StrictlyVC: July 27, 2016

Hi, happy Wednesday, everyone. Today’s Q&A is brought to you again courtesy of investor Semil Shah, as Connie’s off shooting Nerf guns with her sons somewhere. (Thanks, Semil!)

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Top News in the A.M.

Twitter reported its earnings yesterday, and the newest number to bother Wall Street centers on its revenue growth, which has fallen dramatically. The company’s shares are down 13 percent today as a result.

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Quick Chat with Avidan Ross

A year ago, Avidan Ross, an investor with an engineering background, raised a debut, $31.4 million, fund under the brand Root Ventures. The idea was to back early-stage hardware startups — eight to 10 of them each year. StrictlyVC talked with Ross at the time; we more recently caught up with him to ask how things are going, one year into his newest adventure.

Imagine a new consumer hardware startup team forming. In an ideal world, what kind of team should it assemble if it aims to become an MVP in the consumer market?

I hate to say this, but it depends. If the team is building some deeply technical hardware with ongoing material science development, then there better be a material scientist on board. Generically, I’d say that at least one person on the team has to be ready to roll up their sleeves and deal with the business development side of the startup. That means everything from sales and marketing to fundraising and operations. The core tech of the company should never be outsourced, so we love seeing a very strong technical team. No matter the team’s professional background, the most important element is a passion for the problem the business is solving. Building hardware companies is way too hard to just be opportunist. Hardware founders have to be driven by a deep fire that will not let them sleep until the problem is solved.

You’ve been at this for a year. What’s been the single-most surprising element of running your fund so far?

The help from my LPs. Seriously, I’m not just kissing up to the folks who gave me money. My LP base is far more diverse than the average Silicon Valley fund. We took funds from individuals and institutions, but their industrial affiliation is widely varied, from medical to real estate to manufacturing and logistics. When you’re working on hardware, the industries and partners you’re looking for aren’t just spread across industry but also geographically diverse. Most other firms can get away with extremely deep relationships along the 101 freeway. We had to go broader, and a strong LP network has been helpful in generating great strategic relationships in every possible industry.

With all of the startups going after the smart home market, how did Amazon Echo just cut through the noise? What can founders and investors in the space learn from Echo’s success?

I think the main reason for Alexa’s success is the intuitive natural user-interface. Alexa works because she is listening when your hands are full or you’re deeply sitting in the couch. Also, Alexa launched with a very basic first set of functions, making the interaction simple and intuitive. When people interface with software, a counterintuitive experience such as Snapchat actually becomes a feature. In the world of physical objects, the design should be first and foremost intuitive and delightful. I think that founders of hardware startups often think this is just about industrial design, but Echo showed us that it’s more about an intuitive user experience, and interaction is the core.

You recently opened up a new SF office, or should we say, workshop. Tell us about how you designed and built it. How can people check it out?

I like building things. My home garage is a mini maker space, filled with CNC routers, laser cutters, and 3D printers. As our team grew, it became clear that we needed a little bit of space to call our own. Just like the garage, it seemed only natural to make it an inspiring workshop. Our friends at Dodocase were kind enough to share some of their factory in the [the San Francisco neighborhood] Dogpatch with us, and we’ve been working there ever since. Instead of creating an office with a lobby, reception, and conference rooms, it’s an open access space for entrepreneurs to collaborate and ideate on designs. We have a café inside the space to keep everyone properly caffeinated, beer taps for meetups, and have access to the larger equipment within Dodocase when someone wants to go big. If anyone wants to come hang, tweet at @rootvc or @avidanross, and we’ll get you some machine time.

In the context of early-stage investing, what’s something that you believe that isn’t necessarily a popularly held point of view?

I think that most hardware companies should never take venture money. If you walk down the aisles of a Best Buy or a Target, nearly all those products were never venture backed. Do not feel pressured to measure your success as your ability to raise venture capital. If your product has the ability to be a Trojan horse for a much larger recurring revenue or network-effect-driven business, it might be worth pursuing venture investment.

I like to think of entrepreneurs as fire starters. You can build a fire with brush, then twigs, then branches, and while it might take a while, the flame is sustainable. Meanwhile, venture capital is like gasoline. If your fire is not built to consume the fuel, it can [destroy your business].

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New Fundings

Automile, a three-year-old, Palo Alto, Ca.-based startup that makes tracking software for fleet management, has raised $6.2 million led by SaaStr Fund, with participation from earlier backers Dawn Capital, Point Nine Capital and individual angels, including Justin Kan and Niklas Zennstrom. VentureBeat has more here.

B12, a year-old, New York-based startup that build websites with A.I. and human help, has raised $12.4 million in Series A funding from General Catalyst Partners, Breyer Capital, Founder Collective, and SV Angel. VentureBeat has more here.

Big Health, a year-old, London-based startup that aims to come up with numerous digital behavioral health programs, beginning with a sleep product called Sleepio, has raised $12 million in new funding led by Octopus Ventures, with participation from Kaiser Permanente Ventures, Index Ventures, and numerous individual investors. TechCrunch has more here.

Black Bear Energy, a year-old, Boulder, Co.-based startup that provides services to commercial renewable energy buyers, has raised $2.5 million in Series A funding led by Boulder Ventures, with participation from earlier investor Rocky Mountain Institute. BizWest has more here.

CellMax Life, a three-year-old, Mountain View, Ca.-based cancer blood-testing company, has raised $9 million in Series A-1 funding led by Artiman Ventures, with participation from Taiwanese investors, including Acer founder Stan ShihMore here.

Density, a two-year-old, San Francisco-based startup that’s launching a people-counting sensor to measure how many people are inside a space at any given time, has raised $4 million in Series A  funding led by Upfront Ventures, with participation from Ludlow Ventures, Jason Calacanis, Dawn PatrolHiten Shah and Arjun Sethi. TechCrunch has more here.

Nomad Health, a 1.5-year-old, New York-based online marketplace connecting doctors with freelance clinical work, has raised $4 million in Series A funding co-led by First Round Capital and RRE Ventures, with participation from .406 Ventures. More here.

Prospera, a 2.5-year-old, Tel Aviv, Israel-based company whose software tools aim to help growers optimize their crops, has raised $7 million in Series A funding led by Bessemer Venture Partners. TechCrunch has more here.

SafeBreach, a two-year-old, Sunnyvale, Ca.-based cybersecurity startup that generates war games simulations within organizations’ information systems to detect any vulnerabilities, has raised $15 million in Series A funding from Deutsche Telekom Capital Partners, Hewlett Packard Pathfinder and Maverick Ventures, along with earlier investors Sequoia Capital and Shlomo Kramer. SecurityWeek has more here.

Shipt, a 2.5-year-old, Birmingham, Ala.-based online grocery marketplace, has raised $20.1 million in Series A funding from Greycroft Partners, Harbert Growth Partners and e.ventures. TechCrunch has more here.

Sun Basket, a two-year-old, San Francisco-based organic meal kit provider, has raised $15 million in Series B funding led by Accolade Partners, with participation from Founders Circle, Shea Ventures and earlier investors Vulcan Capital, PivotNorth, Relevance Capital, Filter14 and Baseline Ventures. GeekWire has more here.

Vtesse, a 1.5-year-old, Gaithersburg, Md.-based drug developer focused on rate life-threatening diseases like Niemann-Pick Type C1 disease, has raised $17 million in Series A funding, including from Alexandria Venture Investments, Bay City Capital, Lundbeckfond Ventures, and earlier investors New Enterprise Associates and Pfizer (which helped create the orphan disease incubator). FierceBiotech has more here.

Upthere, a five-year-old, Palo Alto, Ca.-based personal cloud storage service, has raised $77 million led by KPCB and Western Digital, along with Elevation Partners, Floodgate, GV, NTT Docomo Ventures, and Square 1 Bank. TechCrunch has more here.

Zeek, a 2.5-year-old, Tel Aviv, Israel-based startup whose app lets you buy and sell unwanted store gift vouchers, has raised $9.5 million in Series B funding led by Scale-Up Venture Capital, with participation from long list of additional investors, including Blumberg Capital, Qualcomm Ventures, FJ Labs, Uri Levine, Emery Capital, Ton Ventures, Radiant Venture Capital, iAngels and Target Global. TechCrunch has more here.

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Exits

Analog Devices is buying fellow chipmaker Linear Technology for about $14.8 billion. Analog’s $60-per-share offer represents a premium of nearly 24 percent to Linear’s Monday close. Reuters has more here.

LeEco, the China-based multidisciplined powerhouse (it has a video streaming service, and makes TVs, smartphones and even has a car in the works) is acquiring 14-year-old Vizio, a California-based budget TV manufacturer, for $2 billion. TechCrunch has more here

LogMeIn, a Boston-based company that offers a web conferencing service, is acquiring Citrix-owned rival GoToMeeting. The deal is valued at about $1.8 billion. Fortune has more here.

Myntra, a fashion portal owned by Indian e-commerce platform Flipkart, has acquired Indian e-commerce site Jabong from Rocket Internet for $70 million. According to LiveMint, Jabong’s value had “collapsed” over the last year, owing to leadership issues, market share losses, and a funding crunch. More here.

Skully, a venture-backed company that had famously promised beautiful augmented reality motorcycle helmets, is no more, says TechCrunch. More here.

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People

Gunnard Johnson, who specializes in advertising analytics and was hired by Snapchat earlier this year, has left to join the digital pinboard company Pinterest as its head of measurement science and insights, leading a new team of 12 employees. Fortune has more here.

The payday of Yahoo CEO Marissa Mayer is even more insane that you may have heard.

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Jobs

Trinity Ventures is looking to fill two associate positions, one focused on consumer investing and one on enterprise and business-to-business investing. The jobs are on Sand Hill Road in Menlo Park, Ca. You can send your resumes to info@trinityventures.com.

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Essential Reads

The inside story Of Pokémon GO’s evolution from Google castoff to global phenomenon.

Tesla has finally shown off its massive battery factory in Reno, Nev.

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Detours

The average legal pot user spends $647 a year on weed.

The three-year process to redesign the FDA’s nutrition label.

This sure sounds like one crazy hedge fund(!).

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Retail Therapy

Major pieces from Philip Johnson’s landmark 1959 Four Seasons restaurant are set to hit the auction block. You can check out the goods here.


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