We heart Fridays!
Giant thanks to our friend Semil who has stepped in numerous times since StrictlyVC’s launch to help with guest interviews and was a tremendous help with StrictlyVC over the last couple of weeks (including authoring today’s column).
As we mentioned yesterday, we’re shutting entirely for one week, beginning Monday, but we’ll be back in production starting August 8. Take care, everyone, and we’ll see you soon.:)
Top News in the A.M.
Alphabet and Amazon both beat expectations yesterday during their earnings calls. More here and here.
Exits and Commitments
Today wraps up the third summer I’ve had the luxury (and wielded the power!) of being a guest curator for StrictlyVC while Connie takes some well-deserved R&R on the beach with her family. This year, along with the standard Q&A’s with fellow investors, I’ve been reflecting on my few years as a small investor. Last Friday, I tried to collect and synthesize the questions I’ve received over the years about starting a fund as an “FAQ.” This Friday, I’ve been thinking about exits.
The job of a fund manager, beyond allocating capital and helping those founders along the way, is to return capital. It’s ultimately the only thing a manager is judged on, professionally speaking. Everyone reading this newsletter already knows that. Yet, on this judgment metric, managers aren’t often in control of how or when those events occur. It typically takes Fund 2’s and 3’s to see what works, and yet, as the old adage goes, past performance is no guarantee of future performance.
For newer, smaller funds like mine and many others, folks hope for public offerings down the road, though lately those outcomes feel harder to come by for a variety of reasons. Folks also hope for large acquisitions, and while many investors believe those may pick up over time, large ones are rare. Then there are secondaries and partial stock sales to newer investors from larger investment firms that have higher thresholds for ownership targets in their fund models.
Investors and pundits chatter enough about an IPO or the large acquisitions they’re involved with or monitoring, but secondaries are not typically discussed for a host of reasons: reputation, private information, signaling, etc. I was afraid to discuss the topic myself until I realized they happen quite frequently, that secondaries have been discussed openly by one of the best venture investors in the world, and that they aren’t that big a deal for smaller funds that aren’t “an investor of record” in a company. (I should be clear here in stating that the investors who take concentrated positions in companies, join their boards, and manage larger funds have many reasons not to engage in secondaries because they need to play for a larger outcome, and any shuffling of a syndicate can be interpreted as a potentially negative signal by the private market.)
Secondaries do not magically occur, however. They require creativity, patience, and, most importantly, the acceptance of other people in the deal on the table, including the existing investors, the new investors, and, of course, the CEO. The early investor has to ask for permission. He or she has to explain their rationale honestly. Signatures need to be collected. He or she still helps out, too. The relationship doesn’t end, and often it’s the companies helping the investor out more than the other way around.
These decisions, I’d argue, are not necessarily intuitive for most small fund managers, most of whom do not have experience managing institutional money. Whereas most very early-stage decisions are made without much data, decisions to sell in future rounds when companies are doing well require an entirely different level of analysis. I can only speak for myself, but I’ve found that process significantly more challenging and the learning curve steeper.
Still, secondaries are still comparatively easy for small funds to execute if they really want to. The absolute dollars at issue are often not material enough to arouse emotions. It’s considerably harder for bigger funds with classic partnership structures, whose general partners may make one to two new investments per year, sit on boards, and continue to follow-on in their investments all the way to the finish line. Larger funds often can’t, like smaller funds, invest in a bunch of companies per year and see what happens; they have to be selective and commit for a longer period of time. They often can’t, like smaller funds, scale down their ownership because those signals may negatively impact a specific company. They often can’t, like smaller funds, not maintain ownership because their fund sizes require large outcomes.
I’m not saying these larger VC firms are saints or always helping out, but it’s a complicated dynamic that’s often overlooked or dismissed in the current environment of exploding company creation and exploding new fund formation. We should keep in mind the commitment of those founders and their early VC investors who take on and embrace long-term risk. Three years into the game, that’s most of what’s on my mind.
Thanks for reading, and welcome back, Connie!
BP3 Global, a nine-year-old, Austin, Tex.-based maker of data analytics software, has raised $10 million in growth equity funding from Petra Capital Partners. Silicon Hills has more here.
Cloudvirga, a months-old, Irvine, Ca.-based cloud software platform for streamlining the mortgage process, has raised $7.5 million in Series A funding led by Dallas Capital, with participation from Upfront Ventures and Tribeca Angels. The Orange County Business Journal has more here.
Jumia, a four-year-old, Lagos, Nigeria-based online retailer specializing in electronics, fashion, home appliances, and children’s items, has raised $55 million from the Commonwealth Development Corporation, the UK’s development finance institution. Dignited has more here.
LeadGenius, a five-year-old, Berkeley, Ca.-based startup that makes automated sales software, has raised $10 million in Series B funding co-led by Lumia Capital and past investor Sierra Ventures. Other participants in the round include Better Ventures, Bee Partners, Y Combinator, Kapor Capital, Initialized Capital, Fuel Capital, Scrum Ventures and Funders Club. TechCrunch has more here.
Mozio, a five-year-old, San Francisco-based search and booking engine that enables users to find the fastest means of getting to the airports, has raised an undisclosed amount of strategic funding from JetBlue Technology Ventures. Tnooz has more here.
nVision Medical Corp., a 4.5-year-old, Mountain View, Ca.-based biotech startup at work on medical devices to treat infertility caused by fallopian tube dysfunction, has raised $12 million in Series B funding led by Arboretum Ventures, with participation from earlier backer Catalyst Health Ventures. Silicon Valley Business Journal has more here.
Reltio, a five-year-old, Redwood Shores, Ca.-based data management platform, has raised $22 million in Series B funding led by New Enterprise Associates, with participation from earlier backers Crosslink Capital and .406 Ventures. Silicon Valley Business Journal has more here.
Retty, a five-year-old, Tokyo, Japan-based site where users can write reviews about restaurants and diners, has raised $10.5 million in Series D funding led by World Innovation Lab, with participation from ABC Dream Ventures and Eight Road Ventures Japan. The Bridge has more here.
Roomi, a year-old, New York-based marketplace for shared housing, has raised $4 million in seed funding led by DCM Ventures. TechCrunch has more here.
VytronUS, a 10-year-old, Sunnyvale, Ca.-based company whose medical devices are designed to treat cardiac arrhythmias, has raised $49 million in Series C funding, including from Apple Tree Partners, New Enterprise Associates, BioStar Ventures and Windham Venture Partners. More here.
Wonder Workshop, a 3.5-year-old, San Mateo, Ca.-based maker of robots that children can program using mobile devices, has raised $20 million in Series B funding co-led by WI Harper Group and Idea Bulb Ventures, with participation from Learn Capital, CRV, Madrona Venture Group, and TCL. More here.
Talend, a 10-year-old, Redwood City, Ca.-based big data software company, made a solid debut as a public company today. After pricing its shares at $18 last night, the company began trading on Nasdaq at $27.66, up 54 percent, giving the company an implied valuation of $537 million. TechCrunch has more here.
Garrett Camp, Uber cofounder and CEO of Expa Studios, has unveiled Expa’s latest project, Haus, a real estate play that digitizes the entire process of buying and selling residential property. More here.
Amazon CEO Jeff Bezos just became the third-richest man in the world.
Microsoft is cutting 2,850 more jobs beyond the 1,850 that the company announced would be eliminated earlier this year. The new cuts will hit phone hardware and sales. ZDNet has the story.
Facebook COO Sheryl Sandberg has almost completed a new book tentatively titled “Option B” that focuses on healing from adversity and coping with those difficult circumstances. Recode has more here.
A new study from SurveyMonkey reveals the 30 most-downloaded and most-used apps in the U.S. iOS and Android app stores so far this year. More here.
Apple has hired the former head of BlackBerry automotive software division as its car team places increased emphasis on developing self-driving technology over efforts to design its own vehicle, says Bloomberg. More here.
Perhaps in preparation for a someday self-driving fleet, Uber has launched a program called UberCentral that allows businesses of any size to request, pay for, and manage rides for customers from a centralized dashboard. TechCrunch has more here.
The unraveling of Harvard’s star trading desk.
What your brain looks like when it solves a math problem.