StrictlyVC: January 5, 2015(!)

Hello, dear readers, and happy 2015! Hope you had a terrific break. (Web visitors, you can find an easier-to-read version of this morning’s newsletter here.)

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Top News in the A.M.

Get ready. The FCC says it will vote on net neutrality next month.

Xiaomi, the four-year-old Chinese smartphone maker that just closed on $1.1 billion in new funding, last week revealed just how fast it’s growing, with sales of 61 million phones last year, up from 18.7 million devices in 2013 and 7.2 million in 2012.

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The Partovi Brothers Keep It In the Family

Nationally, the Partovi twins don’t have the same name recognition as another pair of high-powered twins who will soon be appearing in StrictlyVC. But in the Bay Area, the 41-year-olds’ involvement in a startup – as both operators and investors – is a powerful signal that a company is probably on to something big.

Ali Partovi was on the founding team of the Internet ad company LinkExchange, acquired by Microsoft in 1998 for $265 million; Hadi Partovi was on the founding team of the speech recognition company TellMe Networks, also acquired by Microsoft, for $800 million in 2007. The brothers have also been early investors in Zappos, Facebook, Airbnb and Dropbox, among others, and they’ve cofounded two organizations together: iLike, a social music service that sold to MySpace for a reported $20 million in 2009, and Code.org, a two-year-old nonprofit that’s making computer science available in more schools. (This reporters’ sons have participated in its one-hour introduction to computer science, along with more than 75 million other people.)

StrictlyVC recently talked with the twins to learn more about their relationship, what’s most interesting to them right now from an investing standpoint, and what they make of the broader market. Our chat has been edited for length.

Hadi, you live in Seattle, while Ali lives in the Bay Area. How long have you lived in different cities, and how often do you see one another?

HP: I’ve been up in Seattle since 2002, but we see each other every few months.

You’ve been investing together for many years. How full-time is that pursuit? How involved are you in Code.org?

HP: Code.org now has 40 employees; it’s pretty all-consuming. We’re still investing as angels, though as a side job, which is when we’ve been best at investing. Because we don’t have enough time, we reject almost everything. But being picky makes us more selective. Of the 30 to 40 investments we’ve made, only two or three have been failures, and we’ve had 13 or 14 exits.

How many companies did you back in 2014?

AP: We made only four new investments. Over the past five years, we’ve averaged only four new investments per year. If anything, I’d be happy with even fewer. Our annualized IRR as investors has been 44 percent, not including Dropbox, Airbnb, Indiegogo, and others [that haven’t exited yet].

How does a startup win you over?

HP: We like companies that are making a social impact – not a charity but companies that have a vision that the world should be different and better. Snapchat, for example, is a really high-value business, but it’s unclear that its mission is making the world a better place. We also like tech that’s disrupting the physical world.

But the quality of the people involved is what’s most important. We’re probably the only investors out there who will run a tech team through a tech interview as if they wanted to get a job at Google or Facebook. After all, why would an investor give tons of money to someone who couldn’t possibly get a job at [one of those two companies?]

Have you missed out on deals because of that hurdle?

HP: Some, though if we miss them, it’s not a big deal. We can afford to be choosy. Also, I think entrepreneurs recognize that our investment means a lot and that they can tell other people, including other VCs, who know about our interview process.

What size checks do you write and what do you expect for your money?

HP: Check sizes range from $100,000 to $250,000 typically, and the size of the stake completely depends on whether something is earlier or late. I think the biggest check we’ve written was $2 million for [the still-private, cloud-based electronic medical records company] Practice Fusion, which we think is incredibly promising.

Would you make an investment without your brother’s blessing?

HP: Yes, though we’ve made better investments when it’s unanimous. Ali has a passion for food-related investments, but almost all the rest have been joint investments.

You were both investors in the food tech company Hampton Creek, correct? Did you participate in its $90 million Series C round, announced last month? Ali, you even joined, then quickly left, the company as its chief strategy officer. Are you and Hadi still investors in the company or have you sold your stake to other investors?

HP: We did not participate in Hampton Creek’s newest round.

(To continue reading, click here.)

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New Fundings

3-V Biosciences, a 7.5-year-old, Menlo Park, Ca.-based biopharmaceutical company that’s developing therapeutics for infectious diseases, has raised $28.5 million in Series D funding co-led by earlier backers Kleiner Perkins Caufield & Byers, New Enterprise Associates and Rock Springs Capital Management, with participation from new investors, including Ally Bridge Group. The company has now raised $106.6 million altogether, shows Crunchbase.

Apploi, a 1.5-year-old, New York-based company that makes In-store kiosks to help employers with “walk-in” applications, as well as pushes job listings out to users’ phones based on their location, has raised $7.4 million in Series A funding, including from Mistral Equity Partners’ managing partner Andrew Heyer. TechCrunch has more here.

Depict, a 1.5-year-old, San Francisco-based online platform that works with galleries and art institutions to allow users to explore digital work by new artists, has raised $2.4 million in new funding from Slow VenturesFounder.org Capital and unnamed angel investors, reports VentureWire.

eShares, a two-year-old, Palo Alto, Ca.-based company that digitizes paper stock certificates along with stock options, warrants, and derivatives, has raised an undisclosed amount of Series A funding led by Union Square Ventures, with participation from Spark Capital and earlier backers, including K9 Ventures. USV announced the round yesterday on its blog. StrictlyVC talked with eShares CEO Henry Ward last year about what the company is trying to pull off.

LaLaMove, a year-old, Hong Kong-based delivery service that enables users to dial up the delivery of nearly anything through a fleet of vans, trucks and motorbikes, has raised $10 million in new funding led by China’s Crystal Stream Capital, with participation from Geek Founders,Mindworks Ventures, Sirius Venture Capital and Aria Group, along with individual investors. TechCrunch has more here.

Scribd, an eight-year-old, San Francisco-based company that offers unlimited access to half a million e-books for $8.99 a month, along with a document-sharing service, has raised $22 million in new funding led by Khosla Ventures. TechCrunch has more on the funding here. StrictlyVC spoke with Scribd CEO Trip Adler about the company’s all-you-can-eat library model last year. Scribd has now raised $47.8 million altogether.

Snapchat, the 3.5-year-old, Venice, Ca.-based messaging startup, has raised $485.6 million in new funding, shows a new SEC filing. The round reportedly includes Kleiner Perkins Caufield & Byers and Yahoo, among many others, and is the 10th largest deal among U.S. venture capital-backed companies, according to Dow Jones VentureSource. The company has now raised $648 million altogether, shows Crunchbase.

Symic Biomedical, a two-year-old, San Francisco-based company that’s studying treatments for osteoarthritis and cardiovascular ailments, has raised $15 million in Series A funding led by Lilly Ventures. The company has raised $16.4 million altogether.

TinyPulse, a two-year-old, Seattle-based company that makes employee engagement software, has raised $3.5 million in Series A funding led by Baseline Ventures, with participation from Harrison Metal and undisclosed strategic investors. StrictlyVC talked with TinyPulse last month about its pulse surveys and their increasingly widespread adoption at companies both big and small.

Vuzix, an 18-year-old, Rochester, N.Y.-based company that makes Internet-connected eyewear products, has sold 49,626 of its Series A preferred stock — convertible into 4,962,600 shares of Vuzix’s common stock — to Intel, which will own 30 percent of the company upon that conversion. Intel is spending $24.8 million for the shares. Vator has more here.

Wanda E-commerce, a six-month-old, Suzhou, China-based company designed to compete with Alibaba, has raised roughly $161 million in funding from investment funds Centec Networks and Xude Rendao. Wanda E-commerce was founded in August as a joint venture by mega-conglomerate Wanda and two of China’s biggest Internet firms, Tencent Holdings and Baidu. More here.

X.ai, a 10-month-old, New York-based company that’s developing a virtual email assistant that can schedule meetings on users’ behalf, has raised $9.2 million in Series A funding led by FirstMark Capital, with participation from Pritzker Group Venture Capital, CrunchFund, and earlier investors. X.ai had raised $2.1 million in seed funding last summer, including from Lerer Hippeau Ventures, IA Ventures, and SoftBank Capital.

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New Funds

Aperture Venture Partners, a New York-based healthcare focused venture firm, has raised $49.2 million for its third fund, shows a new SEC filing that lists a target of $100 million. The firm began raising the fund (officially) in August 2013.

Incubate Fund, a Tokyo, Japan-based venture capital firm, has raised a new 11 billion yen ($91 million) fund that will invest in early-stage startups located in North America, Japan, and the rest of Asia, reports TechCrunch. The firm’s LPs include Internet giant Tencent, Yahoo Japan, Sega Sammy, Tokyo Broadcasting System, Sumitomo Mitsui Banking, and Development Bank of Japan, among others.

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IPOs

Inovalon Holdings, a 17-year-old, Bowie, Md.-based analytics and data-based technology service company that caters to the healthcare sector, has filed to raise up to $500 million in an IPO. Its biggest outside shareholders include Meritas Group, which owns 38.8 percent of the company, and Lapis Ventures, which owns 16.1 percent.

Micromax Informatics, India’s second-largest smartphone maker, plans to raise as much as $500 million through an IPO this year, reports Reuters. The company is backed by TA Associates and Sequoia Capital. Micromax’s biggest rivals include Samsung Electronics, Motorola and China’s Xiaomi. In India, Samsung reportedly dominates, with roughly 25 percent market share (as of September), followed by Micromax at 20 percent.

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People

Renee DiResta, a principal at O’Reilly AlphaTech Ventures for the past three-plus years, has left to join an OATV-backed, months-old shipping logistics company called Haven in business development. In a post published late last week, DiResta says she will also continue to invest as an angel investor. More here. (H/T: Dan Primack.)

Super entrepreneur Elon Musk and his wife, actress Talulah Riley, are divorcing — for a second time. Musk filed for divorce in L.A. County Superior Court on New Year’s Eve, with Musk planning to provide Riley with $16 million in cash and other assets as part of a financial settlement, according to a joint statement. Musk has five sons from his first marriage to author Justine Musk. NBC has more here.

Operator-investor Semil Shah has created a Twitter list of “underrepresented minorities in startups, tech, and investing.” (It’s a good starting point if you’re looking for exposure to new perspectives.)

Megan Smith, the former Google executive turned CTO of the U.S., is doing what she can to bring the administration into the present, but the “real struggle” for her is “that while this role does have a direct line to the presidency, it does not have much of a budget or any authority over other agencies,” notes Clay Johnson, who ran President Obama’s online campaign in 2008 and worked in his administration as a presidential innovation fellow.

Facebook CEO Mark Zuckerberg has announced on Facebook that he plans to read a book every other week this year, and he asked his 30 million Facebook followers to join him in a kind of online book club. The first book is “The End of Power” by Moisés Naím, a former Foreign Policy editor. Unsurprisingly, it’s already “temporarily out of stock” at Amazon.

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Essential Reads

The U.S. patent system is so broken that almost no patented discoveries ever get used.

Welcome to the new ransomware economy.

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Detours

A glimpse into the process of stop motion animation.

“In most major cities, there are now dedicated day spas for children, offering a range of massages, facials and other treatments for girls (and sometimes boys) too young to have had their first pimple.”

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Retail Therapy

The making of a Porsche 918 Spyder Hybrid. By hand.



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