., has raised $8.4 million from Camden Partners.
PingTone, a 15-year-old, Herndon, Va.-based cloud-based communications service provider, has been acquired by rival Fusion Telecommunications International in New York for a cash and stock deal valued at $10 million.
Proximal Data, a three-year-old, San Diego-based developer of software that caches I/O in the server virtualization layer, has been acquired by Samsung Electronics. Financial terms of the deal were not disclosed. Proximal had raised at least $8 million from investors, including Avalon Ventures and Divergent Ventures.
RedPath Integrated Pathology, a 10-year-old, Pittsburgh, Pa.-based molecular diagnostics startup that helps physicians better manage patients at risk for certain types of gastrointestinal cancers, has been acquired by the New Jersey-based healthcare commercialization company PDI. Terms of the deal are here.
Union Bay Networks, a 1.5-year-old, Seattle-based cloud networking startup, has reportedly been acquired by Apple for undisclosed terms. The company had raised $1.9 million in seed funding from Sujal Patel, Divergent Ventures, Greylock Partners, and Madrona Venture Group, shows Crunchbase. (In related news, Apple is opening a software office in Seattle.)
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People
So much for that. Actor Christian Bale has bailed on Sony’s Steve Jobs biopic, which could be hard to recast, particularly in light of what screenwriter Aaron Sorkin said on Bloomberg TV last month: “We needed the best actor on the board in a certain age range and that’s Chris Bale.”
At a medical conference in New Orleans yesterday, Microsoft cofounder Bill Gates spoke at length about why his foundation has joined the battle against the Ebola epidemic. “This disease, not only does it kill directly, it also shuts down health systems,” he noted. “If this thing had spread throughout West Africa, among other things you could throw out the window is the incredible progress we’ve made on polio.” More on his comments here.
Sean Rad, the cofounder of Tinder, the increasingly popular dating app, has been ousted from his job as CEO. Forbes has the story here.
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Happenings
Web Summit kicked off today in Dublin. You can check out some of its high-wattage speakers here. For a live feed, click here.
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Job Listings
Zendesk, the now publicly traded customer service platform, is looking for a business analyst in San Francisco.
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Essential Reads
The publicly traded travel-lodging site HomeAway is suing the city of San Francisco over a new law that restricts home rentals from going into effect, reports the WSJ.
Meet the guy behind China’s Tinder.
Amazon Prime members have a new perk as of today: free, unlimited photo storage.
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Detours
A car that enables you to see everything outside the car from the inside? It’s possible.
Why restaurant food tastes better when the chef can see you.
Silicon Valley entrepreneur Michael Klein and his wife are selling what’s currently San Francisco’s most expensive home on the market at $39 million. Curbed has some pictures here.
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Retail Therapy
It’s a raft! It’s a kayak! It’s the Alpackalypse.
