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.
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 Ventures, Rusnano, 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.
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.
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.
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.
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.
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.
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.
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.
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.