Hi, everyone, happy Tuesday!
We still have lots of great content to share from last week’s INSIDER event. In fact, before we move on from what VC Keith Rabois had to tell attendees, we thought you might be interested in his thoughts on the growing number of venture firms trying to tackle multi-stage investing. (If you missed our first feature on Rabois yesterday, it’s here.)
Top News in the A.M.
The Obama administration announced yesterday that it will permit the widespread export of armed drones for the first time to allied nations.
Ugh. A patent troll that claims to own Bluetooth just won a $15.7 million verdict against Samsung.
Keith Rabois on the Tricky Business of Multi-Stage Investing
Last week, at a StrictlyVC event in San Francisco, investor-writer Semil Shah interviewed Keith Rabois of the Sand Hill Road firm Khosla Ventures. There, he asked Rabois how Khosla manages its multi-stage approach, and whether Rabois anticipates that more firms will raise different-stage funds to capitalize on today’s go-go market.
Rabois — who speaks at a rapid-fire clip that keeps listeners on their toes — made several interesting observations, most notably that investing across stages is a very tricky business that, done properly, involves different teams, different skills, different compensation, and different bets.
Perhaps unsurprisingly, he thinks Khosla Ventures has the model down.
Noting that the firm has a seed fund (“a very large seed fund, [at] $300 million plus,” he said), as well as a “main” fund that has historically been roughly $1 billion in size, he went on to explain that Khosla’s seed fund “isn’t necessarily designed to do the same things the main fund is designed to do. The seed fund is designed to take risky experiments and provide capital to entrepreneurs who want to prove things and validate that something is technically feasible . . .” Meanwhile, he said, the main fund is “not a growth fund,” but rather a “standard venture fund” that invests in standard Series A and B deals.
It’s an important distinction, he implied. It minimizes the potential for the conflicts of interest that can arise with the new breed of growth funds to be raised in recent years by Union Square Ventures, Foundry Group, Spark Capital, and Greycroft Partners, among others.
Said Rabois: “What I detect from other funds is everyone is trying to raise a growth fund. Everybody who is a good Series A or Series B investor is like, ‘Wow, we have great asymmetric information about how well these companies are doing. Wouldn’t it be great if we could invest more money and take advantage of that information and of that relationship with the entrepreneur?'”
It’s an understandable impulse, he said. Investors have long resorted to special purposes vehicles, which are time consuming and can be “painful” for the entrepreneur left managing his or her increasingly complicated cap table. But Rabois also warned of conflicts of interest, pointing to the storied firm Sequoia Capital to illustrate his point.
Sequoia “fundamentally [does] Series A and Series B [rounds], and they do Series A better than anybody else and have for a very long time,” Rabois said. But Sequoia’s growth-stage fund, which typically invests between $10 million and $100 million in companies, has “now cherry-picked a couple of those [early-stage] investments,” including, most famously, the messaging app WhatsApp.
That investment proved highly lucrative for Sequoia and its limited partners. In fact, WhatsApp’s exit last year was the largest ever for a still-private venture-backed company. (Sequoia invested $8 million in the company in 2011, then elbowed aside other investors to sink another $50 million into the company in 2013.)
Still, “if you do that too often,” Rabois continued, “no one wants to fund your companies because they see your selection bias. It’s the same signaling problem [that can plague earlier-stage companies] just applied [to maturing companies]. It’s very challenging to run a true growth fund and a Series A fund and fund some [of your startups] but not all, or fund X percent but not Y percent, without people reading into it.”
Obviously, said Rabois, “If Sequoia thinks a company is amazing, they’ll proactively offer from their growth fund to double down on it,” he continued. But “if they don’t, maybe I should be reading into that when I get an introduction from them to a Series B [deal]. Maybe I should be cynical about what’s going on at this company [laughs]. Why are you sending it to me? Why aren’t you funding it yourself?”
Before moving on to another topic, Shah asked Rabois if it were any less dangerous for larger funds to “move down the stack” and invest in younger companies than they’ve traditionally funded. The hedge fund Tiger Global Management, for example, has recently led a number of Series A deals, including, most recently, in the India-based news aggregation startup News In Shorts.
Rabois’s take: “I’m not sure it’s going to turn out that well. Early stage is just a very different skill set. Later stage is more science and early stage is more . . . I don’t think you can use metrics to assess most seed and Series A investments. The [metrics] just don’t exist, and you’re kidding yourself if you think that they do in any statistically valid way. You might be able to tease out something from some cohort, but [that’s it].”
Apptimize, a two-year-old, Mountain View, Ca.-based company whose technology enables users to A/B test their native applications on Android and iOS platforms, has raised $4 million in Series A funding led by Costanoa Venture Capital. According to Crunchbase, the company had earlier raised at least $2.1 million, including from Google Ventures, Paul Graham, and Quora cofounder Charlie Cheever.
Axcient, an 8.5-year-old, Mountain View, Ca.-based data backup technology that’s cloud-based, has raised $25 million in funding led by Industry Ventures, with participation from earlier investors Allegis Capital, Peninsula Ventures, Scale Venture Partners and Thomvest Ventures. The round brings the company’s total funding to nearly $129.2 million, shows Crunchbase.
Coffee Meets Bagel, a 2.5-year-old, San Francisco-based dating app that aims to find one quality match for users each day, has raised $7.8 million in Series A funding led by earlier backer DCM Ventures, with participation from Question Ventures and Azure Capital. The company has now raised $11. 2 million altogether. TechCrunch has more here.
Cuseum, a 14-month-old, Boston-based startup whose context-aware mobile apps enhance the way visitors to museums, galleries and other cultural venues experience what they’re seeing, has raised $1.2 million in seed funding from a long list of investors. Among them is Foundry Group’s FG Angels, Atlas Venture’s Boston Syndicates, Seavest Capital Partners, Drummond Road Capital, and New Gen Partners. Numerous angel investors also participated, including Kayak cofounder Paul English.
Dianping Holdings, the 12-year-old, Shanghai-based company that is often likened to Yelp, is reportedly talking with investors, including Tencent Holdings, about an $800 million round that would value the company at $4 billion. According to the WSJ, other investors likely to participate in the round are Temasek Holdings, the private-equity firm Fountainvest Partners, and Chinese conglomerate Wanda Group. To date, the company has raised $162 million from investors, shows Crunchbase. Its backers include Google, Sequoia Capital, QiMing Venture Partners, and Lightspeed Venture Partners.
Eyegate Pharmaceuticals, a 17-year-old, Waltham, Ma.-based specialty-pharmaceutical company that develops medicines to treat eye diseases, has raised $4.1 million by listing on the OTCQB Venture Marketplace, reports VentureWire. The company sold 683,250 shares at an IPO price of $6 on Friday. The company — which originally planned to go public on Nasdaq late last summer — had raised at least $56 million from private investors, including Innoven Partners, Nexus Medical Partners,Ventech, and Medicis Capital.
FanDuel, a 5.5-year-old, New York-based real-money fantasy sports site, is weighing a new fundraising round that would value the company at $1 billion or more, reports Fortune. Last September, the company raised $70 million from investors, including Shamrock Capital Group, KKR, NBC Sports Ventures and earlier backers at what Fortune’s sources report was a sub-$400 million post-money valuation. To date, FanDuel has raised $86.2 million altogether.
Firefly Games, a months-old, L.A.-based mobile game maker, has raised $8 million from a handful of Asian investors, including the Chinese investment firms Skyocean International Holdings, Ceyuan Ventures, and GuangZhou WinHi. VentureBeat has more here.
Gilt Groupe, the eight-year-old, New York-based online shopping site, has raised a new round of roughly $50 million led by earlier backer General Atlantic, reports Recode. An unnamed new strategic partner and earlier backers also participated, according to the company. To date, Gilt has raised $286 million from investors, including Matrix Partners, DFJ, and TriplePoint Capital; it was expected to go public last year.
Glint, a 1.5-year-old, Redwood City, Ca.-based company that makes employee engagement software, has raised $15.5 million in new funding led by Norwest Venture Partners and Shasta Ventures, with participation from individual investors, including Ev Williams.
InDinero, a five-year-old, San Francisco-based company whose software helps small businesses track and manage their finances, has raised $7 million in new funding from Coyote Ridge Ventures, SaaS Capital,Streamlined Ventures, and individual investors. The round brings the company’s total funding to date to $10 million.
Message Systems, a 6.5-year-old, San Francisco-based email infrastructure company, has raised $27 million from Hercules Technology Growth Capital and earlier backers LLR Partners and NewSpring Capital. Separately, Message Systems secured a new $8 million line of credit for working capital purposes, also from Hercules. The company has now raised $73 million in equity and debt, shows Crunchbase.
NewCo, a nearly three-year-old, San Francisco-based events startup that brings attendees into the startups of host cities to observe how the companies work, has raised $1.75 million in seed funding from a long list of investors, including Obvious Ventures, True Ventures, Bloomberg Beta, Transmedia Capital, Freestyle Capital, and Foundry Fund. Angel investors Dave Morin, Andrew Anker, Owen Van Natta and numerous others also joined the round. NewCo cofounder John Battelle tells Fortune more about the company’s plans here.
Plumbr, a 3.5-year-old, Tallinn, Estonia-based company whose software automatically detects the root causes of Java performance issues, has raised $700,000 in new funding from Skype cofounder Jan Tallinn, angel investor Matt Arnold, and the founders of global mobile-payment firm Fortumo. The company had earlier raised $300,000, including from the former head of Skype Estonia, Sten Tamkivi.
Rainbow Medical, a five-year-old, Herzeliya, Israel-based early-stage life-sciences research and development firm, has raised $25 million in new funding from the China-based insurance firm Ping An, along the investment firm Yongjin, the telecommunications firm ZTE, and other China-based venture firms that specialize in biomedical investments. The company will use part of the capital to open an office in China. The Globes has more here.
RapidMiner, a seven-year-old, Cambridge, Mass.-based predictive analytics platform, has raised $15 million in Series B funding led by Ascent Venture Partners and Longworth Venture Partners. Earlybird Venture Capital and Open Ocean Capital, which led a $5 million Series A round for the company in late 2013, also participated in the new funding.
Sindeo, a 1.5-year-old, San Francisco-based online mortgage marketplace, has raised $5 million in Series A funding led by Chinese social-networking giant Renren.
Snapchat, the nearly four-year-old, Venice, Ca.-based mobile app for sending photos and videos that quickly disappear, is seeking up to $500 million in a new round of funding that would value the company in the neighborhood of $16 billion to $19 billion, Bloomberg is reporting. Snapchat disclosed late last year that it raised $485.6 million from 23 investors during the latter part of the year, including Yahoo, Kleiner Perkins Caufield & Byers and previous backers, including Lightspeed Venture Partners, Benchmark and Institutional Venture Partners. In late December, TechCrunch reported on that capital, saying it was raised at a post-money valuation of between $10 billion and $20 billion.
Springpath, a 2.5-year-old, Sunnyvale, Ca.-based company whose software platform aims to dramatically simplify how data storage is managed, has raised $34 million in funding across two previously undisclosed rounds from Sequoia Capital, New Enterprise Associates and Redpoint Ventures. The company, founded by VMware veterans, was formerly known as Storvisor.
Tailor Brands, a nine-month-old, Brooklyn, N.Y.-based startup that provides branding services like logo designs for companies, has raised $1.1 million in funding led by Disruptive, a venture fund with offices in New York and Tel Aviv.
Tealium, a seven-year-old, San Diego-based company whose tag management system helps its marketing customers collect information from web surfers, has raised $30.7 million in Series D funding led by Georgian Partners, with participation from Bain Capital Ventures and earlier backers Battery Ventures, Presidio Ventures, and Tenaya Capital. The company has now raised $77.9 million altogether.
TraceLink, a six-year-old, Woburn, Ma.-based supply-chain-security software company that works with pharmaceutical companies to stop the trafficking of counterfeit drugs, has raised $20 million in new funding led by Volition Capital, with participation from Fidelity Biosciences and earlier backer FirstMark Capital. The company has now raised roughly $30 million altogether.
WorldRemit, a five-year-old, London-based online money transfer startup, has raised $100 million at a reported $500 million valuation led by Technology Crossover Ventures. The round, notes Business Insider, comes less than 12 months after WorldRemit’s last, $40 million round, led by Accel Partners (which also participated in the company’s newest funding). The company, which competes squarely with traditional services like Western Union, has now raised $147.7 million altogether, shows Crunchbase.
Finistere Ventures, a 10-year-old, San Diego-based venture firm that invests in food, energy and health-technology companies, has raised $37.5 million for its second investment fund and $20 million for a related “Feeder Fund,” show SEC filings.
Sequoia Capital is raising new funds for India and China, show new SEC filings: Sequoia Capital India IV and Sequoia Capital China Growth Fund III. The India fund has so far attracted $494.75 million, says its filing; the China fund has collected $650 million to date. Sequoia is among the most active venture investors in both countries.
Arcadia Biosciences, a 13-year-old, Davis, Ca.-based agricultural technology company, has filed to raise $86 million in an IPO. The company’s largest shareholders include Moral Compass Corp., which owns 77.1 percent of the company; Mandala Capital, which owns 11.5 percent; and Vilmorin & Cie, which owns 6.6 percent. According to Crunchbase, Arcadia has raised roughly $100 million from investors, including Saints Capital, BASF Venture Capital, and CMEA Capital.
Ryan Hoover, founder and CEO of the site and email newsletter Product Hunt, has become one of the “most visible benefactors of the easy money fueling the tech boom,” reports Bloomberg. All that attention is “somewhat flattering,” Hoover tells the outlet, “but it’s just different because it’s never happened before . . . I have to be hyper aware about what I do and what I say.”
After nearly three years, the lawsuit against Kleiner Perkins Caufield & Byers by former partner Ellen Pao appears to be headed toward trial. The selection of jurors is scheduled for Monday in San Francisco Superior Court, and attorneys could make their opening arguments as early as next Tuesday, reports the WSJ (which dug through some court documents and published an exchange that hints at what’s to come). The case could still settle in the eleventh hour, notes the WSJ, but should it proceed, it’s expected to last about four weeks.
The MRL Venture Fund, a venture group within Merck Research Laboratories, is looking for a managing director. The job is in Cambridge, Ma.
Google Ventures is preparing to set up shop in India, reports VentureWire, and it’s interviewing candidates to lead the effort (so start working those connections). The move follows earlier steps by Google to mentor India-based startups.
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