Hi, happy Thursday, everyone! (Web visitors, this version of what you see below is easier to read.)
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Top News in the A.M.
Apple deleted music that some iPod owners had downloaded from competing music services from 2007 to 2009 without telling users, attorneys for consumers told jurors in a class-action antitrust suit against Apple Wednesday.
Microsoft to Barnes & Noble: Thanks, but you can have your Nook business back now.
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Michael Kim of Cendana Capital Raises a New, $50 Million Fund
This morning, five-year-old Cendana Capital, which has made a name for itself by backing so-called micro funds, is taking the wraps off a new, $50 million fund of funds — roughly twice the size as its first $28.5 million pool.
No doubt that’s good news to Cendana’s existing managers – including Freestyle Capital, IA Ventures, K9 Ventures, Lerer Hippeau Ventures, and SoftTech VC. It’s also likely to be seen as a boon to the many entrepreneurs and operators who are entering the market with hopes for their own seed-stage funds.
Yesterday, StrictlyVC caught up with Cendana founder Michael Kim to talk about the new fund and his one big concern about today’s market. Our chat has been edited for length.
Congratulations on the new fund.
Thank you. We were targeting $30 million so this was way oversubscribed. We hit our hard cap.
Your first fund must be performing well.
Our net IRR was 24 percent as of June, and we expect performance to improve from there.
Who have you backed with your newest fund?
We’ve invested in five funds so far, four of which were [investments in managers we’ve previously backed], including PivotNorth Capital, SoftTech VC, Forerunner Ventures, and Lerer Hippeau Ventures. Our new investment is MHS Capital, founded by Mark Sugarman. He spent seven years investing his first, $34 million fund, and he wound up with sizable stakes in some great companies, including OPower, Indiegogo, and Thumbtack. We think we’ll eventually invest in roughly the same number of core positions as we took in our first fund, which is 10 or 11.
Will other new managers have a shot at getting a check from you?
Yes, though I do think it’s becoming harder for new entrants to compete. At this point, the incumbents really have the credibility to lead the best deals. And the ownership levels a fund can get are important, both because seed stakes get diluted and because the average venture exit is between $50 million and $100 million. If you own just a few percent of a company that exits at that range, it doesn’t really move the needle.
When you set out to raise it a year or so ago, you’d also set out to raise a $25 million fund to make direct investments. Did that come together?
We raised $17 million.
Have you been getting asked, or have you been trying, to make more direct investments in the portfolio companies of your fund managers?
We get involved in a subset of A deals, as well as subset of those companies that go on to Series B deals, where the tech risk is largely mitigated and the companies are generating tens of millions, if not hundreds of millions, of dollars.
But are your portfolio managers calling you and saying, Hey, it’d be great for you to kick in a little capital so this other guy doesn’t get the position, or are you proactively seeking out these stakes?
We proactively work with fund managers and entrepreneurs so we can react quickly if there’s an opportunity to invest. We’ve made three investments [from that $17 million fund] already, and in each case, the round was way oversubscribed but we got in because of our fund managers’ relationships with the founders and because the companies thought we could add value. We invested in Casper [an online retailer of mattresses], for example, and we helped them get on CNN a few days ago because my friend is a producer there, and they sold more than they ever have that day.
Of course, there are cases where Sequoia will come in and do a Series A and not let anyone else in. It’s very competitive, but [we can keep up].
A lot of people point to Sequoia as having the sharpest elbows. Who else tends not to want to share the Series A pie?
All the top tier firms are very focused on ownership, and rightly so if they feel like a company has high potential. From what I can tell, Accel is similar, but it’s behavior that makes sense and that seed managers need to negotiate by having a close relationship with founders and [hanging on to their] pro rata rights [if they can].
There’s concern that the market has been good for so long that a downturn, maybe soon, is inevitable.
Even if the public markets correct by 20 percent, the most vulnerable sectors are the late-stage companies and investors. Hortonworks [which is going public and expected to command a public market value below what it was assigned during its last financing round] is a perfect example.
Seed-stage funds are best-positioned for a downturn because if valuations come down, public tech companies will need to focus on growth, and they’re likely to use some of their tens of billions in cash to acquire it. And seed funds can exit companies at much more modest valuations and still get capital recovery.
Everything could also freeze, including the bank accounts of would-be acquirers.
If the seed funds can’t exit, that’s a big issue. Even though most of our funds have substantial reserves, they can’t carry a company forever. So a perfect storm would be a 20 percent market crash that causes Series A and B investors to pull back. You could end up with a lot of zombie companies. Still, even with a higher loss ratio, I think we’ll ultimately see seed funds do well. It just takes one or two winners.
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New Fundings
Abeona Therapeutics, a two-year-old, Cleveland, Oh.-based biotech startup focused treating Sanfilippo Syndrome, a rare, terminal, genetic disorder that kills afflicted children before they reach their mid-teens, has raised $3.6 million in funding, including from the Cure Sanfilippo Foundation, the Sanfilippo Research Foundation, Team Sanfilippo, the Abby Grace Foundation, and the National MPS Society, among others. A year ago, the company had raised $750,000 in seed financing, including from the Children’s Medical Research Foundation.
Avant Credit, a two-year-old, Chicago-based online consumer lender, has raised $225 million from investors, just months after closing on a $75 million round of funding. Two-thirds of the newest round came from Tiger Global Management and August Capital, which co-led the round. (They led the company’s $75 million round this past summer, too.) Other participants in the Series D include DFJ Growth, RRE Ventures, KKR, and investor Peter Thiel. Venture Capital Dispatch has more here.
BeON Home, a two-year-old, Cambridge, Ma.-based start-up whose smart lightbulbs are designed to turn on at the sound of a doorbell or via a smartphone app for home security purposes, has raised $1.5 million in seed funding from the Dangold Investment Corporation.
BlueDot, a young, Toronto-based startup that tracks and predicts the global spread of infectious diseases, has raised an undisclosed amount of Series A funding from Horizons Ventures. The company had earlier raised $400,000 in seed funding from MaRS Innovation, and $140,000 in commercialization grants from The Ontario Centres of Excellence.
Borrowell, a year-old, Toronto-based, soon-to-launch lending platform that will offer unsecured consumer loans, has raised $5.4 million in seed funding and commitments to its loan platform. Investors include Equitable Bank and Oakwest Corporation Limited, along with individual investors.
CANbridge Life Sciences, a two-year-old, Beijing, China-based biopharmaceutical company focused on developing Western drug candidates in China and North Asia, has raised $10 million in Series A funding from Qiming Venture Partners and TF Capital.
Connora Technologies, a three-year-old, Hayward, Ca.-based company with recyclable epoxy thermoset technology, has raised an undisclosed amount of funding from Samsung Ventures.
Fresco News, a 10-month-old, New York-based startup that crowdsources breaking news and photos from Twitter, Instagram and other social media, is “in the final negotiations” of signing an angel investor who Business Insider characterizes as an renowned entertainer with millions of social media followers (but who has never before made a tech investment). More here.
GrabTaxi, a three-year-old, Malaysia-based Uber rival, has raised $250 million from SoftBank in its fourth financing round this year. The company has now raised $330 million altogether, including from Vertex Venture Holdings, Tiger Global Management, GGV Capital, and Qunar.com, among others. TechCrunch has more here.
Inksedge, a months-old, Mountain View, Ca.-based company that makes personalized invitations and stationary and employs teams in both the U.S. and Bangalore, has raised $1.5 million from investors, led by New Enterprise Associates. Pinnacle Ventures and Milliways Ventures also joined the round, as did angel investors. The Economic Times has thestory here.
Landbay, a year-old, London-based peer-to-peer lending platform specifically designed around “buy-to-let” mortgages (for properties whose owners intend to rent them), has raised £1.5 million ($2.35 million) fromOmni Partners. Earlier this year Landbay raised £250,000 ($392,000) of seed capital via the Seedrs crowd-equity platform.
Lesson.ly, a two-year-old, Indianapolis, In.-based company that makes employee-training software, has raised $1.1 million led by Allos Ventures, with individual investors participating.
Nestio, a three-year-old, New York-based platform for residential real estate professionals to manage and communicate their information in real-time from one place, has raised $1.6 million in Series A funding led byFreestyle Capital, with participation from RiverPark Ventures and earlier backers Joanne Wilson, David Cohen, Mike Lazerow, Jerry Colonna, and Scout Ventures. The company has now raised $3.9 million to date.
NexDefense, a three-year-old, Atlanta-based company that makes cybersecurity software for industrial networks, has raised $2.4 million in seed funding led by Buckhead Investment Partners and Mosley Ventures.
Qufenqi, a Beijing-based electronics retailer that lets buyers pay in monthly installments, has reportedly raised $100 million in Series C funding led by BlueRun Ventures. Tech in Asia has more here.
Prenetics, a five-year-old, Hong Kong-based biotech firm built around next-generation prenatal DNA testing, has raised $2.65 in funding from500 Startups, SXE Ventures, Groupon’s APAC lead Joel Neoh, and Singapore’s Coent Venture Partners. TechCrunch has more here.
ShareWhere, a months-old, Miami-based startup behind an anonymous social sharping app called Kandid (users share secrets anonymously with other users who are nearby), has raised $1.4 million in seed funding from undisclosed sources. Tech Cocktail Miami has more here.
Shoes of Prey, a five-year-old, Sydney, Australia-based retail startup that lets consumers design their own shoes, has raised $5.5 million led by Khosla Ventures, with participation from Bonobos CEO and co-founder Andy Dunn, and ThirdLove co-founders David Spector (formerly a partner at Sequoia Capital) and Heidi Zak. The company has now raised $8.6 million altogether. The Australian outlet BRW has more here.
WhipClip, a new, L.A.-based startup whose mobile app allows consumers to clip popular moments from television, has raised $20 million in funding from Raine Ventures, Institutional Venture Partners, William Morris Endeavor, Ziffren Brittenham, Greycroft Partners, and individual investors, including Peter Guber, Steve Bornstein, Gordon Crawford, Thom Weisel, Scooter Braun and Ron Zuckerman. WhipClip was founded by Demand Media cofounder Richard Rosenblatt. Recode has the story.
Zonoff, a three-year-old, Malvern, Pa.-based company whose software platform helps retailers (like Staples), OEMs and integrators deliver “connected home” products to the mass market, has raised $31.8 million in Series B funding from Valhalla Partners and Grotech Ventures. The company has now raised $35.6 million altogether, shows Crunchbase.
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New Funds
Formation 8, the three-year-old, San Francisco-based venture capital firm, has raised $500 million for its second fund, it announced yesterday. Formation 8 connects companies in the U.S. with potentially important counterparts in Asia, aided in part by Brian Koo, a co-founder and a member of the family that runs an offshoot of the Korean electronics giant LG. Others of the firm’s cofounders include Joe Lonsdale, a founder of the data analysis firm Palantir, and Gideon Yu, a co-owner of the San Francisco 49ers. Dealbook has more here.
Xfund, a three-year-old, Boston-based outfit that was initially called the Experiment Fund and launched with less than $10 million to invest in student entrepreneurs, has just closed on a new, $100 million fund. “The experiment worked,” cofounder Patrick Chung tells the WSJ. Chung was a partner at New Enterprise Associates when he launched the firm. He is now a full-time Xfund general partner, alongside Hugo Van Vuuren. NEA, Breyer Capital and Accel Partners anchored the new fund, with a dozen other institutions and a handful of individual investors participating.
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Exits
IAC, the digital-media conglomerate headed by Barry Diller, is pulling the plug on nRelate, its native-advertising division that sold content-recommendation ad inventory distributed via thousands of web publishers. IAC’s Ask.com search unit acquired nRelate for undisclosed terms in July 2012. Founded in 2009, nRelate provided a marketplace for marketers to buy sponsored content on third-party websites.
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People
Several startups have severed ties with Yahoo CIO Mike Kail after his former employer, Netflix, accused him last week of accepting kickbacks from startups, reports the WSJ. Kail has served as an advisor to about 14 startups this year, which is a lot of startups for a full-time CIO, suggests the WSJ. Three of the them, ElasticBox, Context Relevant and Netskope, tell the Journal they ended their relationships with Kail this past week.
Apple cofounder Steve Wozniak reveals that not a lot happened in that garage where Apple legendarily got its start. “The garage is a bit of a myth,” he tells Bloomberg Businessweek. “We did no designs there, no breadboarding, no prototyping, no planning of products. We did no manufacturing there.”
Y Combinator has added three new people to its ever-ballooning roster, notes TechCrunch. Michael Seibel, the former CEO of Justin.tv and Socialcam, is shifting from part-time partner to full time. Jon Levy, previously a part-time lawyer and consultant for YC, has been promoted to partner. And Ilya Sukhar, who cofounded the mobile backend-as-a-service startup Parse — acquired by Facebook last year — is joining as a part-time partner. Altogether, YC now has 27 part-time and full-time partners.
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Job Listings
Rock Health, a four-year-old seed fund focused exclusively on healthcare technology, is looking for a business development person. The job is in San Francisco.
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Essential Reads
How the NSA hacks cell phone networks worldwide.
Time takes readers inside Mark Zuckerberg‘s plan to wire the world and put every single human being online.
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Detours
The 52 scariest movies ever made.
A 500,000-year-old doodle.
Details about the next James Bond movie revealed!
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Retail Therapy
The biggest Angelpoise lamp you ever did see (we hope).
Because sometimes you need mustache-shaped ice cubes.