On Thursday night, at a StrictlyVC event at SurveyMonkey in Palo Alto, this editor sat down with CEO Zander Lurie to learn more about the direction of the 17-year-old company, known for the roughly 90 million surveys that the outfit and its customers create for their various constituents each month (and whose average order volume is $300, says Lurie).
I was particularly interested in Lurie, a former GoPro, CBS, and CNET executive, given his relatively quiet tenure as chief executive — a role he accepted in January after the passing of longtime CEO Dave Goldberg last year (and following a brief stint by a more immediate precedessor, tech veteran Ben Veghte).
We wound up chatting about the company’s valuation, polling accuracy, and whether and when the company will go public, among other things. Part of that chat, edited for length, follows.
You’ve been a CEO for nine months. What do you now appreciate much more about every CEO you’ve ever known?
I always had a boss or somebody who was there for constant feedback, and it’s different when you’re CEO. We have an amazing board of directors . . . but as CEO, you’re in charge of the script: What’s the strategy, who are the teams you’re entrusting to build the company, then all the comms and the motivation and accountability associated with delivering on the company’s promise. It’s on you to be that great storyteller. And I love it, but that’s what has struck out for me. There’s no one to ask: Am I doing a good job?
You inherited a unicorn company – valued at $2 billion at its last financing in late 2014. You also inherited the company under unique circumstances. Do you feel extra pressure owing to those circumstances?
We’re fortunate to have one of the most profitable businesses on the internet. You couldn’t really do a survey until SurveyMonkey and its founder really invented this new online survey platform. The company in 2009 had about 12 employees and $25 million in profits, then beloved Dave Goldberg became CEO in a buyout and in six years hired about 600 people, and today we’ll do about $200 million in revenue, with EBITDA margins in the mid 30s. So sure, the circumstances under which I became CEO were awful. Dave was one of my best friends in the whole world. But the culture he built, and his ability to recruit a team of world-class people across product and engineering and marketing, amazes me still. So while it’s a lot of pressure, it’s also super fun and a great honor.
How many people are using your surveys?
There are 15 million who are sending [surveys] on an annual basis and interacting with our products in different ways. The vast majority are responding to surveys from people they trust, increasingly on a mobile device.
We have a very detailed cohort analysis whereby people who try [the service] on a monthly basis tend to come on a somewhat transactional basis, and those who sign up for an annual plan — the longer they stay, the less likely they are to churn, and those are obviously our most profitable companies.
Uber is one of your many corporate customers, correct? Are they responsible for those five-star ratings we’re asked to give drivers at the end of each ride?
Uber is using a variety of [our] products, though I can’t say exactly which. I think the largest survey company in the world today is Uber. Today, every time you take an Uber, you take a .2-second survey where you’re rating your driver, and obviously those data points are helping inform them about which drivers are doing a great job, as well as [informing Uber about] the customers who drivers like. It’s using what we call people-powered data in a really refreshing way to drive their product forward.
I always give drivers five stars out of some paranoid fear that if I don’t, there will be ramifications. Other people game surveys for their own reasons. How do you ensure these surveys are actually useful to your customers?
According to a 2014 report from Complete College America, a nonprofit group based in Indianapolis, just 19 percent of full-time students earn a bachelor’s degree in four years at public universities. The stats are even worse at community colleges, where five percent of full-time students earn an associate degree within two years, and just 15.9 percent earn a one- to two-year certificate on time.
Some of why students are taking longer to graduate centers on the lack of a clear planning, changing majors, changing universities, and taking unnecessary courses, suggests a variety of research. But Rachel Carlson, the cofounder and CEO of Denver-based Guild Education, says there are plenty of non-academic factors at play, too, including soaring tuition costs and shift work that can interfere with community college class schedules.
Indeed, to help those many students who are working their way through college, as well as help companies that recognize the importance of helping employees realize their full potential, 16-month-old Guild partners with employers including Chipotle to offer education as a benefit, right alongside healthcare.
How does it work? The IRS already allows for employers to offer up to $5,250 annually of tax-free education to help any employee as long as the benefits “are provided by reason of their employment relationship.” Employers can also pay beyond $5,250 if they like, though employees generally have to pay tax on the additional amount. (Qualified employees can also apply for an additional $5,815 in available federal grants.)
As dozens of Teslas baked in the sprawling Palo Alto parking lot of a local law firm yesterday, 100 top investors packed into a high-ceilinged meeting room. There, they listened as 13 startups deliver four-minute presentations about why they’re worth watching.
The companies — all of them roughly six months old or younger, and all led by current college students or recent graduates — were part of the Launchpad program of three-year-old Pear, an early-stage venture firm that annually invites computer science students from top schools to build companies in their office with a $50,000 uncapped note and no strings attached. (Until recently, the firm was known as Pejman Mar Ventures.)
So far, Pear seems to be choosing these student teams wisely. Out of the eight groups that presented a year ago, one startup sold to Google and four others have raised seed funding. Pear’s inaugural class, in 2014, also saw one startup, FancyThat, sell to Palantir.
Certainly, the venture capitalists gathered yesterday seemed enthusiastic. Ross Fubini, a partner at Canaan Partners, tweeted partway through the presentations that it was “looking like the best demo event of the year.” Another investor, Lux Capital partner Shahin Farshchi, told us afterward that he also thought it was “fantastic, with something for everybody, including consumer companies, analytics and AI companies, and deep tech for investors like me.”
For those who weren’t there and may be curious, here’s what you missed:
Allocate.ai: This company makes AI-powered time sheets to enable companies to better understand how and where their teams are spending time. According to the founders (who come from Stanford and UC Santa Barbara), 45 million people fill out time sheets in the U.S., and they estimate that this adds up to $11 billion in lost time. (Think of lawyers whose time is valuable and may spend upwards of 15 minutes a day tracking their billable hours.) They argue that made more efficient, the market could be a whole lot bigger, too. If you agree and want to reach out to them, you can do that at firstname.lastname@example.org.
BlackSMS: Its tech allows users to send encrypted, password-protected, self-destructing iMessages that can even be disguised and masked inside of fake replacement texts. This struck us as useful for a variety of cases, and we hope we’re right about that. Its 20-year-old founder, Tyler Weitzman — who says he has built 30 apps since his middle school days — is now dropping out of Stanford to “go all in on BlackSMS.”
To learn more, you can check out a longer piece that TC wrote here earlier this year. To contact Weitzman, you can email him at email@example.com.
Capella Space: This data company says it can provide persistent and reliable information from space through a constellation of shoebox-size satellites that it’s building. How do they differ from the satellites of other startups? Its tech relies on synthetic aperture radar, meaning it sends radio waves down to the earth’s surface that — based on the reflection of the radio waves that go through the clouds and don’t require illumination from the sun — can capture images at night and despite heavy cloud cover. (Many other new constellations rely on optical technologies instead.)
Capella does have competitors, including Ursa Space Systems. Ursa currently sells information to customers based on traditional (read big, bulky) satellites that employ synthetic aperture radar, and it’s planning to develop its own constellation of satellites. But it’s pretty much an open race at this point. You can reach the founders at firstname.lastname@example.org.
DeepLIFT Technologies: This company has developed a set of algorithms that it says can understand and explain any deep learning process by looking at inputs, identifying recurring patterns and other stuff.
Why bother drilling into why machine learning processes work like they do? For one thing, regulators are starting to push back against “black box” technologies. Most notably, the EU recently introduced a provision to pass legislation that guarantees EU citizens a “right to explanation” when machine learning models are used to make decisions that impact them.
The founders say the company is not raising money. (We’re not sure we believe this.) They also say their tech, currently in use across eight genomic labs in the U.S., has already attracted substantial interest from Alphabet, including from Google’s mobile development team and Alphabet’s life sciences subsidiary Verily. You can reach them at email@example.com.
AngelList, the online platform that matches startups with early-stage investors, has grown by leaps and bounds since its 2010 founding — and so have its ambitions. In fact, the company, which already bills itself as both the biggest seed-stage firm in the world, and the world’s largest hiring platform for startups, also aims to become the biggest venture fund in the world.
Earlier this week, we sat down with cofounder Naval Ravikant at the firm’s swanky new, three-story digs in San Francisco’s Jackson Square, and as workmen shifted planks around the nearly completed ground-floor level, Ravikant caught us up to speed on a many aspects of what’s happening at AngelList.
We’ll have more on his overarching vision tomorrow. Today, we’re publishing a part of our conversation that centered one of the biggest drivers of AngelList’s current growth: the $400 million that CSC Group — one of the biggest private equity funds in China — committed to invest through AngelList roughly 10 months ago. (The WSJ billed it as the “largest single pool of funds devoted to early-stage startups—ever.”)
Ravikant shared how that relationship is evolving, and why he thinks CSC’s money is just the tip of the iceberg for both AngelList and Silicon Valley more broadly. Our chat has been edited for length and clarity.
TC: Let’s start at the beginning. Who is managing this $400 million from CSC?
NR: It’s a fund called CSC Upshot that’s managed by CSC’s Veronica Wu, who used to be a VP at Tesla Motors in Beijing; Ming Yeh, who’d spent the previous six years or so as a managing director at [Silicon Valley Bank] in Shanghai; and Tom Cole, a former partner at Trinity Ventures.
TC: How much have they invested in startups on AngelList so far?
NR: They’re on track to invest between $25 million and $40 million this year, with an average check size of $100,000.
TC: Wow, that’s quite a pace. How does the decision-making process work?
NR: We’ve built a dashboard for fund management, and all these managers [have signed nondisclosure agreements] so they get to see literally hundreds and hundreds of deals on AngelList. And they chat with each other and [with the lead investor’s approval], if enough people vote yes, the deal gets done.
Technology Crossover Ventures has become a major investing powerhouse over its 22-year-old history by funding relatively undiscovered but mature companies; buying sizable stakes in later-stage, venture backed companies; and acquiring positions in publicly traded tech companies that TCV sees as undervalued.
The firm, which is headquartered in Palo Alto, has done so well that it just wrapped up its ninth fund with a cool $2.5 billion. It also now features offices in New York (opened in 2005) and in London (opened in 2011).
Late last week, over coffee at a San Francisco bistro, I sat down with TCV’s founding general partner, Jay Hoag, and general partner Woody Marshall, to talk about some of the firm’s latest hits, which include recently acquired Dollar Shave Club and LinkedIn, some of whose shares TCV acquired in February when they plummeted more than 40 percent.
We also talked about why mutual fund companies (with which TCV sometimes competes on deals) don’t make great private company shareholders, and what can be the bad advice of investment bankers, who are largely telling companies to wait until 2017 to go public. Our chat, edited for length, follows.
TC: You’ve invested roughly $700 million in Europe since opening an office in London, including deals in Spotify and World Remit. That’s a lot of capital.
JH: In London and Berlin and the Scandinavian countries, there was lots of activity we were seeing, and we thought it better to see it from quasi-local office.
WM: In Europe, [the investors on the ground are] very much early stage or buyouts or else guys who may call themselves growth equity investors but are really doing growth-buyout deals with a lot of debt. In terms of minority investments that startups can spend on product and sales and tech and marketing, we don’t have a lot of [competition].
TC: What about other U.S firms? Doesn’t Insight Venture Partners do a lot of deals in Europe?
WM: Insight does everything globally out of one office in New York. We’re pretty active, so we don’t necessarily like to be a tourist. We like to be part of the local community, so we felt like it was important to plant our flag in the ground and hire local people.
WM: It’s a growing, profitable business that’s already achieved significant scale with hundreds of employees. Our co-investors are two little French funds, and we were the largest and only investor in the financing we did, which is pretty typical. Also, the company has been around long enough that some of the funds will be thinking about selling some of their stock going forward. Most of our deals are a mix of primary and secondary stakes.
TC: Five of your portfolio companies have been sold this year, including the data marketing firm Merkle, which just sold a majority stake to Dentsu. You also invested in LinkedIn, which turned out nicely for you.
JH: We didn’t see that [Microsoft acquisition] coming; it was a nice surprise. But if you’re going to deploy a dollar, why wouldn’t you look at a public company as well as private companies and assess, “Well, this appears fully valued, but this other one is discounted by 70 percent,” as long as you have the right insight. And the public markets tend to overreact on a quarterly basis.
TC: Why aren’t more venture funds investing in discounted publicly traded companies, especially given that so many of them got socked earlier this year? My understanding is that most firms aren’t restricted from doing these deals here and there.
JH: Generally, it’s because the [universities and endowments and other] sources of capital for all of us want to think of us as being in discrete [buckets]. Either it’s, “I’m in investing in a private manager” or “I’m investing in a public manager.” So it’s not an easy sell.
WM: It’s also hard. A lot of times you don’t have access to perfect information. It’s a different process. But your private activity informs your public activity and vice versa. Even when we aren’t looking to deploy money in the public market, we probably spend more time listening to quarterly conference calls than most private investors, because when you’re thinking about diligence, that’s some of the best information out there. You can spend a gazillion dollars for [repackaged intelligence] or just go online and look at whatever calls you want. All that great trend and customer data is there.
TC: You mentioned that you buy a mix of primary and secondary stakes. Can you talk about some of the discounts you’re seeing?
WM: Off of what? It depends on the last round and the structure of the last round. A lot of people have said, “Stay away from unicorns.” But there are a lot of great companies out there that are looking to raise money. Maybe [their last round was] lavish [so the price is now] maybe a little bit up or down, but in the meantime, the business has materially executed since that last round. So even though the [valuation is] similar, your multiple is half because the business has doubled. You have to look at these opportunities on a relative basis.
TC: Mutual funds have gotten into your business in recent years. I still see them popping up here and there in late-stage deals.
WM: Sometimes we don’t see anybody. Sometimes, if there’s a more formal process, we do. One deal we looked at earlier this year, we thought the discount was appropriate, and one of the T Rowes or Fidelitys did a flat round. But you’re generally seeing less aggressive behavior from the Baillie Giffords and the BlackRocks. You’re definitely seeing people pulling back and reevaluating the bets they’ve already made.
TC: Reevaluating and literally re-valuing — and publicly — which I think has surprised some of the companies these managers have backed.
JH: If we hear a company is talking with T Rowe and Fidelity and BlackRock, I understand why. The company probably wants a high price and a quick process. But we [know we] should probably spend our time elsewhere. Full stop.
[Mutual funds] are buying [private stakes] so they can have lower costs at the IPO price, etc. But the moment [their portfolio companies] underperform their competitors, that activity stops. These private investments have to have a return associated with them. If they’re buying high and selling low, that’s not good.
TC: Could you see action being taken against any of these managers?
JH: Mutual fund and hedge fund guys have been sued in the past over valuations. Even if it’s just 5 percent of your activity, with [people on Main Street] going in and out of your fund, your [net asset value] is a very important measure. These investors are buying in, assuming the valuations [they are paying at any single moment in time] are correct.
WM: Some of these guys, they have deep pockets but they get those alligator arms sometimes. And management teams are starting to say, “I got it.”
Jeremy Liew joined Lightspeed Venture Partners in 2006 from AOL, where he’d worked in corporate development, and his star has been on the rise since, including thanks to an early check to messaging giant Snapchat. We caught up with him last week to chat about where he’s shopping next, among other things. Our exchange has been edited lightly for length.
Lightspeed just raised $1.2 billion in fresh funding and built out the consumer team. How long did that take you to form the team? What was the most challenging element?
Our search took us almost two years in total. We took our time because partnerships are a delicate balance, and we needed to find someone who we thought was going to be a well calibrated investor, who could win competitive deals, and who would fit in well with the rest of the partnership. We initially went out looking for one new partner, but in the end we found two people that really clicked with us as a group. Aaron Batalion joined us in November and Alex Taussig in January. Aaron was CTO of LivingSocial, one of our portfolio companies, and he was someone we’ve known for a long time. Alex was a partner at Highland [Capital Partners], where he had been for seven years. I’m so happy both are here.
As your consumer team grows, do you anticipate extending consumer investing to outside the U.S.? If so, where might you look and why?
Great insights can come from anywhere, and we’re open to investing in companies that target the U.S. market that are based offshore. We work closely with our sister funds, Lightspeed China Partners and Lightspeed India Partners, which both focus on geographies that represent huge and idiosyncratic markets that are quite distinct from the Western consumer market. We’ll sometimes coinvest with them, as we did with Oyo Rooms, but we often defer to their on-the-ground expertise in those markets. And our team in Israel has been making investments outside the U.S. for many years. Increasingly, we are seeing companies based outside the Bay Area and even outside the U.S. that are targeting US markets. Musical.ly is a great example of that, although not one in our portfolio. And we are invested in Blockchain, the biggest bitcoin wallet in the world, headquartered in London.
With FB, Amazon, Apple, Google, Uber, and more scaling to huge market caps and executing so well, is there room for venture capital to bet early on new spaces? Are consumer bets now riskier?
In the early ’90s, everyone worried about Microsoft. In the late ’90s they worried about Yahoo, Excite and AOL. There will always be huge companies that theoretically “could” enter many markets. But the reality is that even for a big company, it is hard to do more than three things at a time. After that, you’re staffing your B, or C or even D team on lower priorities for that company. If a startup whose sole reason for existence is a single new idea can’t beat the C team, even if it is Facebook’s C team, then they don’t deserve to win.
Now, I do think that it is hard for a startup to beat [these companies’] A teams. So I wouldn’t back a team trying to tackle the behemoths in their core markets or core areas of focus, and that would include a lot of AI areas today.
What’s the most contrarian space in consumer investing today? What do you think it will take for this space to potentially emerge?
I believe in media companies. Many think that big companies can’t be built in this area, but I think that some of the growth in video is changing that dynamic. Video is clearly a megatrend, and every genre of content that has been big in TV will have an analogue in the new video world, including mobile native video, tvOS, and web video. Twitch is the ESPN analogue. We invested in Cheddar, Jon Steinberg’s new company, which we believe is the CNBC analogue. Tasty andTasteMade are competing to be the Food Network analogue. And genres like late-night talk shows, morning shows, sports highlight shows, blooper shows, reality TV, judge shows, game shows, they will all have analogues.
What do you look for more broadly in early stage consumer companies?
What young women do and say today, we’ll all do and say in five to 10 years. Watching what becomes popular with young women and being incredibly data driven about this has been a good way to get in front of big consumer trends. For many of us VCs who live in a very different world than the average American teenage girl, our intuition about what is going to be popular is incredibly bad. But if you can ignore your intuition and trust the data for what is driving growth, engagement and retention, then double click to understand why, then you could get ahead of some very big consumer trends.
Last Wednesday, Google Capital ventured into the world of investing in publicly traded companies, announcing it has backed Care.com, a platform that connects people with caregivers which went public in early 2014.
With Google Capital investing $46.35 million, it became Care.com’s single largest shareholder, according to The New York Times. The deal also sent nine-year-old Care.com’s shares soaring. On the day of the announcement, Care.com was valued at $278 million; by the end of trading on Friday, the company’s market cap had reached $508 million.
It might have seemed interesting, if unremarkable, to some industry watchers. Others, however, think the deal may well usher in a new era of private investment in publicly equities, or PIPE deals, despite their checkered history.
Those who’ve been around for a boom and bust (or two) are already familiar with them. PIPE deals became increasingly attractive in the aftermath of the late 1990s tech bubble, when the public market shut for tech companies, stranding not only ambitious startups hoping to IPO but publicly traded outfits, too.
Faced with few options, some of those cash-strapped companies turned to outside investors like venture investors and hedge funds. In return for capital, the companies typically provided their public shares at a discount — along with the promise that if their shares were to fall in value, these new investors would be provided more shares to make up for their losses.
In some cases, things worked out well. Phil Sanderson, today a managing director at IDG Ventures, was working as a partner at Walden Venture Capital at the time and says he led two investments in publicly traded companies that provided quick, meaningful returns to the firm. One of those bets was on VitalStream, a content delivery network that was later acquired; the other was the IT management company Niku, also acquired.
Sanderson says the two companies produced a “3x to 5 x return in a two- to three-year period,” and he credits those returns with approaching both firms with a VC-like mentality. “I’d join the board, bring in sales, help recruit employees. I would also communicate to analysts I knew about the company, and I’d be out there talking with hedge funds, getting them to buy and build positions in the stock. It was a lot of work but it paid off.”
Other companies weren’t so lucky.
Kleiner Perkins has been through the wringer since the go-go dot-com days of the late 1990s. After making a bundle on Google, the storied venture firm raised too much money from investors and grew too ambitious in scope before dramatically retrenching a few years ago — but not before being hit with one of the highest-profile lawsuits in venture industry. (It won the case, which centered on gender discrimination, but it took a beating in the process.)
To restore its former glory, the firm is largely transformed from the firm it was a dozen years ago. For starters, it has undergone some major casting changes. Only one of its five general partners — Ted Schlein, who leads Kleiner’s investments in security and some of its enterprise investments — has been with the firm throughout all the tumult, having joined the firm 20 years ago. Meanwhile, Beth Seidenberg, who focuses on everything from life science to digital health, joined Kleiner in 2005; Wen Hsieh, who focuses on enterprise and hardware deals, joined in 2006; Mike Abbott joined in 2011 to focus largely on enterprise deals; and Eric Feng, a former CTO for both Hulu and Flipboard, joined last October to lead the firm’s consumer investing.
Kleiner, which is currently raising $1.3 billion across two new funds, has also taken a page from the playbook of Benchmark and some other smaller partnerships, and its partners now enjoy equal partner economics. (Kleiner has also five associate partners, as well as a separate growth investing group.)
To get better insight into the firm and how it operates today — as well as where it’s shopping — we talked yesterday with Feng. Our chat has been edited for length.
The conversation stemmed in large part from questions about LinkedIn’s announced acquisition by Microsoft, which disclosed Monday that it is paying$26.2 billion in cash for the business networking platform.
Asked his opinion about the deal, Andreessen — who was interrupted by the clang of a falling tray (“I hope that was not a symbolic sound effect,” he joked) — said the deal “eliminates the guesswork about how much [a company is] worth when someone pays $26 billion in cash ” for it.
But he also said that, on a higher level, it conveys something about the industry right now. “We see more M&A happening in the pipeline – meaning companies in consideration or negotiation — than in the last four years.”
There are a few reasons for it, he suggested, saying that in recent years, a lot of “public companies sat back and watched the drama play out in the Valley . . . and the constant drumbeat of ‘bubble, bubble, bubble.’” Now, with many private company valuations down from their peaks last year, along with public companies that “now have to go shopping to fill in gaps in their portfolio,” Andreessen said to expect a “run of M&A the rest of this year and next year.”
The buyers won’t necessarily be Facebook, Microsoft, and Google, he noted. “A lot more nontraditional buyers — Fortune 500 companies outside [of tech are] going shopping, [including] the car industry, other consumer products companies, clothing companies.” (Andreessen didn’t say so, but private equity firms also plainly see an opportunity to do some shopping right now.)
In fact, Andreessen’s firm, Andreessen Horowitz, is trying to prep its portfolio companies for an exit by establishing what he described as an IPO preparedness team that’s working with founders on what’s required to go public, from accounting and legal, to building a governance team, to selecting the right CFO.
Vitamins and venture capital might not seem like the most natural fit, but a number of related companies have attracted capital from tech investors in recent years, including SmartyPants, which makes a gummy vitamin, and Elysium Health, a supplements company that counts a former venture capitalist as a co-founder.
Still, competitors may have trouble catching up to two-year-old Olly, a 30-person company whose sweet vitamins, delivered in gummy form and packed in playful, eye-catching containers, are flying off a growing number of shelves. Indeed, the profitable startup, which began as an online subscription service, now derives just 3 percent of its revenue from online sales, with the rest coming from retail stores Target, CVS and GNC. (Safeway, Kroger and Albertsons will also feature Olly vitamins before the end of the year.)
To understand how Olly’s products have become so ubiquitous so quickly, we caught up with CEO Brad Harrington, who co-founded Olly with Eric Ryan, who’d previously cofounded cleaning-products company Method (acquired in late 2012). For anyone interested in creating a new brand, it’s worth a read.
The supplements market is an $82 billion market globally, says McKinsey. But it’s also crowded. What was the insight that made you and Eric think there was still room to compete?
Eric was interested in the category from a merchant perspective. He has spent a lot of time in mass merchants like Target, looking at different categories that might be ripe for disruption, and you could walk down aisles and be like, “Well, that’s obvious.” There aren’t a lot of brands, and most products are ingredient driven, so you didn’t know what to choose.
In fact, I was with Eric in Boulder, and we were standing in an aisle of a store, and strangers would just come up to us and ask how many milligrams of zinc they should take, and we were just as dumbfounded as they were. So we thought, let’s simplify this and make everything about the end benefit versus the individual ingredients.
Did you decide on gummy form right away?