StrictlyVC: June 1, 2015

Hi, good Monday morning, everyone!

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Top News in the A.M.

Intel has acquired fellow chip maker Altera for $16.7 billion in cash. It’s the latest sign of consolidation in the semiconductor industry, which has been under pressure from Wall Street to fatten its revenues, notes the WSJ.

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A Bitcoin Entrepreneur Fights Through a Fog of Uncertainty

Kraken is a San Francisco-based bitcoin exchange that last year stepped in to help return money to customers of the bitcoin exchange Mt. Gox after it abruptly shut down. Now Kraken, known for its cautious approach around regulations, is navigating the vicissitudes of the bitcoin market in the hope of keeping its own doors open for many years to come.

One of the challenges it’s facing is U.S. authorities, who’ve long struggled to understand bitcoin and have yet to figure out exactly how to regulate it. California and New York, for example, are still in the midst of passing virtual currency-specific licensing requirements, rules that many thought would be finalized by now. Like other bitcoin companies, Kraken has also seen many formerly bullish investors turn weary now that it’s apparent bitcoin’s story will take longer than imagined to unfold.

The week before last, we chatted with Kraken founder and CEO Jesse Powell about what a bitcoin entrepreneur is to do in the current market. Our chat has been edited for length.

Who is using your exchange?

We have clients in more than 130 countries, but our customers are mostly Europeans. With have a partnership with Fidor Bank in Germany, and it can receive and make same-day payments within the eurozone for 9 cents, which is kind of hard to beat. That relationship has allowed us to flourish in Europe.

Are those mostly wealthy Europeans? What’s the use case? 

There are certainly some wealthy people using the exchange, but it’s more like middle-to-upper class Europeans who are using bitcoin and trading bitcoin. It’s a bit of a luxury item; people who are trading hopefully have some discretionary income.  It’s still a risky asset to be playing with, so I expect most [users] aren’t living paycheck to paycheck.

Do you have any partnerships with U.S. banks?

We don’t operate in the U.S. because the regulatory situation is much more open abroad and we have regulatory coverage there. Unlike virtually every other bitcoin business, we’ve chosen not to operate here until we have the licenses required. Competitively, that’s difficult, because other services are serving U.S. clients. Whether they’ll pay the price in the long run, we’ll see, but they’re exposing their companies and investors to huge liabilities. It’s not a risk we’re comfortable taking.

[Editor’s note: After our chat, Kraken announced that it has hired a chief compliance officer to help it prepare for regulatory changes in the U.S. and elsewhere.]

What kind of feedback have you been receiving from investors? Do you gather they’ve run out of patience already?

In some cases. You have to be a believer in bitcoin. We don’t know when bitcoin is going to become a success or what that will look like, but if you believe it’s inevitably going to happen – as we do – it’s a good time to get in. If the price goes to $1,000 again or hits $10,000, some companies, including ours, won’t need investment [because they’ll be collecting much more off each trade], and they’ll be worth far more. A client base of 100,000 users today could be 100,000 millionaires when the price of bitcoin increases tenfold.

What about other digital currencies? We talked about a year ago and you seemed unconvinced that bitcoin would be the undisputed king.

Most of those [other digital] currencies have lost a tremendous amount of value and I don’t see any of them regaining traction.

Does this feel like an early tipping point for the industry?

There’s definitely some consolidation happening right now. We’ve seen some exchanges fold recently. It’s getting to be a problem for the smaller players, especially in a down market, where bitcoin has been relatively flat for the last six months. That’s definitely had an effect on a lot of business [whose customers] might have chosen to speculate on bitcoin. Also, because the price is down [trading at roughly $230, from a 2013 peak of $1,240 per bitcoin], if you’re taking a percentage of each transaction as a fee, you’re taking in less revenue. Meanwhile, the infrastructure required to maintain an exchange or a wallet is high. There are very few businesses that are actually profitable right now, other than those who’ve done no compliance or shown little consideration of the regulatory requirements.

Why do you think some startups are operating without the regulatory requirements? 

Maybe they’ve received special off-the-record exceptions through the right connections. It’s kind of like, ‘We’ll look the other way until we figure out what we want to do.’

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New Fundings

Arsenal Medical and 480 Biomedical, two four-year-old, Watertown, Ma.-based companies that share lab space, resources, and CEO Maria Palasis, have raised a combined $26.5 million in funding from Polaris Partners, North Bridge Venture Partners, and Intersouth Partners. Arsenal Medical, a company developing novel, polymer based foam and nanofiber products, raised $16 million; 480 Biomedical, a clinical-stage company developing innovative bioresorbable scaffold products, raised $10.5 million. Both rounds included a conversion of debt, in addition to new equity financing.

Funderbeam, a two-year-old, Tallinn, Estonia-based subscription service for startup intelligence, has raised €500,000 ($547,700) in new funding from the London-based investment firm Rockspring and early Skype engineer Jaan Tallinn. The company has now raised $1.4 million altogether, shows Crunchbase.

Hedvig, a 2.5-year-old, Santa Clara, Ca.-based distributed storage platform founded by long-time Silicon Valley software engineer Avinash Lakshman, has raised $18 million in Series B funding led by Vertex Ventures, with participation from earlier investors True Ventures and Atlantic Bridge. The round comes just two months after Hedvig announced its $12.5 million Series A led by Atlantic Bridge Capital, with participation from True and Redpoint Ventures. Venture Capital Dispatch has more here.

Klook, a nine-month-old, Hong Kong-based service that helps tourists find interesting activities to do when they travel overseas in Asia, has raised $1.5 million in seed funding led by Tencent executive Xiaoguang Wu and Shuren Hu, formerly a vice chairman at the China National Tourism Administration. TechCrunch has more here.

LendKey, an eight-year-old, New York and Ohio-based online lending platform that connects borrowers with credit unions and banks, has secured an $8 million venture debt line from Silicon Valley Bank. Crunchbase shows the company had earlier raised roughly $24 million in debt and equity, including from TTV CapitalUpdata PartnersGotham Ventures, and DFJ.

Nexar, a six-month-old, Tel Aviv, Israel-based “connected driving” startup that centers on improving driving behavior via a network of machine sensors, has raised $4 million in funding led by Aleph, with participation from Slow Ventures and angel investors.

Paddle8, a four-year-old, New York-based online auction house, is raising up to $30 million in new funding, shows an SEC filing that states the company has already secured $22 million. Paddle8 had previously raised $17 million in equity and debt across three rounds, shows Crunchbase; previous backers include Haystack, Founder Collective, artist Damien Hirst, Mousse Partners, the Mellon Family and Winklevoss Capital. More here.

Snapchat, the four-year-old, Venice, Ca.-based messaging service, revealed Friday in a filing with SEC that it has raised about $537 million in new funding from investors — money that values the company at $16 billion, reports the WSJ. An unusual stipulation of the round, says its report, is that its investors, including Alibaba and two hedge funds, received common stock, instead of preferred stock, which offers downside protection to investors. Much more here.

Sumo Logic, a five-year-old, Redwood City, Ca.-based cloud-native machine data analytics platform, has raised $80 million in new funding led by DFJ Growth, with participation from Institutional Venture Partners and earlier backers Greylock Partners, Sequoia Capital, Sutter Hill Ventures and Accel Partners. The company has now raised $160.5 million altogether. Fortune has more here.

Yhat, a two-year-old, New York-based data science technology company that helps organize data scientist teams, has raised $1.5 million in new funding from more than 20 individual investors, including Parse cofounder Ilya Sukhar and Twitch cofounder Justin Kan. TechCrunch has more here.

Yonder,  a two-year-old, Woodstock, Vt.-based outdoor recreation mobile app and platform used by outdoor enthusiasts to connect and share adventures, has raised $2 million in seed funding led by Vermont Seed Capital Fund, Monster Worldwide and angel investors. More here.

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New Funds

Formation 8, the nearly four-year-old, Palo Alto, Ca.-based venture firm, is looking raise up to $100 million for a fund focused exclusively on hardware. Its strategy, outlined for investors, was sent to BuzzFeed News over the weekend; you can check it out here.

Geodesic Capital, a two-month, Palo Alto, Ca.-based late-stage venture firm, has raised $250 million for its debut fund, which could raise up to $400 million shows a new SEC filing first flagged by Fortune. Geodesic’s founders include Ashvin Bachireddy, who spent the last four years as the head of growth investing at Andreessen Horowitz and had been an investor at Lightspeed Venture Partners and 3i Venture Capital previously; and John Roos, a former U.S. ambassador to Japan and formerly the CEO of law firm Wilson Sonsini Goodrich & Rosati.

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IPOs

Teladoc, a 13-year-old, Dallas, Tex.-based telehealth services company providing medical care via video conferencing or telephone consultations, has publicly filed its official paperwork to debut on the public markets. The company has raised raised more than $100 million from investors, including Jafco Ventures, Greenspring Associates, the Mellon Family FoundationQuestMark Partners, FLAG Capital Management, Cardinal Partners, HLM Venture Partners, Kleiner Perkins Caufield & Byers, New Capital Partners and Trident Capital. According to its S-1, the only firms with stakes in the company meeting or exceeding five percent include Cardinal, HLM, KPCB, and entities affiliated with Icon Ventures.

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Exits

AppLift, a nearly three-year-old, Berlin, Germany-based mobile app marketing platform, has acquired 1.5-year-old Bidstalk, a Singapore-based self-service, white label mobile DSP. Bidstalk had raised just $500,000 in seed funding, shows Crunchbase. AppLift has meanwhile raised $20 million from Prime Ventures.

Tempo, a 3.5-year-old, Menlo Park, Ca.-based company that leveraged years of Stanford Research Institute’s artificial intelligence research to create a “smart” calendar app, has been acquired for undisclosed terms by Salesforce. Tempo had raised $12.5 million in funding from investors, including Relay Ventures, Sierra Ventures, Mayfield Fund, Horizon Ventures, Qualcomm Ventures, SingTel Innov8, Miramar Venture Partner, Golden Venture Partners, Seavest Capital Partners and ENIAC Ventures. TechCrunch has more here.

Accel Partners has sold all of its shares in Supercell, the Finnish mobile gaming giant, to existing investor SoftBank, which now owns 73.2 percent of the company. TechCrunch has more here.

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People

Early Facebook employee-turned-venture capitalist Kevin Colleran recently delivered the commencement address at his alma mater, Babson College. Colleran, who nearly died after being hit by a van whilewalking in Boston earlier this year, shared among other lessons that, “You do not need to work for yourself and start your business to be an entrepreneur.”  More here.

Ed Gilligan, the 55-year-old president of American Express, died Friday after becoming ill on an overseas flight to New York from Tokyo. Gilligan began working as an intern at the firm while a student at NYU. He was named vice chairman in 2007 and president in 2013, overseeing digital initiatives, including a partnership reached last year with Uber. More here.

Ross Ulbricht, the 31-year-old founder of Silk Road, a notorious global drug bazaar, was sentenced to life in prison Friday in Federal District Court in Manhattan. Dealbook has much more here.

Jessica Verrilli is stepping down as director of corporate development and strategy at Twitter to join Google Ventures as a partner, reports Fortune. Earlier this year, Verrilli joined six other female Twitter executives in forming an angel investing group called #Angel. It isn’t yet clear if she’ll be able to invest independently in her new role.

A disagreement between West Coast investor Chris Sacca and New York’s beloved Fred Wilson spilled into view over the weekend. Seemingly, it began when Sacca — known for aggressively buying up Twitter before its IPO — blogged two weeks ago that he plans to go public soon with constructive feedback for Twitter. On Saturday, Wilson, who also invested in Twitter early on, threw his support behind Twitter CEO Dick Costolo in his own blog post, adding, “I do not plan to be more critical of Twitter in the coming months.” Sacca picked up on the apparent dig, tweeting to Wilson: “Thanks for the thinly veiled slam on me. Maybe wait until I post something and then critique that? . . . Meantime, thanks again for selling me all that Twitter stock well before the IPO. You’re such a loyal investor.”

George Zimmer, the ousted founder of Men’s Wearhouse, is back with a new company, zTailors, that connects on-demand tailors with people needing helptout de suite. “It’s Uber for tailors,” he tells Dealbook.

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Jobs

Airbnb is looking for a corporate development manager. The job is in San Francisco.

Electronic Arts is looking for a corporate development associate. The job is in Redwood City, Ca.

Viacom is looking for a corporate development manager. The job is in New York.

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Essential Reads

Rothenberg Ventures’ lavish parties are the firm’s primary strategy, but it’s unclear if the plan is sustainable, reports Bloomberg Businessweek in a profile of the three-year-old, San Francisco-based firm.

Uber has unveiled images detailing what its new, 420,000-square foot office in San Francisco will look like.

Guess who doesn’t fit in at work? (Take note, VCs.)

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Detours< Who owns London’s most expensive mansion?

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Retail Therapy

Footwear sketch books. This is also fun if you’re into shoes.



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