For better or worse, Y Combinator is putting the pedal to the metal.
On the heels of some of its biggest classes to date, the well-known accelerator yesterday introduced yet another new program. That initiative? The YC Fellowship program.
The broad strokes are as follows: About 20 teams that are “very, very early” and haven’t yet received funding elsewhere will be chosen by Y Combinator to receive a $12,000 grant. The teams can be based anywhere.
At Fortune’s Brainstorm Tech conference yesterday, senior editor Dan Primack hosted a panel of investors who were asked to share their thoughts on the current – and future – state of the venture market.
The VCs covered a lot of ground. We happened to focus in on what Bill Maris of Google Ventures had to say. You can find some notes from the discussion here.
Image courtesy of Vanity Fair
Last week, at the PreMoney Conference in San Francisco, veteran venture capitalist Heidi Roizen moderated a panel that asked institutional limited partners for their view of the world.
The speakers each had unique insights, but the audience may have been particularly attuned to one – John Powers, who served as president and CEO of Stanford Management Company for nine years. (He left his post last year and remains “unpotted,” as he put it.) As Roizen noted in introducing Powers, Stanford is among the world’s most sought-after investors given the power of its imprimatur — not to mention the $25 billion it has to manage, roughly 5 percent of which it invests in venture capital.
Luckily for attendees, Powers didn’t disappoint. In fact, he spoke candidly about a wide range of issues that may help capital-seeking venture firms better understand Stanford’s point of view, even while it’s likely to disappoint many of them. Here’s some of what he had to say:
On whether or not Stanford is likely to reinvest in a firm it has backed previously:
We’re looking at track record over time, and sticking pretty close to a roster of people who’ve been great VCs over a long period, because . . . there is a huge amount of persistence. It’s a brand business. It’s a business where the brand of the VC attracts the opportunity set. It’s sort of the only form of capital that I can think of that’s driven by brand attractiveness as opposed to price.
On when and whether Stanford will invest in a new venture fund:
We didn’t fund a lot of new venture funds over the course of my time there, but we did [invest] pretty steadily, every couple of years, in one or two new funds, [and] brandedness was the key. So what about this fund would lead us to think it can establish brandedness? That could come in the form of notorious founders. Andreessen Horowitz was branded day one because of the pedigrees of both Marc [Andreessen] and Ben [Horowitz]. The guys at Emergence Capital had a niche strategy that happened to be a large niche but was identifiable and you could see, okay, they can build a story around their early participation in and ownership of this view of the world. [We like that] as opposed to a general purpose, “We’re going to do a little software, a little semis and hardware, and a little consumer” venture fund. It was much harder for us to see [how the latter types of funds could] get escape trajectory.
On what Stanford worries about:
The one thing you have to remember in venture is that a few outcomes can totally transform a fund. So whatever you do analytically to think, ‘These guys are going to get branded’ or whatever, stumbling into the right deal can transform a fund.
That’s true, too, when you fire someone. If this guy’s long in the tooth, they’re not cutting it anymore, we’d like to fire them, you do that, [then] they come in with one home-run deal in the next fund and you look foolish in front of your board.
On why Stanford isn’t keen on investing internationally:
You’d invest internationally if you felt you were going to get better returns than domestically or if you felt that you were going to get something that diversified the stream of cash flows to you. So you go country by country.
In very large measure, the Israeli venture community is the 51st state of the U.S. venture community; I think you don’t get superior returns over time or haven’t in general, and you don’t get diversification away from investing in a cybersecurity company in the U.S. So you’d go to Israel if you felt like you couldn’t gain access to the best stuff in the U.S. Therefore you were sub-optimizing but doing the best you could by investing in a very vibrant entrepreneurial community over there – just recognizing that it’s probably [not] going to match up over time with what Sequoia can do for you over here.
China is very different. There are huge indigenous sources of demand, a massive reinvention of the economy; the streams of opportunity that you see there . . . may be emulative of, but not derivative of, what you get in the U.S. from a returns standpoint.
India has been a bit of a confusing hybrid, with not the same level of indigenous demand [as China], though that appears to be changing to some degree.
On being “cold-blooded”:
Speaking from my former seat at Stanford, you have to be pretty cold-blooded. Are we better off spending time trying to get a little better allocation out of Sequoia in the next fund than we are flying around the Far East or something? [The answer, thinks Stanford, is yes.]
You may have noticed: Hardware investing is in vogue. Andy Rubin, creator the mobile operating system Android, recently launched Playground Global to advise device makers in exchange for equity. Formation 8 is raising a $100 million hardware-focused venture fund. That’s saying nothing of the seed-stage fund Bolt, which raised $25 million a few months ago, and the numerous accelerators now focused on backing hardware startups, including Haxlr8r, Lemnos Labs, and Highway1, which is an offshoot of the custom design manufacturing company PCH International.
Now, the Bay Area has yet another entrant on the scene: San Francisco-based Root Ventures, which just closed its debut, hardware-focused fund with $31,415,927 (the first 10 digits of Pi), capital that it raised from a gaggle of high-net-worth investors along with the fund of funds manager Cendana Capital.
Root Ventures is a single-GP fund founded by Avidan Ross, a trained engineer who was previously CTO of the private equity firm CIM Group. Ross isn’t widely known (yet) in press circles, but a growing number of venture capitalists and entrepreneurs have grown acquainted with him through the roughly 10 bets he has placed in recent years with the help of his friends’ capital.
Some of Ross’s older bets include Wallaby Financial, a mobile finance company that was acquired by Bankrate in December for an undisclosed amount. Another is Skycatch, an aerial robotics platform that received its first check from Ross and which has gone on to raise $24.7 million altogether, including from Google Ventures. Ross also wrote the first check for Momentum Machines, a company whose robots turn raw ingredients into packaged hamburgers without human intervention. It just raised an undisclosed amount of follow-on financing from Founders Fund.
“I don’t think people were investing in me based on my individual track record as an angel,” says Ross. “Those investing in me know me from a previous life [as CTO] of a pretty large investment firm where I built a lot of great relationships with people who trust my ability to invest in great technology.”
Ross, who raised much of his new fund late last year, has made three newer investments on behalf of Root Ventures, where he plans to make concentrated bets, and to write first checks in the range of $500,000.
The most recent of its portfolio companies is operating in stealth mode, but it’s easy to see the appeal of the others. Mashgin — company Ross met through entrepreneur friends — has developed an automated checkout kiosk machine that employs computer vision to identify any object on a surface (down to the different-flavored Snapples, says Ross). The big idea: to create a far more seamless experience for shoppers.
The company graduated late last year from Y Combinator and is about to announce a “significant” amount of follow-on funding, says Ross, who wrote its first check.
Ross also invested in Prynt, which makes a smartphone case that prints out photos. He met the company during his honeymoon in China. The young company was operating out of the Haxlr8r accelerator in Shenzhen, “and I asked if I could take a three-hour break and visit with the companies. I immediately thought: ‘This is amazing.’”
If you don’t understand why a printing up a digital photo might be interesting, Ross says Prynt’s opportunity goes “above and beyond printing out a polaroid. When you print a photo, you’re basically printing up the last frame of a 10 second video. With Prynt photos, you hand them to someone else, they point their phone at the photo, and the photo becomes alive [by featuring those full 10 seconds]. It’s like a Vine that only that person can watch. It creates privileged access.”
Others must like it, too. Prynt recently raised $1.5 million in a Kickstarter campaign earlier this year.
Ross says the company also just raised a “sizable seed round that’s unannounced. An earlier SEC filing suggests the amount is $2 million.
PayNearMe doesn’t get a lot of attention from the press. Partly, that’s because the five-year-old, Sunnyvale, Ca., company doesn’t seek it out. But PayNearMe is also in a business that’s not nearly so relatable to many in Silicon Valley as enterprise messaging or high-end black-car services. It’s focused on the roughly 25 percent of people in the U.S. who don’t have bank accounts but buy things — like the rest of us — that would be hard to pay for in cash, like rent, healthcare, and online goods.
It’s a huge market, one that’s remarkably underserved excepting older players like MoneyGram and Western Union. It’s also a lot of work to build, making it a fairly long-term bet, one into which investors like True Ventures, August Capital, and Khosla Ventures have already sunk $71 million, including a $14 million inside round earlier this year.
How does it work? Say a person needs to pay their rent or buy a bus ticket. PayNearMe has relationships with both brick-and-mortar stores –including, crucially, 7 Eleven, Ace Cash Express and Family Dollar — as well as businesses like property management software companies. Together, the companies make it possible for anyone to walk into one of more than 17,000 locations with cash, and walk out with a receipt for payment.
This week, we talked with PayNearMe founder and CEO Danny Shader – previously a CEO of Good Technology, an EIR at both Kleiner Perkins and Benchmark, and cofounder of Accept.com, an online consumer-to-consumer payments service that sold to Amazon for $175 million in stock in 1999 – to learn more about the gritty, complex business he’s been building.
PayNearMe doesn’t give out a lot of numbers, but you say that overall payment volume has more than tripled from this time last year.
Our business is growing five to 10 percent a month, which keeps compounding, so it’s getting to be a pretty sizable business. It’s extremely hard to build up an entirely new payment network, but we’ve done it, it’s working, it’s growing, and it’s incredibly defensive. But it’s not for the faint of heart.
You could boil the ocean, trying to go after everyone who’s unbanked. What’s your process like?
We pursue things vertical by vertical. So the biggest vertical is lending, then rent and municipal government payments, and now healthcare is driving a lot of new people into the insured ranks and they need to pay their premiums. Within a vertical, there’s a handful of software companies that are systems of record, whether it be for property management companies or government agencies, and we integrate into those software systems. For rents, for example, we integrate with AppFolio and ManageAmerica, a property management system for manufactured housing, meaning mobile homes.
We try to go after very large accounts directly or go downstream.
Going downstream [to smaller players] sounds like a lot of work. How do you do it? How many employees do you have altogether?
We have more than 50, roughly half of whom are in Sunnyvale, with the rest scattered [around the U.S.]. And it does take time to get going on a new vertical. Say we want to do something in health, in medical records. We’ll go to a trade show and call on [some of the vendors] , and they’ll typically say, “Go away, my customers aren’t asking for you.” So we’ll go to end customers and invest heavily in getting them to work with us, and they do, and they talk about it, and a year later, the software providers say, “We want to integrate with you.”
Processing rent payments is one of your biggest businesses, but we understand that Family Dollar will no longer be accepting rent payments, that it grew worried about safety issues around people walking in with large sums of cash. We’ve asked the company about it but they haven’t responded.
I can’t speak for Family Dollar, but rent is a big vertical and we’re processing rent at a ton of other locations. Other folks will be joining our network, too.
PayNearMe shares its economics with stores like Family Dollar and 7 Eleven. Do you discuss that split? Is it 50/50?
I can’t comment on [the percentage of transaction fees we pay out], but it’s [a good deal for them]. Imagine: Hey, our sales force will sign up big entities like municipalities that will include your logo [so people know where to pay their bills], and we’ll pay you a commission, and by the way, we’re sending you valuable foot traffic.
PayNearMe has a lot of stuff coming. Can you give readers a curtain raiser?
I can say that we now have a complete set of money transmitting licenses in the U.S. and Puerto Rico that we spent the last three years and millions of dollars [to obtain]. The licenses allow us to act as an agent of a consumer, taking their money and delivering it to some other location. It lets us enter adjacent markets. [But that’s all I can say.]
Do you anticipate these adjacent businesses will be larger than what you’ve already built?
I think we could build a big public company doing what we’re doing. It’s a massive market hidden in plain sight. Most people in the Valley are asking if cash is going away. Actually, the cash market is increasing, and the bifurcation between the 1 percent and everyone else is contributing to that.
Brit + Co, a nearly four-year-old, San Francisco-based lifestyle site dedicated to all things D.I.Y., has often been likened to a next-generation Martha Stewart Living Omnimedia.
It’s looking like Udemy, an online educational marketplace taught by experts who are not university professors, may be as apt a comparison.
Indeed, fueled with $20 million in new Series B funding – from Intel Capital, Liberty Media, and retail veteran Ron Johnson, among others — the company is now planning to shower almost as much effort on educating visitors as it does on entertaining them. We caught up with founder (and former Googler) Brit Morin yesterday to learn more about the company’s evolution. Our chat has been edited for length.
People think of Brit + Co as a media company. What’s changing?
For more than three years, we’ve really focused on building out the media arm for a couple of reasons. First, we wanted to do one thing at a time. We also really wanted to build the foundation of the brand and understand from our audience what type of commerce they’d want from us. Although women were into it from an aspirational and inspiration standpoint, they said, ‘I have no idea how to do this,’ and it opened our eyes. So we launched into online education last year and we’ve since sold 15,000 classes and kits [required as part of the classes].
How many classes versus kits is that?
We don’t break that out but we have 15 different classes right now, and we’ll have more like 60 to 70 by year end. Our community of makers are the ones teaching the classes. [Editor’s note: classes range from 20 minutes to 60 minutes in length and from $9.99 to $19.99 in price, not including the required kits.]
How big is the media side of the company at this point?
On the media side, we now have 12 million visitors every month. We have roughly 100 advertisers, with a 74 percent retention rate. And we’re doing millions in revenue, 99 percent of which is native advertising, meaning our content and videos somehow include the products of our sponsors, though our readers know it’s advertising. We’ll partner with Starbucks for example, and teach you how to make your own coffee ice cream.
You also just acquired Snapguide, a free iOS app that lets users create and share step-by-step guides. Snapguide had raised $10 million from investors. Are you breaking out how much you paid? As important, what drove the deal?
We aren’t disclosing price, but there are a number of cool things about Snapguide, including [the ways it helps a third aspect of the business, a year-old, Etsy-like marketplace where people can sell their homemade goods]. If you [as a participant of that marketplace] are creating your own step-by-step guide, you can use a photo or a video or a hybrid [thanks to Snapguide].
You recently raised $20 million from investors, bringing your total funding to $27.6 million. Will you be in the market again any time soon?
The way I approach is it: it’s great to be in a position where you don’t have to raise money, but we’re very opportunistic whether it be a great investor or [something else that provides] great option value for the company. We’re not opposed to raising money earlier.
While consumers wade through the ever-ballooning list of brands wanting to wash their clothes, clean their homes, park their cars and deliver them dinner, a newer crop of startups has begun catering to the needs of those contract workers who make the on-demand economy possible.They’re smart to be zeroing in these independent contractors. On-demand employees represent a huge and growing wave of people who now operate as free agents, with the freedom and flexibility — and often instability — that’s part of life without a corporate parent. In fact, Intuit has somewhat famously predicted that fully 40 percent of U.S. workers will be “contingent” workers by 2020.
Patricia Nakache, a general partner at Trinity Ventures who has led deals in on-demand companies, including Eat Club, calls 1099, or contract, workers part of a generational shift. “Millennials are much less receptive to the monolithic education or work-experience notion that, ‘I’m going to have this job with a single company for 10 or 12 years or take all my classes from one-four year institution,’” she says. “They’re really beginning to question the boundaries of those experiences.”
And VCs have begun meeting with companies that cater to them.
For example, Homebrew cofounder Satya Patel points to several companies that hope to serve the most immediate needs of contract workers — which, in most cases, is frequent and steady work. Peers, for one, a San Francisco-based, still-in-beta startup launched by RelayRides founder Shelby Clark, wants to make it easier for people to find, compare and manage on-demand work opportunities. (It also points them to tax, financial and legal resources.) Kung Fu, an eight-month-old San Francisco-based company, is similarly building a platform to help people earn income based on their location and skills.
“I definitely think there is a major opportunity” here, says Patel.
Nakache is meanwhile seeing more startups approach contract workers from specific service angles. One such group are applicant tracking systems startups that — unlike predecessors catering to larger companies — are designed for batch processing. OnBoardIQ, an eight-month-old, San Francisco-based outfit, is among the newest startups trying to streamline the process hiring hundreds of people quickly. Playbook HR, a 10-month-old, San Francisco-based company, also began life as an applicant tracking system (though, sorry investors, Intuit acquired it in March).
According to Nakache, WorkPop, a year-old, L.A.-based company that’s been building a marketplace for hourly workers to find food and retail jobs (and which Trinity has backed), is beginning to eye the category, too.
A separate group of companies has sprung up around background checks. One of them is year-old, San Francisco-based CheckR; another is three-year-old, London-based Onfido. While background checks are nothing new, the industry hasn’t traditionally needed to act quickly or process large numbers of people at once; meanwhile, newer companies are only too happy to do both, even if their predecessors aren’t readily ceding the territory. (Uber, the ride-hailing company, uses Hirease, a 13-year-old, Southern Pines, N.C.-based company, to vet its drivers. Competitor Lyft similarly uses a more established company, 40-year-old, New York-based SterlingBackcheck.)
Yet there are other types of companies catering to the specific needs of contract workers.
Don’t be surprised to see more shift-planning startups like five-year-old, San Francisco-based ShiftPlanning and four-year-old When I Work in St. Paul, Mn.
Payroll startups that make it easier for contractors to get paid are also springing up, from four-year-old ZenPayroll in San Francisco, to 1.5-year-old Tiempo in Sunnyvale, Ca.
Of course, healthcare — which most contract workers don’t receive from their employers — may represent the biggest opportunity of all. Among the startups beginning to eye the space: two-year-old, San Francisco-based Stride Health, a health insurance recommendation engine that’s targeting the needs of small businesses and sees 1099 workers as a potential source of business.
There are so many startups beginning to target 1099 workers, in fact, that Nakache says Trinity has yet to pull the trigger on a related investment. She doesn’t expect it will be long, though.
“We haven’t found quite the right fit for the stage at which we invest,” she says. “But it’s safe to say that we’re actively looking and actively engaged in the sector. We have a lot of companies on our radar screen.”
Kraken is a young, 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.
We recently 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.’
Mapsense, a 12-person, San Francisco-based company that’s been quietly producing map analytics tools for corporate customers, is today revealing that it has raised $2.1 million in funding led by General Catalyst Partners, with participation from Redpoint Ventures, Formation 8 and Amplify. LA.
The announcement is interesting for a few reasons, starting with what Mapsense is at its core: a modern API for geo data visualizations. Indeed, according to the company, it can cater to any customer wanting to make better sense of the many billions of location-based data points being streamed constantly from a wide variety of sources, including smartphones, connected cars, cheap satellites, commercial drones and smart grids, to name a few.
Mapsense co-founder and CEO Erez Cohen puts it in perspective, noting that “there was more location data produced in 2014 than in all of time until then.”
Mapsense counts as customers, for example, two publicly traded credit card companies that respectively see 10 percent and 50 percent of the transaction data in the U.S. While they’re (hopefully) mindful of using the data they collect in a responsible way, Mapsense is helping them help their customers. For instance, they can show restaurateurs what people are paying for Thai food in certain neighborhoods, and how their competitors down the street fared last Tuesday (and how they fared the next town over, and around the country, if they really want to know).
Others of Mapsense’s customers include mobile ad companies looking to better target potential customers.
Obviously, Mapsense is well-timed, particularly given growing corporate interest in mapping technologies. (Nokia’s mapping division has become a particularly hot commodity of late.)
Starting today, Mapsense — which charges its enterprise customers a yearly average of “six figures” based on the amount of data they push to Mapsense — is also hoping to sell its analytics tools to developers.
They won’t be paying as much to use Mapsense’s technology, but it’s a way to accelerate its growth, says Cohen, who adds that anyone can upload their data for free if they’re willing to make it public.
Worth flagging, particularly for StrictlyVC readers: Mapsense is announcing its newest funding today but actually sealed up the round a year ago. (It has raised $2.5 million to date.)
Cohen – a former Palantir Technologies engineer – insists the company’s funding announcement has nothing to do with its future fundraising plans. But if it did, Mapsense would be among a growing number of companies to go public with their funding just as they begin looking to the next round.
(By the way, here’s a rough video demonstration of how Mapsense’s technology works.)
At a StrictlyVC event in San Francisco last week, Charles Hudson of SoftTech VC sat down with Sequoia Capital partner Bryan Schreier and Marco Zappacosta to discuss Thumbtack, an online marketplace for hiring workers that Zappacosta co-founded soon after graduating from Columbia University in 2007.
Thumbtack is interesting for numerous reasons, including the amount of funding it has raised — $148 million over three rounds, all within a 14-month period – and who its investors are. Sequoia is among them (Schreier sits on Thumbtack’s board). So is Google, which provided Thumbtack with $100 million last summer – and, the business world recently learned, is now entering into direct competition with Thumbtack.
Hudson, who spends much of his time studying marketplaces, asked Zappacosta and Schreier – a former Googler – about their “multifaceted” relationship with Google, among other things. That conversation, edited for length, follows:
CH: How did Sequoia and Thumbtack come together?
MZ: Jason Calacanis introduced us to [Sequoia partner] Roelof Botha and another angel investor introduced us to Bryan. It was the fall of 2010. Unlike a lot of VCs, they were very explicit about what they thought was good and wasn’t yet good. When we [later] went back with numbers to show them [how we were growing], they did [write a check].
CH: Many marketplaces sit in between the buyer and seller, but Marco, you’ve taken the opposite stance. Why?
MZ: A lot of entrepreneurs and investors view the transactional model as a way to get a higher take rate. The problem in doing that is you’re solving your own problem; you’re not actually solving the customers’ problem at that point. There are times when you fundamentally [need to act as the facilitator]. Taking payment is key to making eBay work. It’s key to Uber, where speed is fundamental. But with Thumbtack, when a customer is spending $3,000 to repaint their house and you ask them what the hard part is, no one ever tells you it’s about paying the painter. It’s about finding the painter, and that’s the focus at Thumbtack. [Editor’s note: Thumbtack sends customer requests to service providers like plumbers, caterers, and painters. If the service provider thinks it’s a fit, they pay Thumbtack a fee to shoot a quote to the customer, who then chooses whether or not to work with that service provider.]
CH: Is leakage –people going off platform to have a direct relationship – something you’ve ever worried about?
MZ: If you haven’t created enough value for both sides to keep using your platform, that’s your problem.
CH: [Tell us about your fees.]
MZ: We’ve explicitly kept [them] very low — much lower than we think it could be. If you look at other marketplaces like Airbnb, it’s 10 to 12 percent. Uber is now 18 to 20 percent. eBay is like 13 percent. We’re below that and happily because our goal is to get market share. Today we move a billion dollars worth of commerce on the platform, which we feel good about, but that’s still nothing relative to the almost trillion dollars worth of commerce happening in the US. That’s the thousand x [opportunity] in front of us.
CH: You recently raised $100 million from Google Capital. Google has also made some reference that they have designs on the home services market.
MZ: I have to give Bryan credit for board member words of encouragement when this happened, which is that if Google or Facebook or Amazon aren’t competing in your market, then you’re probably in a shitty market. And I think he’s exactly right.
BS: You felt better for like three seconds, right?
MZ: [Laughs.] It’s indicative of the opportunity being enormous. I don’t perceive any sort of nefarious action on the part of Google Capital. I think it’s unfortunate. It’s a 50,000 to 60,000 person organization, but it’s why we’ve kept them at arm’s length. We’re excited to have them as investors, but we’ve been careful of that relationship accordingly.
BS: Thumbtack connects people to people; they don’t connect companies. They don’t connect ads to people. It’s a very different business, with people on both sides who have an intimate relationship. This is something that Google has never been very good at. [It isn’t] intrinsic to their DNA.
MZ: The opportunity and the challenge in this space is just how fragmented it is. There’s no natural point of aggregation as there is in retailing, where you can go to a distributor and instantly get access to 30 or 40 percent of the inventory in that category. So Google and Amazon — despite their money and brands and hard working employees — have to go out and recruit these plumbers and caterers one by one, and that’s a fucking grind, one that we’re real good at, and one we’ve done without any salespeople and with a lot of technology and innovation.
CH: How do you think about Amazon given its reach and scale and financial resources?
BS: They still suffer from that corporate DNA issue, which is that they send packages to people, not people to people. And it’s very different. You have to get people on the phone when they’re fixing a toilet and really don’t want to be bothered.
CH: You raised two fairly large rounds back to back. Why?
MZ: The truth, at the end of the day: it’s because you can. We didn’t need the money. The business is growing great and generating very real revenue. These rounds in happen in quick succession and in ever-growing numbers because companies . . . [in a big space and with a big vision] . . . can.