StrictlyVC: January 12, 2015

Good Monday morning, readers! Welcome back.

A quick update: Tickets to our February event are now sold out.
(We’re hoping we can get some of you off the wait list; stay tuned.) Thanks to everyone who’s coming. Thanks, too, to our sponsors, including Ballou PR. We’re really looking forward to seeing all of you.

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Top News in the A.M.

Today, President Obama is expected to call for federal legislation that forces U.S. companies to be more forthcoming when credit card data and other consumer information is lost in online breaches, reports the New York Times.

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The Rolling Close: Here to Stay or Gone Tomorrow?

Venture capital was long a clubby, opaque industry, but AngelList and crowdfunding are two intertwined innovations that have since knocked that model onto its side. Now, another related twist looks poised to roil it again: the rolling close.

You’ve probably heard the term in recent years. A rolling close is what happens when a management team raises money within a certain window of time with no predetermined size for the “round.” Every amount invested is closed immediately at a set valuation, versus a traditional funding where a round isn’t closed until a predetermined minimum is raised.

The messaging service Snapchat is the highest-profile company to employ the model, closing $485 million from 23 investors over the course of nine months last year.

Last week, as TechCrunch reported, an eight-year-old, London-based film streaming service called MUBI closed on $15 million in similar fashion, raising the money from 49 investors over many months.

StrictlyVC is aware of two startups in San Francisco that are currently employing the same tactic.

You might think of it like crowdsourcing, without the middleman. “Whoever wires the money is in, and when you reach your target, you ‘close’ the round,” MUBI founder Efe Cakarel told TechCrunch.

Ramana Nanda, an associate professor at Harvard Business School, characterizes rolling closes as a product of a frothy market – full stop. It’s an “effective strategy for entrepreneurs in industries and at times when capital for startups is abundant and financing risk is low.”

As long as firms and investors can reasonably expect to continue raising money on good terms, Nanda says, they’re “less concerned about having a cash cushion in the event that things don’t go as well as expected, or because investors will not show up when the cash reserve runs low.”

Rolling closes are also tactical, argues Todd Chaffee, a managing director at Institutional Venture Partners, a Snapchat investor that wrote its first check to the company in 2013. “The formality of, ‘Let’s close this round, get back to business, and then raise another round'” isn’t always ideal for a fast-moving company, Chaffee says, calling rolling closes a “more fluid and dynamic approach.”

Still, there are downsides, including — presumably — managing investor relations. According to TechCrunch sources, Snapchat CEO Evan Spiegel has been known to invite different parties to invest in Snapchat at different pre-money valuations. (TechCrunch says some investors funded Snapchat last year at a $10 billion valuation while others participated at a pre-money valuation that was closer to $20 billion.)

MUBI’s backers invested at the same pre-money valuation, but all while the company’s post-money valuation was rising, meaning that every subsequent investor in MUBI’s newest fundraise was getting less of the company for his or her money.

It was a “very transparent and fair process,” says Cakarel, who tells StrictlyVC that “new investors weighed [MUBI’s] increased ‘pre-money’ valuation against a company that was becoming being better capitalized [and] that continued to grow its subscriber base significantly throughout the funding period.”

Little wonder that investors who are accustomed to traditional rounds — where everyone receives the same terms — aren’t sure what to make of the trend. “We haven’t seen this sort of financing/closing structure in the late stage,” says Paul Madera of the late-stage investment firm Meritech Capital, but we “generally wouldn’t be very comfortable with it,” he adds.

Hunter Walk, cofounder of the seed-stage firm Homebrew, says his firm has “occasionally participated” in rolling closes — in cases where the entrepreneurs are “herding cats a bit and want to put money to work right away from committed investors.” At the same time, he says, “It would give me pause at the seed stage to see a founder who tried to mark up the company several times during a round.”

The big question, of course, is whether rolling closes are here to stay. Only time will tell, but our guess is that they are — that they’re indicative of how private financings are moving toward a more market-based approach. After all, if there’s more demand for an issue, doesn’t it make sense to raise the price? Why should founders be forever bound to the artificial constraints of “rounds”?

As Cakarel puts it, “It was unimaginable, even eight years ago when I started MUBI, to do a round of $15 million from a bunch of individuals, each coming in with somewhere between $50,000 and $1 million in Silicon Valley.”

Cakarel isn’t saying he’s closing the door on VCs. “Raising institutional capital is also very attractive, and VCs can add a lot of value.” But he notes that “VCs are no longer the only option you have for this kind of capital. And this is good for entrepreneurs. Out of options, come good decisions.”

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New Fundings

Augmedix, a 2.5-year-old, San Francisco-based company that uses Google Glass to beam electronic health record information to doctors while they’re meeting with patients, has raised $16 million in Series A funding from earlier backers Emergence Capital and DCM. The company has now raised $23 million altogether. StrictlyVC talked with Augmedix last year about patient privacy concerns and the uncertain future of Google Glass.

DiaCarta, a four-year-old, Hayward, Ca.-based biotechnology company that produces precise cancer molecular tests, has raised $8 million in Series A funding from BioVeda China Fund.

Ingenious Med, a 15-year-old, Atlanta, Ga.-based maker of inpatient practice management information systems, has raised an undisclosed amount of funding from North Bridge Growth Equity, along with health care investors Ascension Ventures, Heritage Group and Kaiser Permanente Ventures. The company had previously raised $6.5 million, shows Crunchbase.

Kit Check, a 2.5-year-old, Washington, D.C.-based company that uses radio-frequency tags to help hospitals track medications and other supplies, has raised $12 million in Series B funding led by Kaiser Permanente Ventures, with participation from Rex Healthcare Ventures. Earlier backers New Leaf Venture Partners, Sands Capital VenturesEaston Capital Investment Group and LionBird also joined the round. The company has now raised $22.5 million altogether, shows Crunchbase.

MongoDB, the seven-year-old, New York-based database company, has raised $80 million in Series G funding from public market investors including T. Rowe Price and Fidelity Investments, with participation from earlier backers Altimeter Capital, New Enterprise Associates and Sequoia Capital. The company has now raised $311 million altogether,reports Venture Capital Dispatch.

Okanjo, a four-year-old, Milwaukee, Wi.-based cloud commerce platform that helps brands sell products and present offers on third-party sites, has raised $1.7 million in new funding from local angel investors, bringing the company’s total funding to $3.2 million.

Percolata, a 2.5-year-old, Palo Alto, Ca.-based store whose in-store sensors and analytics are designed to help retailers better staff their stores, has raised $5 million in seed funding, including from Google Ventures and Andreessen Horowitz. Venture Capital Dispatch has more here.

PureTech, a 14-year-old, Boston-based operating company that takes successful research out of academic labs and assembles teams that can move it toward commercialization, has raised a $50 million round that follows a $57 million financing closed in October. The capital comes from the investment management company Invesco, several CEOs of pharmaceutical and biotech companies, and individual venture capitalists investing personal money, says the company. The Boston Globe has more here.

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New Funds

Arboretum Ventures, a 13-year-old, Ann Arbor, Mi.-based venture capital firm that specializes in life sciences companies, plans to begin raising a fourth fund this year that could be larger than its current, $138 million partnership, says VentureWire.

A new venture capital fund has been established for Kentucky companies called VenCap Kentucky that will provide up to $500,000 in matching funds to companies that already have a lead investor but need additional funds. The program will use funds from the U.S. Treasury. Qualifying companies must have developed a prototype, filed for a patent and/or have copyright rights, and they must have fewer than 500 employees, half of whom must be Kentucky residents. Louisville Business First has the story here.

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IPOs

Invitae, a 4.5-year-old, San Francisco-based genetic diagnostics company, has filed plans to raise up to $86.3 million in a public offering. Invitae has raised roughly $200 million from private investors. According to its S-1, its biggest institutional shareholders include Baker Brothers Life Sciences, which owns 20.6 percent of the company; BlackRock, which 17 percent; Thomas, McNerney & Partners, which owns 15.2 percent; and Genomic Health, which owns 9 percent.

Shopify, an 8.5-year-old, Ottawa, Canada-based software company whose commerce platform helps retailers sell their good online, is working on a plan to raise roughly $100 million this year in a dual U.S.-Canada IPO that could value the company at more than $1 billion, according to WSJ sources.

Wowo, a three-year-old, Beijing, China-based company that operates the Groupon-like, Chinese group-buying site 55tuan.com, has filed paperwork to list its American Depository Shares on the Nasdaq. It’s right now planning to raise up to $40 million.

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Exits

Biofuel maker KiOR, which develops technology to convert wood chips, logging residue and other biomass into renewable crude oil, is reportedly scrapping a proposed bankruptcy auction and plans to turn over control of the company to its lender in a debt-for-equity swap. Famed venture capitalist Vinod Khosla had personally incubated KiOR and, along with the help of Bill Gates, Alberta Investment Management, and the state of Mississippi, had provided roughly $300 million in funding to the company.

Mobius Innovations, a two-year-old, Singapore-based mobile context-awareness platform cofounded by entrepreneur Nirmal Palaparthi, has been acquired by Fractal Analytics, a company that Palaparthi also cofounded and which is now a portfolio company of TA Associates. Terms of the deal were not disclosed.

Newsflo, a two-year-old, London-based media monitoring service tracks more than 55,000 English-speaking media sources based on feeds from 20 or so countries, has been acquired by the educational publisher Elsevier for undisclosed terms. TechCrunch has more here.

QuickFire Networks, a 2.5-year-old, San Diego-based video compression company, has been acquired by Facebook for undisclosed terms. QuickFire doesn’t appear to have raised outside funding.

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People

Venture capitalist Ron Conway is donating $40 million to help pay for the new outpatient medical building at San Francisco’s UCSF Medical Center. The donation was announced Saturday night. The San Francisco Chronicle has the story.

Institutional Venture Partners has promoted Eric Liaw and Somesh Dash to general partners, bringing the firm’s investment team to eight. Liaw joined IVP in 2011 and focuses on working with high-growth companies across a variety of sectors, including enterprise software, Internet, and mobile. He’d previously spent seven years at Technology Crossover Ventures. Somesh Dash joined IVP in 2005 and focuses primarily on later-stage investments in Internet, software, mobile, and technology-enabled services companies. Dash had previously worked as an analyst, including at Credit Suisse First Boston and Sony Entertainment.

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Job Listings

Hercules Technology Growth Capital is looking to hire four managing directors: one focused on energy investments, one focused on special situations, one focused on tech opportunities, and one focused on life sciences.

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Data

Though the fourth quarter of last year saw roughly a dozen “megadeals” (rounds of $100 million plus), deal volume in the past two quarters actually dropped to late 2011 levels — possibly in response to rising valuations, says Mattermark. More here.

According to the National Venture Capital Association and Thomson Reuters, 254 VC firms raised $29.8 billion last year, a 69 percent increase in dollar commitments compared to 2013 and the strongest annual period for fundraising since 2007. (At the fundraising nadir over the past decade, in 2009, 161 venture firms raised a total of $16 billion.)

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Essential Reads

East of Palo Alto’s Eden — a powerful look at the lingering consequences of residential segregation.

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Detours

Eleven questions that will make your kids happier.

Beautiful stairs.

Justin Bieber’s Calvin Klein ads, re-staged.

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Retail Therapy

Pencil brooms.

Polar ice cubes.

A router that can power your devices wirelessly from 15 feet away. Coming soon(ish)!



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