Monthly Archives: December 2014

StrictlyVC: December 30, 2014

Good Tuesday morning, dear readers!

Some notes: StrictlyVC’s inaugural “Insider” series event takes place Thursday, February 12th, at Next World Capital in San Francisco. The evening program will feature AngelList cofounder Naval Ravikant, Khosla Ventures partner Keith Rabois, and Strava CEO and cofounder Mark Gainey, among others. Space is limited. Get your tickets here.

Also, a reminder that your next issue of StrictlyVC will arrive on Monday, January 5. Happy New Year, everyone!:)

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Top News in the A.M.

Instacart, the 2.5-year-old, San Francisco-based grocery delivery startup, has closed on $210 million in new funding that a Recode source says will balloon to $220 million before the round is closed. The investment will value the company at around $2 billion, says Re/code.

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Top Investor Michael Dearing on the Startup Ecosystem Now

By Semil Shah

Nearly five years ago, reporter Kara Swisher labeled Michael Dearing the “hottest angel investor you’ve never heard of.”

Things haven’t changed much. Dearing, a former senior VP at eBay who joined Stanford’s faculty in 2006 as a consulting associate professor (he also teaches off campus), has quietly backed a long string of highly successful companies. Think AdMob, the mobile advertising start-up acquired by Google for $750 million in late 2009. Or Aardvark, the social search engine, also acquired by Google, for $50 million 2010. Dearing had another big win just this month when Acompli, a 1.5-year-old maker of a mobile email application, sold to Microsoft for $200 million in cash. It had raised just $7.3 million from investors, including Dearing’s investment vehicle, Harrison Metal.

Despite keeping a low profile, Dearing nicely agreed to chat with us recently about a few things, including who he thinks is the best early-stage tech investor in the business today. From that interview:

There’s been increasing chatter in the Valley about diversity in startups and investing, as well as the moral actions of companies. What strikes you most about the ecosystem in 2015? What’s healthy and what’s unhealthy in your opinion?

On the “healthy” list: continued inbound immigration — international and domestic — of exceptional people; circulation of talent from company to company; and bio-diversity of products being created. The “unhealthy” list for Silicon Valley is the same as for Earth. Sometimes people treat each other terribly. Sometimes fear and status anxiety creates a zero-sum thinking. But it’s a self-cleaning oven. What I mean is that the stuff on our “healthy” list eventually, inevitably overcomes the stuff on our “unhealthy” list. [It happens] slower than I’d like, but I’m an optimist, I guess. This is the world capital of our Industrial Revolution, so of course good will win!

As a long-time seed investor, what have been the biggest changes you’ve seen in how companies get off the ground?

Today, there’s an ample supply of money, ideas and talent. I think we’re short on great general management. Gears grind when people struggle to make a business work. Get everyone working on the right stuff. Make sure we set goals and hit them. All the stuff Andy Grove talks about in High Output Management. But it’s an old issue. The scarcest input in our system right now has been in short supply for 200-plus years of industrial capitalism — exceptional general management. That means stuff is harder than it needs to be, things take longer, the runway gets eaten up faster than it should. If we fix that, we can massively amplify the power of our talent, good ideas, and money. That’s why great general managers are so important. That’s where I am steering Harrison Metal.

What’s your view on hot, high-growth companies staying private longer?

I think it’s a good thing when founders have options. Obviously there’s risk on pricing. Will the companies grow into the valuations? I hope so. Where you get into trouble is in the high-flying private deals where the leadership takes out a ton of money in secondary sales. Especially if those companies face a shortage of great general management. Stuff goes sideways really quick when the business is run poorly and the leadership is prematurely rich.

You’ve been in Palo Alto for years, but the center of gravity for many consumer and some B2B startups is now in San Francisco. How has Palo Alto changed for you, and have you ever thought about moving to the city?

I love Palo Alto. We have Stanford, the sun, things like that. I spent eight years teaching at Stanford and my home is here. I don’t think of it as an “or” — PA versus SF. They are each part of the whole, and I spend a lot of time in both places. PA has changed a ton, though. When I started Harrison Metal, I used to be able to walk around PA and see a good chunk of the portfolio. But today it’s not that way. Maybe it will be again someday. Until then I, for one, affirm loyalty to my Palantir overlords.

You’re not one to appear often publicly or promote yourself, so I’m curious: Who is one early-stage investor who founders should get to know, and what have you learned by working and co-investing with this person?

The very best early-stage investor in the business is Steve Anderson [of Baseline Ventures]. His track record is exceptional, obviously — and he’s well known for it — but I mean “best” in the broadest sense. Tells the truth. Focuses on making the pie big first. Crazy supportive of his founders in good and bad times. He’s honest and hard-working. He’s the very first person I would go see if I were raising money. There are some truly exceptional people in the early-stage business, but he’s at the top of my list.

Semil Shah is a guest holiday contributor to StrictlyVC. Shah is currently working as a venture advisor to two funds, Bullpen Capital (which focuses on post-seed rounds) and GGV Capital (a cross-border U.S.-Asia fund). You can follow him on Twitter at @semil.

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New Fundings

Blu Homes, a 6.5-year-old, Waltham, Ma.-based company that assembles eco-friendly homes and then ships them to customers, has raised $21.7 million of a planned $35 million funding round, according to an SEC filing. To date, shows Crunchbase, the company has raised $184.2 million, including from Skagen Group and Brightpath Capital Partners.

EHang, a year-old, San Francisco-based company that makes drones for recreational use, has raised $10 million in Series A funding led by GGV Capital, with participation from entrepreneurs Xiaoping Xu and Nick Yang, as well as PreAngel, a fund focused on early-stage startups. (The WSJ has more on the company here.)

FXiaoKe, a three-year-old, Beijing-based social cloud-based service provider that’s also known as Facishare, has raised $50 million in Series C funding led by DCM, with participation from earlier backers IDG Capital and Northern Light Venture Capital. The outlet e27 has the story. The company has now raised $63 million altogether, shows Crunchbase.

Neurotrack Technologies, a 2.5-year-old, Palo Alto, Ca.-based company that’s developing a predictive test for Alzheimer’s disease that would enable its detection up to six years before the first symptoms appear, has raised $1 million in debt, shows an SEC filing that was first flagged by MedCity News. Neurotrack had previously raised $2 million in Series A funding from Rock Health, Founders Fund, and The Social+Capital Partnership.

TaxiForSure, a 3.5-year-old, Bangalore, India-based app-based taxi and car rental aggregator, is planning to raise close to $60 million from a new investor, reports Deal Curry. Earlier this year, the company had raised $30 million in funding led by earlier backer Accel Partners, with participation from Bessemer Venture Partners and Helion Venture Partners. This would be the fourth round of funding for the company.

VideoDesk, a 2.5-year-old, New York-based cloud-based video-chat services company whose service is designed to ease online consumer purchases, has raised $4.8 million from unnamed investors. More here.

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New Funds

Cowboy Ventures, the seed-stage investment firm led by former Kleiner Perkins Caufield & Byers partner Aileen Lee, has officially closed on $57 million for its second fund, reports Venture Capital Dispatch, which says the firm has yet to make an investment from that fund. An SEC form processed in September had shown Cowboy was targeting $55 million. The firm’s debut fund had closed with $40 million in 2012.

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IPOs

Flex Pharma, a year-old, Boston-based biotech company that’s developing treatments for leg cramps and spasms associated with severe neuromuscular conditions, has filed to go public (already!). The company has raised $40 million from investors, shows Crunchbase. According to its S-1, its biggest outside shareholders are Longwood Founders Fund, which owns 19.23 percent of the business, and Bessemer Venture Partners, which owns 9.82 percent.

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People

Media magnate John Malone and his wife, Leslie, are giving $42.5 million to Colorado State University to develop stem cell and other treatments for animals and people, the biggest donation in the school’s history.

Former WSJ reporter Cari Tuna and Facebook cofounder Dustin Moskovitz were in their mid-20s in 2010 when they became the youngest couple ever to sign on to the Giving Pledge, and they quickly decided to focus on research-driven “effective altruism,” rather than any personal causes. Indeed, reports the Washington Post, after “three years, several hundred interviews and trips that took them from Washington think tanks . . . to rural villages in Kenya,” the couple — who fly coach and share a used car — has narrowed their interests to four overarching buckets and they plan to announce their first major gifts early this coming year.

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Data

In the first three quarters of 2014, 35 debut early-stage funds closed at less than $100 million, the highest number recorded by Dow Jones VentureSource.

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Essential Reads

Hacked emails reveal China’s elaborate and absurd Internet propaganda machine.

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Detours

The building that strands lawmakers, lobbyists and journalists on their way to meetings—and sometimes to their own offices.

The weird connections between hearing and taste.

Building the Golden Gate Bridge.

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Retail Therapy

Minivans for budding oligarchs.

The ultimate (four-foot-long) electric sports car.




Top Investor Michael Dearing on the Startup Ecosystem Now

michael dearingBy Semil Shah

Nearly five years ago, reporter Kara Swisher labeled Michael Dearing the “hottest angel investor you’ve never heard of.”

Things haven’t changed much. Dearing, a former senior VP at eBay who joined Stanford’s faculty in 2006 as a consulting associate professor (he also teaches off campus), has quietly backed a long string of highly successful companies. Think AdMob, the mobile advertising start-up acquired by Google for $750 million in late 2009. Or Aardvark, the social search engine, also acquired by Google, for $50 million 2010. Dearing had another big win just this month when Acompli, a 1.5-year-old maker of a mobile email application, sold to Microsoft for $200 million in cash. It had raised just $7.3 million from investors, including Dearing’s investment vehicle, Harrison Metal.

Despite keeping a low profile, Dearing nicely agreed to chat with us recently about a few things, including who he thinks is the best early-stage tech investor in the business today. From that interview:

There’s been increasing chatter in the Valley about diversity in startups and investing, as well as the moral actions of companies. What strikes you most about the ecosystem in 2015? What’s healthy and what’s unhealthy in your opinion?

On the “healthy” list: continued inbound immigration — international and domestic — of exceptional people; circulation of talent from company to company; and bio-diversity of products being created. The “unhealthy” list for Silicon Valley is the same as for Earth. Sometimes people treat each other terribly. Sometimes fear and status anxiety creates a zero-sum thinking. But it’s a self-cleaning oven. What I mean is that the stuff on our “healthy” list eventually, inevitably overcomes the stuff on our “unhealthy” list. [It happens] slower than I’d like, but I’m an optimist, I guess. This is the world capital of our Industrial Revolution, so of course good will win!

As a long-time seed investor, what have been the biggest changes you’ve seen in how companies get off the ground?

Today, there’s an ample supply of money, ideas and talent. I think we’re short on great general management. Gears grind when people struggle to make a business work. Get everyone working on the right stuff. Make sure we set goals and hit them. All the stuff Andy Grove talks about in High Output Management. But it’s an old issue. The scarcest input in our system right now has been in short supply for 200-plus years of industrial capitalism — exceptional general management. That means stuff is harder than it needs to be, things take longer, the runway gets eaten up faster than it should. If we fix that, we can massively amplify the power of our talent, good ideas, and money. That’s why great general managers are so important. That’s where I am steering Harrison Metal.

What’s your view on hot, high-growth companies staying private longer?

I think it’s a good thing when founders have options. Obviously there’s risk on pricing. Will the companies grow into the valuations? I hope so. Where you get into trouble is in the high-flying private deals where the leadership takes out a ton of money in secondary sales. Especially if those companies face a shortage of great general management. Stuff goes sideways really quick when the business is run poorly and the leadership is prematurely rich.

You’ve been in Palo Alto for years, but the center of gravity for many consumer and some B2B startups is now in San Francisco. How has Palo Alto changed for you, and have you ever thought about moving to the city?

I love Palo Alto. We have Stanford, the sun, things like that. I spent eight years teaching at Stanford and my home is here. I don’t think of it as an “or” — PA versus SF. They are each part of the whole, and I spend a lot of time in both places. PA has changed a ton, though. When I started Harrison Metal, I used to be able to walk around PA and see a good chunk of the portfolio. But today it’s not that way. Maybe it will be again someday. Until then I, for one, affirm loyalty to my Palantir overlords.

You’re not one to appear often publicly or promote yourself, so I’m curious: Who is one early-stage investor who founders should get to know, and what have you learned by working and co-investing with this person?

The very best early-stage investor in the business is Steve Anderson [ofBaseline Ventures]. His track record is exceptional, obviously — and he’s well known for it — but I mean “best” in the broadest sense. Tells the truth. Focuses on making the pie big first. Crazy supportive of his founders in good and bad times. He’s honest and hard-working. He’s the very first person I would go see if I were raising money. There are some truly exceptional people in the early-stage business, but he’s at the top of my list.

Semil Shah is a guest holiday contributor to StrictlyVC. Shah is currently working as a venture advisor to two funds, Bullpen Capital (which focuses on post-seed rounds) and GGV Capital (a cross-border U.S.-Asia fund). You can follow him on Twitter at @semil.




StrictlyVC: December 19, 2014

Hi, good Monday morning, everyone! Hope you’re having a wonderful holiday break. (We are.)

Quick scheduling note: We’re publishing today and tomorrow. After that, we’ll be resuming our daily schedule on Monday.:)

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Top News in the A.M.

China has blocked Gmail. (Sigh.)

A hacker who claims to be behind the Christmas Day cyber attack on computer games consoles tells Sky News that he and “basically” two others launched the attack to “raise awareness” about the poor security afforded PlayStation and Xbox users, as well as “to amuse ourselves . . . I’d be rather worried if those people didn’t have anything better to do than play games on their consoles on Christmas Eve and Christmas Day.”

German researchers have discovered a flaw that could let anyone listen to your cell calls via SS7, the global network that allows the world’s cellular carriers to route calls, texts and other services to each other. “Many of the big intelligence agencies probably have teams that do nothing but SS7 research and exploitation,” one surveillance technology expert tells the Washington Post. “They’ve likely sat on these things and quietly exploited them.”

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Saar Gur of CRV on Marketing, New Platforms, and Breaking into VC

By Semil Shah

Saar Gur joined CRV in 2007, though Gur was well-known in startup circles long before diving into venture capital, partly because of his early involvement in companies like Carebadges, which made a flash fundraising widget and was acquired by Facebook Causes, and the Internet video advertising network BrightRoll, which was acquired last month by Yahoo. We recently caught up with Gur — who focuses on consumer Internet investments for CRV — to learn a bit about how the firm sees the world as it heads into 2015.

Some long-established venture firms still appear to be struggling with how to market themselves. Is marketing something you and your partners wrestle with? I should note that this Q&A was my idea and not yours.

Marketing is very important in our business, and we could always do a better job on this front, but there are lots of ways to market. At CRV, our first priority is serving our entrepreneurs and promoting our companies, not ourselves. 
We know if we do a world-class job of supporting our entrepreneurs and helping our companies, they’ll help refer us to other great entrepreneurs.

CRV was one of first venture firms to focus on seed investing. Is that still the case today, or has firm’s strategy changed?

Over 90 percent of our investments are seed and Series A. We invest at this stage as we really enjoy being partners with our entrepreneurs throughout their company’s journey, starting as early as possible — often at the idea stage. There was a time when our seed program included investing small amounts of $50,000 to $100,000, but we no longer do that. Today most of our seed investments are in the range of $500,000 to $3 million, and we treat them as significant investments. We often take board seats of these early companies and work hard to help turn them into meaningful companies. Many of my recent consumer investments started with a seed investment, including Viki (sold to Rakuten last year), Doordash, and Patreon.

One of the companies you helped start — BrightRoll — just had an exit. Tell us a bit about the story, as well as the tough lesson you learned from it.

I will start by saying that there are 10x entrepreneurs, and [BrightRoll founder] Tod Sacerdoti is one of them. BrightRoll was a story of day-in and day-out execution for many years. There were no great network effects or unfair advantages afforded to the company. They just had to execute every single day for a long time. There were many lessons that I gained from the experience but primarily it reinforced my belief that great entrepreneurs, more than anything else, are the key ingredient in the startup success equation.

Of all the new platforms being built upon — drones, virtual reality, bitcoin, crowdfunding, robotics/autonomous driving — where would you place a bet as to what will hit the mainstream market first?

We think many of these areas will continue to grow, but I spend a lot of my time trying to think about the catalysts that will create non-linear accelerated adoption of these technologies. In terms of specifics, I guess it depends how you define “mainstream.” Of the technologies you mentioned, millions of consumers have participated in crowdfunding campaigns, and this is the one that’s probably closest to touching hundreds of millions of users before the others. At the same time, robotics/autonomous driving has already reached massive scale. Granted I am not talking about fully-autonomous self-driving cars. Often technology gets implemented in incremental steps and it seems to me that “smart” cruise control and reverse back-up alerts are pretty mainstream in newer vehicles at this point.

On this topic of “mainstream,” I think we see a similar analogy in hot VC words like drones, bitcoin, and artificial intelligence. Often the implementation of a technology occurs in a non-obvious way. For example, many folks say “AI” is not yet mainstream, but it turns out that one of the most widely adopted implementations of AI is the auto-focus technology that’s incorporated in every smartphone camera and that has enabled the common person to take much better photos than ever before. All of these areas are very exciting and we’re actively looking to invest in them.

I’m sure you and CRV are asked often about how folks can crack into venture. What advice would you give new college graduates and others who are interested in venture capital?

It’s hard to enter the venture business as a young person. It feels to me that many firms will recruit based on:

1) Network – e.g., you went to Stanford and seem connected to many potential founders, or you worked at a company like Facebook that will produce new company founders. This is why we often recommend that young people go and work in companies that will produce great people networks if they want to do venture.

2) Unique domain expertise. You may be the leading drone expert at 18 years old, or be an expert in bitcoin at 16. Either way, if you have a unique domain experience and network in an area of venture interest, it can help.

3) Analytics. If you have a demonstrable track record showing innate curiosity in tech startups and/or an ability to get up to speed on a market and form a unique point of view, that might make you more attractive.

Semil Shah is a guest holiday contributor to StrictlyVC. Shah is currently working as a venture advisor to two funds, Bullpen Capital (which focuses on post-seed rounds) and GGV Capital (a cross-border U.S.-Asia fund). You can follow him on Twitter at @semil.

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New Fundings

Swoop, a three-year-old, Cambridge, Ma.-based ad tech firm, has raised $2.1 million from six undisclosed investors, according to an SEC filing that was first flagged by Boston Business Journal. The round brings the company’s total funding to date to about $13.4 million, shows Crunchbase.

Verbling, a three-year-old, San Francisco-based platform that enhances users’ language fluency through video chat technology, has raised $3.5 million in new funding, according to an SEC filing that lists a $4.8 million target. The company had previously raised an undisclosed amount of seed funding, including from SV Angel, Learn Capital, Rothenberg Ventures, and Hydrazine Capital.

Xiaomi, the 4.5-year-old, Beijing-based smartphone maker, has finally closed on that $1.1 billion round of funding, at a reported $45 billion pre-money valuation. DST Global, which Recode sources say had already poured $500 million into Xiaomi, took part in round, along with other players, including a private equity group affiliated with Alibaba Group’s Jack Ma. “I was attracted by the size of the opportunity ahead of them,” DST’s Yuri Milner told Bloomberg in a telephone interview this morning. “I don’t think there’s any company that has reached $1 billion in revenue as fast as Xiaomi. In every conceivable benchmark, it’s almost unprecedented in terms of its speed of growth.”

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New Funds

Aavishkar, a 10-year-old, Mumbai, India-based social entrepreneurship-focused venture capital fund, is set to raise $400 million in 2015, reports the Economic Times. The company’s CEO, Vineet Rai, says the firm is raising two separate funds: a $100 million fund that is expected to close by March’s end and will be Africa focused, and a $300 million fund that will be poured into India-based companies and is expected to close by next year’s end.

Domain Associates, the 29-year-old health care-focused venture firm with offices in Princeton, N.J., and San Diego, is raising a ninth fund, according to an SEC filing that shows the firm has raised $163.6 million so far. The fund’s target is listed as “indefinite.”

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People

James Golick, the young CTO of Normal, a New York company that produces custom-fit 3D-printed earphones, died in a car accident in Mexico Friday night. Ben Kaufman, the founder and CEO of Quirky, has authored a moving tribute to his friend Golick here.

Jessica Verrilli, a former associate at Venrock, talks about becoming an early employee of Twitter (where she remains a director of corporate development) and getting ahead in tech: “First, study computer science or become as technical as possible. Even if you don’t want to be a programmer, deeper technical knowledge will put you at an advantage throughout your career. I’m constantly sitting in tech talks and engineering and product meetings and trying to pick up more and more.”

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Data

The 20 largest VC-backed tech exits of this year were valued at more than $55 billion. CB Insights breaks them down here.

A dozen tech companies that are primed for exits or IPOs in 2015.

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Essential Reads

Pinterest is opening its ads platform to marketers on New Year’s Day.

A Google gentrification fight that doesn’t involve San Francisco.

Where boss is a dirty word.

A broad look at the Chinese entrepreneurs who aim to become technology’s biggest power players.

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Detours

Remembering some of those we lost this year.

The benefits of being cold.

Twenty-four amazing roads.

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Retail Therapy

BookBook for the iPhone 6 and 6 Plus.

Gold (bar) clutch.

Rick Owens Tech Runners. (Note: For looking cool, not actual running.)




Saar Gur of CRV on Marketing, New Platforms, and Breaking Into VC

GurSaarPhoto1-225x150By Semil Shah

Saar Gur joined CRV in 2007, though Gur was well-known in startup circles long before diving into venture capital, partly because of his early involvement in companies like Carebadges, which made a flash fundraising widget and was acquired by Facebook Causes, and the Internet video advertising network BrightRoll, which was acquired last month by Yahoo. We recently caught up with Gur — who focuses on consumer Internet investments for CRV — to learn a bit about how the firm sees the world as it heads into 2015.

Some long-established venture firms still appear to be struggling with how to market themselves. Is marketing something you and your partners wrestle with? I should note that this Q&A was my idea and not yours.

Marketing is very important in our business, and we could always do a better job on this front, but there are lots of ways to market. At CRV, our first priority is serving our entrepreneurs and promoting our companies, not ourselves. 
We know if we do a world-class job of supporting our entrepreneurs and helping our companies, they’ll help refer us to other great entrepreneurs.

CRV was one of first venture firms to focus on seed investing. Is that still the case today, or has firm’s strategy changed?

Over 90 percent of our investments are seed and Series A. We invest at this stage as we really enjoy being partners with our entrepreneurs throughout their company’s journey, starting as early as possible — often at the idea stage. There was a time when our seed program included investing small amounts of $50,000 to $100,000, but we no longer do that. Today most of our seed investments are in the range of $500,000 to $3 million, and we treat them as significant investments. We often take board seats of these early companies and work hard to help turn them into meaningful companies. Many of my recent consumer investments started with a seed investment, including Viki (sold to Rakuten last year), Doordash, and Patreon.

One of the companies you helped start — BrightRoll — just had an exit. Tell us a bit about the story, as well as the tough lesson you learned from it.

I will start by saying that there are 10x entrepreneurs, and [BrightRoll founder] Tod Sacerdoti is one of them. BrightRoll was a story of day-in and day-out execution for many years. There were no great network effects or unfair advantages afforded to the company. They just had to execute every single day for a long time. There were many lessons that I gained from the experience but primarily it reinforced my belief that great entrepreneurs, more than anything else, are the key ingredient in the startup success equation.

Of all the new platforms being built upon — drones, virtual reality, bitcoin, crowdfunding, robotics/autonomous driving — where would you place a bet as to what will hit the mainstream market first?

We think many of these areas will continue to grow, but I spend a lot of my time trying to think about the catalysts that will create non-linear accelerated adoption of these technologies. In terms of specifics, I guess it depends how you define “mainstream.” Of the technologies you mentioned, millions of consumers have participated in crowdfunding campaigns, and this is the one that’s probably closest to touching hundreds of millions of users before the others. At the same time, robotics/autonomous driving has already reached massive scale. Granted I am not talking about fully-autonomous self-driving cars. Often technology gets implemented in incremental steps and it seems to me that “smart” cruise control and reverse back-up alerts are pretty mainstream in newer vehicles at this point.

On this topic of “mainstream,” I think we see a similar analogy in hot VC words like drones, bitcoin, and artificial intelligence. Often the implementation of a technology occurs in a non-obvious way. For example, many folks say “AI” is not yet mainstream, but it turns out that one of the most widely adopted implementations of AI is the auto-focus technology that’s incorporated in every smartphone camera and that has enabled the common person to take much better photos than ever before. All of these areas are very exciting and we’re actively looking to invest in them.

I’m sure you and CRV are asked often about how folks can crack into venture. What advice would you give new college graduates and others who are interested in venture capital?

It’s hard to enter the venture business as a young person. It feels to me that many firms will recruit based on:

1) Network – e.g., you went to Stanford and seem connected to many potential founders, or you worked at a company like Facebook that will produce new company founders. This is why we often recommend that young people go and work in companies that will produce great people networks if they want to do venture.

2) Unique domain expertise. You may be the leading drone expert at 18 years old, or be an expert in bitcoin at 16. Either way, if you have a unique domain experience and network in an area of venture interest, it can help.

3) Analytics. If you have a demonstrable track record showing innate curiosity in tech startups and/or an ability to get up to speed on a market and form a unique point of view, that might make you more attractive.

Semil Shah is a guest holiday contributor to StrictlyVC. Shah is currently working as a venture advisor to two funds, Bullpen Capital (which focuses on post-seed rounds) and GGV Capital (a cross-border U.S.-Asia fund). You can follow him on Twitter at @semil.




StrictlyVC: December 19, 2014

Happy Friday, everyone! Today, we have something a little out of the ordinary: Lise Buyer of Class V Group, a consultancy for firms looking to go public, has written a column for us, authored with her colleague Leslie Pfrang. It’s a great guide for companies that are contemplating a run at the public market in 2015. Hope you enjoy it. (Web visitors, you can find an easier-to-read version of the column, along with the rest of today’s email, right here.)

Also, a quick reminder that we’re not publishing StrictlyVC next week. We hope you have a terrific holiday with loved ones, and we’ll see you back here on Monday, December 29.

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Top News in the A.M.

BBC investigation has found poor treatment of workers in Chinese factories that make Apple products, including exhausted workers who were filmed falling asleep on their 12-hour shifts. One undercover reporter, working in a factory making parts for Apple computers, had to work 18 days in a row despite repeated requests for a day off. Another reporter was housed in a dormitory where 12 workers shared a cramped room. Apple says CEO Tim Cook is “deeply offended” by the allegations.

Whoa. Citigroup raised the valuation of Instagram this morning from $19 billion to $35 billion.

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Ready to Go Public? Really? You’re Sure?

It’s been a pretty terrific time in the IPO market this past year. According to Renaissance Capital, through December 15, there have been 271 IPOs in the U.S. in 2014, compared with 221 IPOs a year ago at this time, a volume increase of 23 percent. Thanks to Alibaba’s thunderlizard of a deal, the dollars raised by IPOs this year, $84.2 billion, exceeds last year’s total of $ 54.6 billion by 54 percent. Not bad.

Ah, but look deeper and you will see that actually, roses weren’t coming up everywhere. While 271 IPOs have been completed so far this year, conservative estimates suggest that more than 350 companies filed S-1s, a difference of nearly 30 percent. For every 3 deals that filed and went public this year, at least one did the training, filed an S-1 and didn’t make it to the starting line. Of course, we need to back out those companies that filed late in the year, targeting a 2015 transaction. If we aggressively estimate that 20 fit that pattern, we still have more than 50 that didn’t get the job done as planned. When you consider the time and expense required for an initial filing, that is a big number.

What’s the difference and what price “optionality”?

Bankers and others can be convincing when suggesting companies take advantage of the relatively new option to file confidentially: “Get on file now, then choose your timing later, but you’ll be ready.” Factually correct? Yes. Good for your business, your P&L, your employees or your IPO? Not so fast. Preparing for an IPO too soon is neither a cost free nor risk free option.

The ongoing and elevated expense, distraction, loss of momentum and sometimes embarrassment (Box anyone?) that accompany a premature “go” decision can easily outweigh any timing flexibility benefits.

OK, but IPOs do take a long time. How do we know when to start?

At January board meetings, following the “year in review” appraisals, many private company boards will have the “Is this the year to go?” conversation. (By “go,” we mean schedule a bake-off and hire bankers.) In advance of those meetings, we offer five questions every board should ponder before dropping the green flag:

1) Can your sales and financial teams accurately forecast results for the next few quarters? Did you nail your forecasts last quarter? If answering either of these is anything other than a rock solid “yes”, then take your time. Public investors show no mercy to companies that miss an early quarter. Worse still, the brickbats courtesy of angry investors will be but mere annoyances relative to the grenades your employees, customers and partners may lob through your door if you miss an early public quarter.

2) Do you have the right team in place? No really, are you sure you have the right team in place, not just for the IPO but also for the long term? Step back and take a cold, clear look. The team that helped you get this far may be gifted, battle-tested and composed of friends. That doesn’t mean it’s the team for a fast-growing public company. Public investors want to know that the C-suite in place for the IPO can scale the organization. Newly public companies juggle enough knives when adjusting to the market’s spotlight. There’s little bandwidth for concurrently integrating new senior leaders.

3) Is your business model stable and ready for public scrutiny? Admittedly, there are companies (like Twitter) where even 12 months post-IPO the model remain an enigma. We grant that if your business has north of 200 million active users, investors may cut you some slack. However, for most, a more stable model correlates to a larger crowd of investors rallying around your IPO’s order book. Are you hoping to migrate to a subscription model? Do you see significant price changes or regulatory updates on the near-term horizon? Launch that new model or absorb the changes before you step on the IPO court. In the eyes of investors, a foot-fault of your own making — or because someone else moved the lines in a way you could have predicted — will cripple your stock’s performance.

4) Are you ready for an intense audit? The reason most companies on the IPO trail get thrown off course is because their audits aren’t ready on schedule. Audits won’t be rushed. The drill-down scrutiny on every last decimal point is much more intense when your auditors know you’re preparing for an IPO. The size of your audit team and number of questions will often triple during this process.

5) Is your company really strong enough to support the valuation you expect? For this point, we will excuse readers at health-science companies, but for those selling products and services, size matters. Management teams tend to be optimistic. Bankers, reflecting experience, tend to be conservative. Your finance team may produce a model projecting revenues over the next two years of $X and $Y. By the time bankers have helped you “refine” them, your forecasts (for the sell side analysts) will likely be closer $.7X and $.8Y. Expect similar treatment (in the opposite direction) for your expense projections. It is those banker-adjusted numbers from which your initial valuation range will be determined. Do the exercise in-house to be sure the projected valuation, based off a hacked-up model, will be acceptable before hiring banks and kicking off a process. The more directly you face the conservative forecast reality, the better prepared you will be for the go/no go decision.

—–

New Fundings

Bustle, a 1.5-year-old, Brooklyn, N.Y.-based news, entertainment, lifestyle, and fashion site, has raised $15.5 million in Series C funding led by General Catalyst Partners. Other participants in the round include Time Warner Investments, Rothenberg Ventures, 500 Startups and The Social+Capital Fund. The company has now raised roughly $27 million to date.

Echodyne, a new, Bellevue, Wa.-based company that makes radar products based on metamaterials technology invented by Intellectual Ventures in collaboration with Duke University and the University of California at San Diego, has raised an undisclosed amount of funding led by Bill Gates and the Madrona Venture Group, with participation fromVulcan Capital, Lux Capital, The Kresge Foundation, and others. The company is the fourth spin-out of Intellectual Ventures.

Hampton Creek, a three-year-old, San Francisco-based company that’s committed to finding new ways of using plants in food products, has raised $90 million in Series C funding led by previous investors Horizons Ventures and Khosla Ventures, with participation from a long list of other investors, including Collaborative Fund, Founders Fund, Salesforce CEO Marc Benioff and Facebook co-founder Eduardo Saverin. The company has now raised $120 million altogether. TechCrunch has much more here.

Mixpanel, a five-year-old, San Francisco-based advanced analytics platform that was originally incubated at Y Combinator, has raised $65 million in new funding from earlier backer Andreessen Horowitz, reportedly at a $865 million valuation. TechCrunch has more here. The company had previously raised around $12 million, including from Sequoia Capital, Bebo founder Michael Birch, and Affirm cofounder and CEO Max Levchin, among others.

Scioderm, a two-year-old, Durham, N.C.-based company in clinical studies with a topical therapy meant to treat the genetic skin disorder epidermolysis bullosa, has raised a $20 million Series B funding led by new investor Redmile Group, with participation from earlier backers Morgenthaler Ventures and Technology Partners.

Skytap, an eight-year-old, Seattle-based service that aims to help development and test teams in the enterprise work more efficiently, has raised $35 million in new funding led by Insight Venture Partners, with participation from earlier backers, including OpenView Venture PartnersIgnition Partners, Madrona Venture Group, and Washington Research Foundation. Skytap has now raised $64.5 million altogether.

—–

New Funds

Venture Investment Associates, a 21-year-old fund of funds group, has started raising a $150 million fund of funds that will back venture capital, growth equity and buyout funds, according to VentureWire. The firm recently closed a $50 million seed fund of funds. (StrictlyVC talked with managing director Chris Douvos about the latter last month.)

——

IPOs

DraftKings, a 3.5-year-old, Boston-based daily fantasy sports business, is looking to go public in as little as two years, CEO Jason Robins tells The Street. DraftKings had raised $41 million in Series C funding led by Raine Group back in August; it has raised $76.4 million to date, shows Crunchbase.

Juno Therapeutics, a 13-month-old, Seattle-based biotechnology company, priced 11 million shares at $24 each in its IPO last night, for gross proceeds of $264 million. Shares for the company’s widely anticipated IPO begin trading today on Nasdaq under the ticker symbol JUNO.

—–

Exits

Zomato, a 6.5-year-old, New Delhi, India-based, Yelp-like service, has acquired Italian rival Cibando for undisclosed terms. Zomato, which now has a presence in 20 companies, has raised $113 million from investors. TechCrunch has more here.

—–

People

Billionaire Sean Parker has donated $24 million to Stanford to study severe allergic reactions and look for a cure. Parker after whom the Sean N. Parker Center for Allergy Research will be named, has reportedly been in the emergency room up to 14 times himself owing to a severe peanut allergy.

In the fall, 35-year-old Minecraft creator Markus “Notch” Persson sold his company to Microsoft for $2.5 billion. Now, he has outbid Beyonce and Jay Z on this $70 million pad in Beverly Hills.

Venrock partner Bryan Roberts, a life-sciences investor, has quietly racked up six major exits this year — four IPOs and two acquisitions with high price tags. Venture Capital Dispatch asks him how he pulled it off.

Entrepreneur-investor Peter Thiel says he’s taking human growth hormone pills in hopes of living to be 120 years old. More here.

—–

Happenings

StrictlyVC is hosting its very first “Insider” event on Thursday, February 12, from 5 p.m. to 8 p.m. in the art gallery of Next World Capital in San Francisco. Featured speakers include AngelList Naval Ravikant, investor and entrepreneur Keith Rabois, Strava cofounder and CEO Mark Gainey, and Next World cofounder Craig Hanson. (There will also plenty of drinks, hors d’oeuvres, and networking to go around.) Half the tickets have sold already; get yours here.

——

Essential Reads

Unilever has dropped its lawsuit against the three-year-old food makerHampton Creek. Unilever, which makes Hellman’s and Best Brands mayonnaise, had accused Hampton Creek of false advertising for calling its egg-free spread “mayo.” Hampton Creek said public support for its sustainable products likely prompted Unilever to abandon the suit.

New York magazine on Yahoo‘s Marissa Mayer and the so-called “glass cliff,” a term psychologists apply to the act of promoting women to board positions after a company has started faltering.

According to a new Bloomberg report, the hackers who broke into Sony’s Hollywood unit probably spent months collecting passwords and mapping the network before they committed a last act of vandalism, setting off a virus that wiped out data and crashed the system in 10 minutes.

—–

Detours

Incredible real-life castles from around the world.

The language of food.

Who said what? The 2014 news quiz!

——

Retail Therapy

The ol’ Rambo Lambo. It could be yours.




Ready to Go Public? Really? You’re Sure?

20140630_ipo-calendar-2014By Lise Buyer and Leslie Pfrang

It’s been a pretty terrific time in the IPO market this past year. According to Renaissance Capital, through December 15, there have been 271 IPOs in the U.S. in 2014, compared with 221 IPOs a year ago at this time, a volume increase of 23 percent. Thanks to Alibaba’s thunderlizard of a deal, the dollars raised by IPOs this year, $84.2 billion, exceeds last year’s total of $ 54.6 billion by 54 percent. Not bad.

Ah, but look deeper and you will see that actually, roses weren’t coming up everywhere. While 271 IPOs have been completed so far this year, conservative estimates suggest that more than 350 companies filed S-1s, a difference of nearly 30 percent. For every 3 deals that filed and went public this year, at least one did the training, filed an S-1 and didn’t make it to the starting line. Of course, we need to back out those companies that filed late in the year, targeting a 2015 transaction. If we aggressively estimate that 20 fit that pattern, we still have more than 50 that didn’t get the job done as planned. When you consider the time and expense required for an initial filing, that is a big number.

What’s the difference and what price “optionality”?

Bankers and others can be convincing when suggesting companies take advantage of the relatively new option to file confidentially: “Get on file now, then choose your timing later, but you’ll be ready.” Factually correct? Yes. Good for your business, your P&L, your employees or your IPO? Not so fast. Preparing for an IPO too soon is neither a cost free nor risk free option.

The ongoing and elevated expense, distraction, loss of momentum and sometimes embarrassment (Box anyone?) that accompany a premature “go” decision can easily outweigh any timing flexibility benefits.

OK, but IPOs do take a long time. How do we know when to start?

At January board meetings, following the “year in review” appraisals, many private company boards will have the “Is this the year to go?” conversation. (By “go,” we mean schedule a bake-off and hire bankers.) In advance of those meetings, we offer five questions every board should ponder before dropping the green flag:

1) Can your sales and financial teams accurately forecast results for the next few quarters? Did you nail your forecasts last quarter? If answering either of these is anything other than a rock solid “yes”, then take your time. Public investors show no mercy to companies that miss an early quarter. Worse still, the brickbats courtesy of angry investors will be but mere annoyances relative to the grenades your employees, customers and partners may lob through your door if you miss an early public quarter.

2) Do you have the right team in place? No really, are you sure you have the right team in place, not just for the IPO but also for the long term? Step back and take a cold, clear look. The team that helped you get this far may be gifted, battle-tested and composed of friends. That doesn’t mean it’s the team for a fast-growing public company. Public investors want to know that the C-suite in place for the IPO can scale the organization. Newly public companies juggle enough knives when adjusting to the market’s spotlight. There’s little bandwidth for concurrently integrating new senior leaders.

3) Is your business model stable and ready for public scrutiny? Admittedly, there are companies (like Twitter) where even 12 months post-IPO the model remain an enigma. We grant that if your business has north of 200 million active users, investors may cut you some slack. However, for most, a more stable model correlates to a larger crowd of investors rallying around your IPO’s order book. Are you hoping to migrate to a subscription model? Do you see significant price changes or regulatory updates on the near-term horizon? Launch that new model or absorb the changes before you step on the IPO court. In the eyes of investors, a foot-fault of your own making — or because someone else moved the lines in a way you could have predicted — will cripple your stock’s performance.

4) Are you ready for an intense audit? The reason most companies on the IPO trail get thrown off course is because their audits aren’t ready on schedule. Audits won’t be rushed. The drill-down scrutiny on every last decimal point is much more intense when your auditors know you’re preparing for an IPO. The size of your audit team and number of questions will often triple during this process.

5) Is your company really strong enough to support the valuation you expect? For this point, we will excuse readers at health-science companies, but for those selling products and services, size matters. Management teams tend to be optimistic. Bankers, reflecting experience, tend to be conservative. Your finance team may produce a model projecting revenues over the next two years of $X and $Y. By the time bankers have helped you “refine” them, your forecasts (for the sell side analysts) will likely be closer $.7X and $.8Y. Expect similar treatment (in the opposite direction) for your expense projections. It is those banker-adjusted numbers from which your initial valuation range will be determined. Do the exercise in-house to be sure the projected valuation, based off a hacked-up model, will be acceptable before hiring banks and kicking off a process. The more directly you face the conservative forecast reality, the better prepared you will be for the go/no go decision.

Lise Buyer and Leslie Pfrang are partners at Class V Group, a consultancy for firms looking to go public




StrictlyVC: December 18, 2014

Good Thursday morning, everyone! Semil Shah here, helping to run StrictlyVC through month’s end. Here’s a bit about me from yesterday’s newsletter, if you missed it.

If you’d like to chat about anything, you can usually find me on Twitter; I’m @semil.

If you’re looking for an easier-to-read version of this email, you can find it here.

—–

Top News in the A.M.

The hackers win. Yesterday afternoon, Sony Pictures Entertainment announced it will not be releasing the Seth Rogen-James Franco comedy “The Interview” in any form. It also removed any mention of “The Interview” from its official web site.

According to Variety, Sony spent $42 million making the movie and “tens of millions” promoting it. The decision follows threats of a 9/11-style attack on theaters that showed the film.

American officials now believe that North Korea was “centrally involved” in the hacking of Sony Pictures computers. Meanwhile, veteran security experts aren’t so sure.

—–

VC Andy Weissman on the DNA of Union Square Ventures

For the last four or so years, Andy Weissman has been a partner at New York-based Union Square Ventures. But like his colleagues, including Fred Wilson and Brad Burnham, Weissman has been investing since the dot.com boom and bust of the late ’90s. He first joined Soundview Ventures/Dawntreader Ventures in 1999, spending more than six years with the firm before cofounding Betaworks with John Borthwick in 2007. In 2011, when Betaworks began to focus less on creating an investing portfolio (which Weissman had managed) and more on becoming an operating company, he hopped over to Union Square Ventures.

We talked last week about his work, and what USV is doing to maintain its status as one of the most successful venture firms in the game today.

How has USV’s thesis around “engaged networks of users” factored into investing in mobile-first companies? It’s obviously hard to find apps on mobile, and distribution can feel gated.

Well, at some level our thesis is not monolithic but instead is by design flexible, debatable, and evolving. When we wrote this post [about our pursuit of large networks of engaged users, differentiated through user experience, and defensible through network effects], we tried to explain how each of those words in the thesis matter, and how they each are subject to conversation over time.

So, at another level, the thesis applies to mobile-first companies the same way it applies to any companies or sectors, from mobile to blockchain to marketplaces. That being said, when you have a device that is available in everyone’s pocket, is location aware, and so forth, all the other attributes of a mobile device and mobile apps, there are real questions about the strength of the network effects. Are they the same? Or stronger? Or even weaker? That’s a conversation we’ve been having.

Speaking of which, tell us more about Figure1 and the story of how you came to invest in the company.

Kind of funny. I read something somewhere about the company. And I searched on Twitter and found the names of some of the founders. So I reached out to them on Twitter. A year later, we participated in their Series A financing. One of the best things was that as we got to know them, we realized Figure1 was precisely the kind of company in a medical or healthcare related field that was consistent with our thesis. I just didn’t know that until afterwards.

USV often travels as a team to the Bay Area and other regions to meet companies. This seems different than the lone-wolf culture of other firms.

USV operates in particular way. It’s not necessarily the only way to operate, nor is it necessarily the best way, but it is our way. We are a small firm by design and structure (meaning team size and capital size). And our framework for decision-making is a a particular point of view about the Internet – the thesis. So at least two times a year, we all go to San Francisco and get to spend a little more intimate and collective time with the companies we’ve invested in and others that we want to get to know us better. It works well. That small collaborative nature is part of the DNA. So we move in packs sometimes.

On mobile, besides Twitter, where do you find yourself having the most conversations? What apps are you most social on and why?

Twitter, Tumblr, Groupme, Reddit — the usual suspects. I lurk a lot in Figure1 and K-Pop Amino [a social network for Korean pop songs, photos, news and Korean music videos], then some other, very niche communities. As my friend Brad Dickason wrote to me the other day, “Put any self-branded introvert in a room with someone else who shares their passion and an intense dialogue ensues.”

USV has been doing more seed rounds of late. Naming rounds these days seems more complicated than it’s worth. How has USV adjusted its strategy to meet today’s environment?

I think we view our DNA as early stage investors foremost, without regard necessarily for whether something would classically be called Seed or A or whatever. I don’t think we’ve really adjusted the strategy. There are periods when we seem engaged in companies that at the earliest stages require less capital, and periods when the don’t. Lately, there have been more of the former than the latter, but we’ve also done a few of what you’d consider classic “Series A.”

—–

New Fundings

Beautycounter, a 1.5-year-old, Santa Monica, Ca.-based company that sells non-toxic personal-care products, said that TPG Growth has made a strategic investment of undisclosed size in the company in exchange for a minority stake in its business. Reuters has more here.

Expect Labs, a three-year-old, San Francisco-based company whose speech recognition technology aims to predict the items you intend to search before you say them, has raised $13 million from new strategic investors, including Samsung Ventures, Intel Capital, Telefónica Digital and Liberty Global Ventures. Fenox Venture Capital, Westcott and Quest Venture Partners also joined the round. Venture Capital Dispatch has more here.

First Opinion, a two-year-old, San Francisco-based startup with a texting app that pairs doctors who want to work from home with people who have basic health questions, has raised $6 million in Series A funding led by Polaris Partners. Earlier backers also joined the round, including Felicis Ventures, Monashees Capital, Scrum Ventures and True Ventures. The company previously raised $2.6 million in seed funding, including from 500 Startups and Greylock Partners.

Flexus Biosciences, a 1.5-year-old, San Carlos, Ca.-based biopharmaceutical company that’s developing small-molecule cancer immunotherapies that target regulatory T cells, has raised $38 million in fresh funding from Celgene Corp., Column Group, and Kleiner Perkins Caufield & Byers.

Inbox Messenger, a 1.5-year-old, New York-based mobile messaging application, has raised $3.9 million in seed funding from unnamed angel investors. The company has now raised $4.9 million, shows Crunchbase.

Open Garden, a nearly four-year-old, San Francisco-based mobile broadband network for Internet of Things devices, has raised $10.8 million in Series A funding led by August Capital, with Firebolt VenturesFuture Perfect Ventures, Kima Ventures, Tseung Kwan Ventures and Sherpalo participating. The company says the round closed in March and “remained undisclosed until now for competitive purposes.” The company has raised $12.8 million altogether.

P97 Networks, a two-year-old, Houston-based cloud-based mobile commerce and marketing platform for the convenience and fuel retailing industry, has raised $8 million in Series A funding led by Emerald Technology Ventures led the round, with participation from American Trading and Production Corp. and other unnamed new and existing investors,

Padlock Therapeutics, a year-old, Cambridge, Ma.-based company that’s developing therapies that remove molecular triggers behind autoimmune diseases such as rheumatoid arthritis, has raised $23 million in Series A led by Atlas Venture. Padlock was incubated as part of the Atlas Venture seed program.

PeerNova, an eight-month-old, Silicon Valley-based company that’s developing distributed trust systems based on blockchain technologies, has raised the first tranche of a Series A equity and debt funding round led by Mosiak Partners, with participation from Crypto Currency Partnersand individual investors.

Quanergy Systems, a two-year-old, Sunnyvale, Ca.-based company whose software and sensors capture and process 3-D mapping data in real time, has raised $30 million in Series A funding led by Rising Tide Fund, with participation from Wicklow Capital, Motus Ventures, and Wardenclyffe Partners. The company has now raised $34.5 million to date.

Rapid7, a 14-year-old, Boston-based maker of security risk management software, has raised $30 million in fresh funding from earlier backers Bain Capital Ventures and Technology Crossover Ventures. The company has now raised at least $89 million, shows Crunchbase.

RealConnex, a two-year-old, New York-based creator of an online marketplace for real estate services and investing, has emerged from beta with a $3.5 million Series A round led by Star Capital and Stratus Investments, Venture Capital Dispatch reports. As part of the funding, one of the lead investors, Star Capital, is also creating a $100 million fund, the RealConnex Opportunity 1 Fund, to finance projects on the platform. More here.

Redfin, the 10-year-old, Seattle-based online real estate search and brokerage service, has raised $71 million in Series G funding, including from Annox Capital, Brothers Brook, Glynn Capital Management, and Wellington Management, reports Inman News. The company has now raised $167.8 million to date.

——

New Funds

Avalon Ventures, a 31-year-old, La Jolla, Ca.-based early-stage venture firm, will be looking to raise a new, $250 million fund next year, the firm tells VentureWire. Its last fund, Avalon Ventures X, closed on $200 million in 2012.

High Peaks Venture Partners, the 10-year-old, New York-based early-stage venture firm, is looking to raise up to $60 million for its third fund, shows an SEC filing that states the firm has raised $11.2 million so far.

Khosla Ventures, the 10-year-old, Menlo Park, Ca.-based venture firm, is raising a new $400 million seed fund, according to an SEC filing flagged by TechCrunch.

——

Exits

RainStor, a 10-year-old, San Francisco-based startup specializing in online big-data archiving on Hadoop, has been acquired by publicly traded Teradata Corp. for undisclosed terms. RainStore had raised at least $26 million from investors, shows Crunchbase. Its backers included Credit Suisse and Storm Ventures.

—–

People

First Round Capital just posted its holiday video, “All About Burn Rate.”

More semi-embarrassing emails leaked as part of the Sony hacking were published yesterday. Among them, a note from Insight Venture Partners cofounder Jerry Murdoch to Snapchat founder Evan Spiegel around the time that Snapchat turned down Facebook’s $3 billion acquisition offer last year. “I am happy to hear that Zuck came back and you wisely turned him down again!,” writes Murdoch to Spiegel. “Ha that must have been painful for him! He is too cheap to really pay up for the thing that is killing his core.” Business Insider has more here.

Snapchat CEO Evan Spiegel wrote a year ago that Facebook would soon see a reversal of its fortunes, shows a separate email exchange with Snapchat board member and Sony executive Michael Lynton that has surfaced in the Sony hack. Wrote Spiegel, “Facebook has continued to perform in the market despite declining user engagement and pullback of brand advertising dollars — largely due to mobile advertising performance – especially App Install advertisements. This is a huge red flag because it indicates that sustainable brand dollars have not yet moved to Facebook mobile platform and mobile revenue growth has been driven by technology companies (many of which are VC funded) . . . This props up Facebook share price . . . When the market for tech stocks cools, Facebook market cap will plummet, access to capital for unproven businesses will become inaccessible, and ad spend on user acquisition will rapidly decrease – compounding problems for Facebook and driving stock even lower. Instagram may be only saving grace if they are able to ramp advertising product fast enough.”

The seven-year-old online dating platform Zoosk has shaken up management has postponed plans to go public. Chief Executive Shayan Zadeh and President Alex Mehr are stepping down, though both will remain on the company’s board. Kelly Steckelberg, who has worked for the company for four years, including as its CFO and COO, will become CEO. Zoosk had filed to go public in April. It has raised roughly $60 million from investors over the years, including Bessemer Venture Partners and Crosslink Capital.

——

Data

Renaissance Capital just released its 2014 US IPO annual review. You can view the whole report here.

—–

Essential Reads

Jawbone‘s missing Christmas.

Graphene: Fast, strong, cheap, and unusuable.

—–

Detours

Kids’ movies feature more onscreen deaths than films for grownups, says a surprising paper published this week.

I am an artisanal attorney.

—–

Retail Therapy

Sushi socks.

The “Blackberry Classic” smartphone. Really.




VC Andy Weissman on the DNA of Union Square Ventures

andy_5By Semil Shah

For the last four or so years, Andy Weissman has been a partner at New York-based Union Square Ventures. But like his colleagues, including Fred Wilson and Brad Burnham, Weissman has been investing since the dot.com boom and bust of the late ’90s. He first joined Soundview Ventures/Dawntreader Ventures in 1999, spending more than six years with the firm before cofounding Betaworks with John Borthwick in 2007. In 2011, when Betaworks began to focus less on creating an investing portfolio (which Weissman had managed) and more on becoming an operating company, he hopped over to Union Square Ventures.

We talked last week about his work, and what USV is doing to maintain its status as one of the most successful venture firms in the game today.

How has USV’s thesis around “engaged networks of users” factored into investing in mobile-first companies? It’s obviously hard to find apps on mobile, and distribution can feel gated.

Well, at some level our thesis is not monolithic but instead is by design flexible, debatable, and evolving. When we wrote this post [about our pursuit of large networks of engaged users, differentiated through user experience, and defensible through network effects], we tried to explain how each of those words in the thesis matter, and how they each are subject to conversation over time.

So, at another level, the thesis applies to mobile-first companies the same way it applies to any companies or sectors, from mobile to blockchain to marketplaces. That being said, when you have a device that is available in everyone’s pocket, is location aware, and so forth, all the other attributes of a mobile device and mobile apps, there are real questions about the strength of the network effects. Are they the same? Or stronger? Or even weaker? That’s a conversation we’ve been having.

Speaking of which, tell us more about Figure1 and the story of how you came to invest in the company.

Kind of funny. I read something somewhere about the company. And I searched on Twitter and found the names of some of the founders. So I reached out to them on Twitter. A year later, we participated in their Series A financing. One of the best things was that as we got to know them, we realized Figure1 was precisely the kind of company in a medical or healthcare related field that was consistent with our thesis. I just didn’t know that until afterwards.

USV often travels as a team to the Bay Area and other regions to meet companies. This seems different than the lone-wolf culture of other firms.

USV operates in particular way. It’s not necessarily the only way to operate, nor is it necessarily the best way, but it is our way. We are a small firm by design and structure (meaning team size and capital size). And our framework for decision-making is a a particular point of view about the Internet – the thesis. So at least two times a year, we all go to San Francisco and get to spend a little more intimate and collective time with the companies we’ve invested in and others that we want to get to know us better. It works well. That small collaborative nature is part of the DNA. So we move in packs sometimes.

On mobile, besides Twitter, where do you find yourself having the most conversations? What apps are you most social on and why?

Twitter, Tumblr, Groupme, Reddit — the usual suspects. I lurk a lot in Figure1 and K-Pop Amino [a social network for Korean pop songs, photos, news and Korean music videos], then some other, very niche communities. As my friend Brad Dickason wrote to me the other day, “Put any self-branded introvert in a room with someone else who shares their passion and an intense dialogue ensues.”

USV has been doing more seed rounds of late. Naming rounds these days seems more complicated than it’s worth. How has USV adjusted its strategy to meet today’s environment?

I think we view our DNA as early stage investors foremost, without regard necessarily for whether something would classically be called Seed or A or whatever. I don’t think we’ve really adjusted the strategy. There are periods when we seem engaged in companies that at the earliest stages require less capital, and periods when the don’t. Lately, there have been more of the former than the latter, but we’ve also done a few of what you’d consider classic “Series A.”

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




StrictlyVC: December 17

Hi, happy Wednesday, everyone! Semil Shah here, helping to run StrictlyVC through month’s end. Some of you know me; for those who don’t, I’m currently working as a venture advisor to two funds, Bullpen Capital and GGV Capital; I have a seed fund, Haystack; and I thoroughly enjoy talking with smart investors, which I’ll be doing here over the next few days and the last week of December. (StrictlyVC won’t be publishing next week.)

If you’d like to chat about anything, you can usually find me on Twitter; I’m @semil.

—–

Top News in the A.M.

Snapchat is more ambitious than you might have thought. TechCrunch last night discovered three acquisitions made by the messaging giant, per leaked Sony emails between Sony Entertainment CEO Michael Lynton and Snapchat board member (and Benchmark general partner) Mitch Lasky. According to those exchanges, reports TechCrunch, “Snapchat bought a QR scanning and iBeacon startup called Scan.me for $14 million in cash, $3 million in restricted stock units, and $33 million in Class B common Snapchat stock. It also acquired Vergence Labs, maker of an eyeglass video camera, for $11 million in cash and $4 million in stock.” Snapchat also shelled out $10 million in cash and $20 million in stock and bonuses for AddLive, which handles the back end of Snapchat’s video chat. The exchanges also suggest that Snapchat is interested in starting a record label and promoting the artists through Snapchat. Much more here.

—–

VC Patrick Gallagher on Where CrunchFund is Shopping Now

When college friends Patrick Gallagher and Michael Arrington came together in 2011 to start CrunchFund, Arrington — who’d founded the media property TechCrunch in 2005 — brought contacts, startup smarts, and a talent for drumming up attention to the table. Gallagher brought his own sizable network and institutional investing know-how, having been a partner with VantagePoint Ventures and, before that, an investor at Morgan Stanley Venture Partners.

The mix appears to work. The pair have funded hundreds of companies to date, including Uber and Airbnb. They’re also investing a second fund that closed earlier this year, having reportedly closed on about $30 million, or roughly the amount of their debut fund.

This week, I asked Gallagher about that second fund via email. We also talked about Arrington, who made Seattle his primary residence back in 2010, a year before he sold TechCrunch to AOL. Our conversation follows:

When most people think of “CrunchFund,” they think of Mike Arrington. How often is Mike in the Valley these days, and how have you observed him change as he transitioned from a writer and blogger to a full-time investor?

These days, Mike spends at least half his time in the Valley, where around 70 percent of our investments are.

When we started CrunchFund, one of the things that really resonated with Mike was the ability to meet with and interact with entrepreneurs at the earliest stages of a company’s life. Those were the types of companies he initially wrote about when he started TechCrunch and what he enjoys the most. Mike has always had a good sense for consumer start-ups but when you’re writing about a company, the opportunity cost is primarily your time to write the article. When you make an investment, the opportunity cost is much higher in terms of dollars and time. The biggest change I’ve seen in Mike since he became a full-time investor is his investment evaluation process. He now spends significantly more time trying out products and getting to know the company founders before he’s ready to sponsor an investment.

CrunchFund’s smaller bet in Uber’s [$37 million, December 2011] Series B round is now of epic status. Walk us through how that deal came together. Was the partnership divided about making such an investment as a seed firm?

CrunchFund is primarily a seed and early stage fund, but we allocate up to 20 percent of our fund for later-stage investments in companies we think can still generate venture level returns, and these have included Uber, Airbnb, Square, Skybox Imaging, Bluefly, Redfin, and a few others.

Mike had written about Uber when it had first launched and had been friends with the company’s CEO, Travis [Kalanick], since 2006. We were both loyal users of the service, and when we found out that the company was raising its Series B, we asked if we could invest a small amount, and they graciously gave us an allocation.

Tell readers more about what you focus on as an investor, including the B2B side and infrastructure side. I think founders want to know more about CrunchFund’s appetite for startups.

I started my career in the venture business in 1997 at Morgan Stanley Venture Partners. We were the venture arm of this massive financial services firm that spent over $1 billion on IT, so I’ve spent most of my career investing in enterprise-facing companies and I spend the majority of my time focused on them at CrunchFund. About 40 percent of our investments are enterprise-facing companies, including Digital Ocean, Mesosphere, Branding Brand, Abacus Labs, Feed.fm, Rocketrip, Layer and many others. I see a ton of innovation in the enterprise, from the infrastructure inside the datacenter to the software people are using to manage their businesses day to day.

I’m also a big believer in companies that sell to [small and mid-size businesses]. I was on the board of Constant Contact through its IPO and have seen firsthand that you can build a large business selling to this segment.

For enterprise infrastructure deals, which don’t feature as many “party” rounds as do consumer deals, how does a smaller fund like CrunchFund make a dent when all the big firms want to max their ownership?

CrunchFund typically invests $100,000 to $250,000 as an initial investment, and we normally don’t lead deals, so it’s pretty easy for us to fit into most rounds. We’re additive to any investor syndicate, and we focus on providing specific help with media and PR positioning and
and introductions for larger follow-on rounds of financing through our network. We also open up our networks for things like business development, recruiting, and customer introductions. For us, because our fund size is still relatively small, investments in this range are meaningful.

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New Fundings

FarmLogs, a two-year-old, Ann Arbor, Mi.-based agricultural tech startup (and Y Combinator alum) that helps U.S. farms analyze data to increase their fields’ profitability, has raised $10 million in Series B funding from new investors SV Angel and Y Combinator President Sam Altman, along with earlier backers Drive Capital, Huron River Ventures, and Hyde Park Venture Partners. The company has now raised $15 million altogether.

Freight Farms, a 4.5-year-old, Boston-based start that has developed a portable commercial farming system (it sells shipping containers that grow vegetables using hydroponics), has raised $3.7 million led by Spark Capital. It marks the venture firm’s first agriculture-related investment. Freight Farms has now raised $4.9 million altogether, including from Morningside Venture Investments, LaunchCapital and Rothenberg Ventures. BostInno has more here.

Mattermark, the nearly two-year-old, San Francisco-based business intelligence site, has raised $6.5 million in Series A funding led by Foundry Group, with participation from earlier investors. TechCrunch has more here.

NowThis Media, a two-year-old, New York City-based video news startup, has raised $6 million in Series C funding led by Oak Investment Partners, with participation from new investor Axel Springer, as well as earlier backers NBC Universal News Group, SoftBank Capital and Lerer Hippeau Ventures. The company has raised $15.6 million altogether.

Phononic Devices, a 6.5-year-old, Durham, N.C.-based semiconductor-based heating and cooling company, has raised $44.5 million in Series D funding led by earlier backer Eastwood Capital. The company has now raised a total of $87.5 million.

Predilytics, a 3.5-year-old, Manchester, N.H.-based company whose software helps health plans and other medical groups use data to improve their care and operations, has raised $10 million in Series C funding, including from new investors Qualcomm Ventures and Foundation Medical Partners and earlier backers Highland Capital Partners and Flybridge Capital Partners. The company has raised $20.5 million to date, shows Crunchbase.

Quantenna Communications, an eight-old, Fremont, Ca.-based high-speed wireless silicon company, has raised $22 million in new funding led by Centerview Capital Technology, Vivint and NTT Group. Earlier investors also participated, including Sequoia Capital, DAG VenturesRusnano, Sigma Partners and Venrock. The company has raised roughly $166 million to date, shows Crunchbase.

Serviz, a year-old, L.A.-based app and website that lets users order up appliance repair, carpet cleaning, and other home services, has just raised $12.5 million in Series B funding led by PointGuard Ventures. Existing investors Andy Sheehan, Jeff Stibel of Stibel Investments, and numerous other individuals also joined the round. The company has now raised $20 million.

The Skimm, a 2.5-year-old, New York-based daily email newsletter that simplifies headlines for busy professionals, has raised $6.25 million in new funding from investors, including from earlier backer RRE Ventures and new backers Greycroft Partners, comedian Chelsea Handler and former Ticketmaster CEO Irving Azoff. The company has now raised $7.8 million altogether.

Star2Star, a nine-year-old, Sarasota, Fl.-based company whose software unifies communications for businesses, combining voice, video conferencing, and instant messaging, has raised $30 million in a round led by NewSpring Growth Capital, with participation from PPM America Capital Partners, which is a NewSpring limited partner. Venture Capital Dispatch has the story here.

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New Funds

Northzone, the 18-year-old, Stockholm-based venture capital firm, has closed its seventh fund with 250 million euros ($312.6 million). One of the firm’s newest bets is on Dots, a New York-based mobile gaming studio that was just spun out of Betaworks. One of its highest-profile bets is on Spotify, the popular streaming music service.

—–

IPOs

Juno Therapeutics, the year-old, Seattle-based biotech, boosted its IPO range to $21 to $23 per share yesterday as it prepares to become a publicly traded company. Last week, it had set its IPO range at between $15 and $18 per share.

OnDeck Capital, the online service providing small business loans, has already jumped more than 30 percent this morning in its market debut. More here.

—–

Exits

PeerIndex, a five-year-old, London-based social media analytics company, has been acquired by its better-funded peer Brandwatch for undisclosed terms. According to Crunchbase, PeerIndex had raised $3.8 million from investors, including Meridian Venture Partners. Brandwatch has raised $31.7 million altogether, including from Highland Capital Partners Europe and Nauta Capital.

TrueX Media, a seven-year-old, L.A.-based online ad tech company, has been acquired for upwards of $200 million by 21st Century Fox, reports VentureWire. TrueX had raised roughly $50 million from investors, including Redpoint Ventures, Jafco Ventures, Norwest Venture Partners, and Pinnacle Ventures.

—–

People

Last Friday, at an M.I.T. event, 500 Startups founder Dave McClure and Chris Lynch of Atlas Venture had a spirited disagreement over the value of accelerator programs. ““My view,” said Lynch, “is lazy VCs go to demo day and they bid up deals and they overpay for them and that doesn’t help the entrepreneur and it doesn’t help them, and most importantly it doesn’t help the ultimate investor.” The WSJ has more here.

Joel Sng has joined Formation 8 as a partner in Singapore. Sng founded a business incubator in Singapore and has reportedly backed a number of fast-growing companies, including Xiaomi, Coursera, Airbnb, and Palantir Technologies. He came to know Formation 8 when it set up a business development outpost in his incubator’s offices. He has also made at least one co-investment with Formation 8, in the startup Grabit, which makes electroadhesion-based gripping products for material handling applications. Three-year-old Formation 8 recently raised its second fund, closing on $500 million. Reuters has more here.

—–

Job Listings

Capital One Ventures is looking to hire both a principal in San Francisco and an associate in New York.

—–

Data

Google Ventures hearts health care, notes the Wall Street Journal, reporting that one-third of the money Google Ventures invested in 2014 went to health care and life-sciences companies, up from 9 percent each of the prior two years. Google also slowed its investments in consumer Internet startups this year, committing just 8 percent of its capital to related companies, down from 66 percent last year.

—–

Essential Reads

What happened when Marissa Mayer tried to be Steve Jobs.

Ben Thompson on the state of consumer technology right now.

Twitter and Foursquare are planning to partner together in 2015 to power location in tweets, says Business Insider.

—–

Detours

Mars may harbor life after all.

How headlines change the way we think.

The Sony Hack isn’t merely embarrassing; it’s growing increasingly costly, with the potential to wipe out half of Sony Pictures Entertainment’s 2013 profits.

—–

Retail Therapy

Basketballs crafted from “from Italian tumbled leather and other premium leathers embossed with patterns of alligator, ostrich, python, stingray, and more.” Hah, hah. Ho. That is a good one.




VC Patrick Gallagher on Where CrunchFund is Shopping Now

192000v2-max-450x450By Semil Shah

When college friends Patrick Gallagher and Michael Arrington came together in 2011 to start CrunchFund, Arrington — who’d founded the media property TechCrunch in 2005 — brought contacts, startup smarts, and a talent for drumming up attention to the table. Gallagher brought his own sizable network and institutional investing know-how, having been a partner with VantagePoint Ventures and, before that, an investor at Morgan Stanley Venture Partners.

The mix appears to work. The pair have funded hundreds of companies to date, including Uber and Airbnb. They’re also investing a second fund that closed earlier this year, having reportedly closed on about $30 million, or roughly the amount of their debut fund.

This week, I asked Gallagher about that second fund via email. We also talked about Arrington, who made Seattle his primary residence back in 2010, a year before he sold TechCrunch to AOL. Our conversation follows:

When most people think of “CrunchFund,” they think of Mike Arrington. How often is Mike in the Valley these days, and how have you observed him change as he transitioned from a writer and blogger to a full-time investor?

These days, Mike spends at least half his time in the Valley, where around 70 percent of our investments are.

When we started CrunchFund, one of the things that really resonated with Mike was the ability to meet with and interact with entrepreneurs at the earliest stages of a company’s life. Those were the types of companies he initially wrote about when he started TechCrunch and what he enjoys the most. Mike has always had a good sense for consumer start-ups but when you’re writing about a company, the opportunity cost is primarily your time to write the article. When you make an investment, the opportunity cost is much higher in terms of dollars and time. The biggest change I’ve seen in Mike since he became a full-time investor is his investment evaluation process. He now spends significantly more time trying out products and getting to know the company founders before he’s ready to sponsor an investment.

CrunchFund’s smaller bet in Uber’s [$37 million, December 2011] Series B round is now of epic status. Walk us through how that deal came together. Was the partnership divided about making such an investment as a seed firm?

CrunchFund is primarily a seed and early stage fund, but we allocate up to 20 percent of our fund for later-stage investments in companies we think can still generate venture level returns, and these have included Uber, Airbnb, Square, Skybox Imaging, Bluefly, Redfin, and a few others.

Mike had written about Uber when it had first launched and had been friends with the company’s CEO, Travis [Kalanick], since 2006. We were both loyal users of the service, and when we found out that the company was raising its Series B, we asked if we could invest a small amount, and they graciously gave us an allocation.

Tell readers more about what you focus on as an investor, including the B2B side and infrastructure side. I think founders want to know more about CrunchFund’s appetite for startups.

I started my career in the venture business in 1997 at Morgan Stanley Venture Partners. We were the venture arm of this massive financial services firm that spent over $1 billion on IT, so I’ve spent most of my career investing in enterprise-facing companies and I spend the majority of my time focused on them at CrunchFund. About 40 percent of our investments are enterprise-facing companies, including Digital Ocean, Mesosphere, Branding Brand, Abacus Labs, Feed.fm, Rocketrip, Layer and many others. I see a ton of innovation in the enterprise, from the infrastructure inside the datacenter to the software people are using to manage their businesses day to day.

I’m also a big believer in companies that sell to [small and mid-size businesses]. I was on the board of Constant Contact through its IPO and have seen firsthand that you can build a large business selling to this segment.

For enterprise infrastructure deals, which don’t feature as many “party” rounds as do consumer deals, how does a smaller fund like CrunchFund make a dent when all the big firms want to max their ownership?

CrunchFund typically invests $100,000 to $250,000 as an initial investment, and we normally don’t lead deals, so it’s pretty easy for us to fit into most rounds. We’re additive to any investor syndicate, and we focus on providing specific help with media and PR positioning and
and introductions for larger follow-on rounds of financing through our network. We also open up our networks for things like business development, recruiting, and customer introductions. For us, because our fund size is still relatively small, investments in this range are meaningful.

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