• Pantera Capital’s Dan Morehead on the Future of Bitcoin

    17639963136_8b2c64b746_mAt a StrictlyVC event in San Francisco last week, Dan Morehead, founder of the San Francisco-based hedge fund Pantera Capital, sat down with seed investor and venture advisor Semil Shah to talk Bitcoin.

    Morehead knows Bitcoin as well as anyone. After logging time at Deutsche Bank and Goldman Sachs, then joining Tiger Management, where he rose to the head of global macro trading, Morehead founded Pantera, a 12-year-old outfit that has more recently committed to investing exclusively in Bitcoin and other digital currencies. We wanted to know why — as did Shah — so Shah asked him. Parts of their discussion follow, edited for length.

    SS: There was exuberance over Bitcoin, then not, and now it’s coming back. What’s going on?

    DM: Every technology goes through a hype cycle, where there’s a kernel of truth or a kernel of genius, and once the media catches it, it [captures everyone’s imagination] for a while. Then there’s an awkward period. And Bitcoin went through that. [But] it was more extreme because it has one unique feature. It’s a technology protocol that has a real time price feed. And that’s really, really weird.

    In 2011, no one really cared. By 2013, everyone had [that price feed] on their screens and the press was talking about it, and it led to extreme bubbles [including in Bitcoin mining]. At the end of 2013, the price of Bitcoin was 93 times higher than it was the year before. Bitcoin improves all the time, but it wasn’t 93 times better, so a bubble . . . had to deflate.

    SS: Was it rational for Bitcoin’s price volatilty to affect venture investment in the technology?

    DM: I think people did get over their skis in 2013, thinking it was going to change the world overnight. It’s going to change the world, but it’s going to take a couple decades to do it, as other Internet protocols [have taken].

    One data point about Bitcoin: All the companies in the Bitcoin ecosystem are worth just over $3 billion today. All the Bitcoin that exist are about worth that right now. So you have a ratio of about 1:1. Meanwhile, in talking about the U.S. equity market or the developed company space, the market cap of all the companies in the U.S. is worth five times the value of money supply. So I think you’re going to see a persistent trend of value venture in Bitcoin increasing at a faster pace than the underlying currency or protocol.

    SS: Numerous traditional VCs have made bets on seed- and early-stage Bitcoin companies, but it seems like these bets will take longer [than expected] to play out. Will they have to continue supporting these companies, or will other investors come down the stack?

    DM: It’s certainly taking longer than some people expected a few years ago. But you’re seeing [an influx] of investors. Last month, Circle [Internet Financial] did a round with Goldman Sachs, which was the first major international bank to invest. So not only are you getting the traditional venture investors, but you’re getting strategic investors like big banks and big exchanges trying to get invested in the Bitcoin space.

    SS: You understand Wall Street. How does it perceive Bitcoin, both as a currency and as a technology platform?

    DM: I think most of Wall Street realizes that the systems that move money are incredibly antiquated and incredibly inefficient. Most of them were designed in the 1950s. The main thing for wiring money – SWIFT – is basically sending messages and it’s very primitive and can be disrupted by Bitcoin very easily, and most banks would like to see that happen.

    SS: How would that affect big banks’ fees and the way they make money?

    DM: I think too much was made in the early days of [Bitcoin’s ability] to disrupt banks. A lot of banks now have retail stores – selling services to people. So they can still retain their relationship with the customer and then swap out the back end.

    Also, there are a small number of banks that do cross-border money movement; they’re called correspondent banks, and there’s really only a dozen or so that control an entire market. An extreme example is Africa, where, if you want to move money into or out of the entire continent, there are only two banks that will do it and other banks need to use those two banks and it’s very expensive. So banks want a cheaper way to get money in and out of places like that.

    SS: What is happening in Bitcoin in the rest of the world outside the West, especially where rule of law is weak?

    DM: In mobile money, Kenya is actually the world leader. Southern Africa has weak institutions and currencies that deflate at a rapid rate; Zimbabwe is the world record holder with a 100 trillion dollar note now. So their citizens need a better solution to transact.

    They also are unbanked [along with billions] of other people on earth that don’t have access to a bank but do have a cellphone, and going straight to some mobile money solution — bitcoin is a great solution for that. Already, 75 percent of adults in Kenya use a mobile system called M-Pesa. In fact, 45 percent of the entire GDP of the country is processed in M-Pesa. To me, that’s the future of bitcoin.

    (If you’d like to hear more from this discussion, you can listen to it in its entirety here.)

    Connie

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  • Quick Chat with Kevin Talbot of Relay Ventures

    Kevin TalbotIn recent years, Relay Ventures, a nine-year-old, early-stage venture firm that once operated as BlackBerry Partners Fund, has been organizing one of the more thought-provoking events for investors: a half-day, invite-only affair in Mountain View, Ca., called Strictly Mobile.

    The event, like Relay Ventures itself, focuses solely on mobile software and services, and though we couldn’t make it this year, we caught up with firm cofounder Kevin Talbot recently to talk about what we missed. Invariably, we also talked about what Relay is looking to fund these days. Here’s some of that chat, edited for length.

    You dropped everything but mobile back in 2008. That seems pretty prescient now, though presumably it’s also less of a differentiator.

    People kind of laughed at us and said, ‘It’s a category.’ Now, I’d be surprised if any VC firm hasn’t figured out that mobile is real, although if you look across the board, you’ll still see just one or two partners at each firm who focuses on it, which surprises me.

    Given that “mobile” is now so ubiquitous, how do you narrow your areas of focus?

    We’ve been focusing on four verticals: healthcare, education, commerce and the consumer. If you pick any one, you see a huge amount of disruption, whether in the form of payments, in commerce; or the digitization of education – which is really the democratization of education; or the consumerization of healthcare, with all these new sensors and tools that are altering whole healthcare systems and turning doctors into white collar workers.

    We remember your early investment in Scanadu [a four-year-old company whose first medical device for home use measures temperature, blood pressure and oxygen].

    We’re big supporters of Scanadu, whose [Series B, which closed last month] was oversubscribed. The company has really been at the forefront of citizen-driven healthcare. It also ushered in a whole new model of, how do you embrace the FDA rather than run away from it. That deal was also led by Tencent, which speaks to the strategy of more American startups that don’t look at marketing as something to be done sequentially, where you launch in the U.S. first, but rather as something that should be done in parallel.

    Have you backed any fitness-related mobile tech?

    We’re not all that interested in another tracker of a relatively unverifiable metric like step counting. We don’t think that’s changing the world.

    What are one of your newer ed tech investments? 

    We’re excited about Galxyz, an iPad app that invites kids to solve puzzles and put the world back together while teaching them scientific content; it sees educators and game designers working side by side and was founded by Osman Rashid, who also founded [the publicly traded textbook rental service] Chegg and [the e-learning startup] Kno [which was acquired by Intel in 2013].

    You also mentioned the consumer. Are you focused on the so-called Internet of Things? 

    We think the Internet of Things is in an exciting phase that’s a bit like the Wild West. It’s all very fun and interesting, like the Oral B toothbrush that connects to your smartphone. We’re less sure how you’re going to make money on a lot of these things. We’re more interested in the meta layers that will make the market useful and frictionless.

    What’s an example of a related company you’ve backed? 

    We haven’t yet found it, but that’s what we’re looking for.

    Before you go, we have to ask: Thumbs up or down for the Apple Watch?

    I think there will be very point-specific solutions that work. But also, as I stare [at my own Apple Watch], I’m reminded of the bottom drawer of my desk, which is a graveyard of tech. There’s just about every fitness tracker in there; there’s Google Glass. There’s a lot of money sitting there. I still don’t know yet if the Apple Watch will stay on my wrist or [ultimately land] in the drawer.

    Are startups starting to pitch you on Apple Watch-related apps?

    No, but they are showing us the watch along with the smartphone app they’re pitching. Much of it won’t work on the wrist, but everyone has figured out that you have to have the watch picture beside the phone.

    Connie

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  • Fred Destin of Accel Partners on What’s Changing (Fast) in Europe

    ©2013 Jon Chomitz Photography 3 Prescott street, Somerville, MA 02143 www.chomitz.com jon@chomitz.com 617.625.6789

    Almost exactly a year ago, Belgian-born venture capitalist Fred Destin left his longtime post with Atlas Venture in Boston and joined Accel Partners in London. Last week, over a charcuterie board at a French cafe in San Francisco, Destin talked with StrictlyVC about the move, what the Accel team in London shares in common with their U.S. peers (and what they don’t), and the newest trend in European startup funding. Some of that chat, edited for length, follows.

    Accel London has been around since 2000 and closed a $475 million fund in 2013. 

    Yes, and started investing it in April of last year. The fund was raised with maybe a little bit of anticipation. Also, sometimes you meet no entrepreneurs you want to back, then you meet five at the same time, so our pace is always a little inconsistent.

    How big is the team?

    We have six seven partners, one VP, one principal, three associates. We have a habit of promoting from within. I’m a rare external hire.

    How closely tied are you to the team here in the U.S.?

    We run separate funds, but it’s the same brand and we have a fair amount of overlap [in terms of LPs], and I believe we have 18 coinvestments that come in a variety of flavors. Both funds had been looking at SaaS accounting for small businesses, and in the end, [New Zealand-based] Xero is the only company you want to back in this field – we think it can kill Intuit – so we [collectively] made a $100 million investment in the company. We’ve also co-invested in [the newly public online marketplace] Etsy and [the Australia-based collaboration software company] Atlassian. Sometimes, it’s European-born companies, too. When we backed World Remit, a remittance business, half of its $40 million Series A came from the U.S. and the other half came from London.

    What if you wanted more than 50 percent? Do you ever compete with the U.S. team? 

    I can’t really think of a case where we’ve  been competitive. They’re a really disciplined team on investments, and so are we. If we find something that we think is really great, we’ll say, hey, we can syndicate with Index [Ventures] or we can try to move all the money through the Accel partnership. [The U.S. firm] looks at [the deals] independently. But there are definite benefits [to partnering], as when we find a little gem like Showroomprive [a Paris-based online shopping giant that sells discounted clothes, cosmetics and household items]. It was bootstrapped and had got to quite a large size, and [my London colleague] Harry [Nelis] went to meet them and said, “We can write a single check. I’ll bring Palo Alto into it so you have one investor and one board member.” So we put in [roughly $47 million] in a single shot, with both funds contributing.

    Can you see a future where you won’t be Accel London but something else? DFJ and Benchmark obviously decided to reign in their brands at different points.

    You learn from what happens in the past. I’m not sure you can scale venture very well. Having general partners in London who effectively decide on what happens to the firm makes decision-making really simple.

    We’re also in close cooperation with Palo Alto to make sure we represent the brand in the same way.

    How institutionalized are your communications?

    The important decisions, like when to hold an annual LP meeting or when to fundraise, are discussed extensively between the groups, but the rest of our discussions are very organic and multithreaded. You don’t want to fight the natural order of things. We’re very careful about not sharing too much information about the companies we look at, but we definitely share expertise and views and kind of help each other be better.

    It helps when you have funds that are performing well and teams that are high quality. If one part of the organization was doing well and the other wasn’t, it might become more tense, but that’s not the case.

    There’ve been lots of reports out this year about Europe falling behind.

    I’m just back in Europe, and I’m amazed by the number of large successes being built. There were seven or eight billion-dollar-plus exits last year, including [the British property site] Zoopla [which went public last June] and [the online restaurant delivery company] JustEat [which went public in April 2014]. Our third fund has three [billion-dollar-plus] companies, including [streaming music service] Spotify, and guys like [ridesharing company] BlaBlaCar, World Remit, and [the online lending marketplace] Funding Circle are growing super fast.

    I used to be quite negative about the market,  but now we’re seeing companies achieving hyperscale and building value really quickly, and in the case of [our portfolio company, the online marketplace and Craigslist competitor] Wallapop, it’s even bringing the fight to the local guys [in the U.S.].

    But European entrepreneurs are often quick to note that their funding options remains fairly limited.

    The VC landscape remains quite weak. You have Index and Accel as the sort of leaders. You have Balderton [Capital], which has enjoyed a great reinvention-slash-turnaround [since parting ways with Benchmark]. Then you have some new managers, including Mosaic [Ventures] and Frederic Court [a longtime investor at Advent Venture Partners who is raising a new fund under the brand Felix Capital], and a bunch of micros VCs like Hoxton [Ventures]. But there are a bunch of funds that have exited or stopped fundraising — names that everybody knows aren’t going to make it.

    What’s happening, though, is that U.S firms and the “Tiger Cubs” are smelling blood, so we’re seeing Insight [Venture Partners], DST [Global], TCV, and some of these tech hedge funds all suddenly coming into Europe on a regular basis, and anything that scales they want to fund. It’s a huge factor right now. They’re hunting aggressively, writing big checks, and moving fast.

    And that’s purely good news? As you know, there’s a little angst here about the impact all their money is having on companies and their burn rates.

    In general, we love it because we finally have scaling capital. We just invested in Deliveroo, which is the European version of DoorDash. It’s growing like a weed, but a few years ago, we’d have had to scale organically or raise a small Series B. Now people are knocking at the door of companies that are scaling and saying: “Can we write a big check?” We’re like, finally, we’ll be able to build billion-dollar companies in less than 10 years – maybe in three to five years.

    The other big factor in Europe is Rocket Internet, which used to clone companies but they had no balance sheet. Since its IPO [last October], they have a balance sheet. And while I don’t know exactly how much cash they have, it’s probably a billion-plus [dollars] that they can use to invest, replicate and whatever else they do, and they’re the biggest VC in Europe. They force people to raise their game, because if you want to compete against Rocket, you have to know what they’re doing.

    Connie

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  • TPG Growth’s Bill McGlashan: We’re No Stranger to Startups

    Bill McGlashanBill McGlashan would like you to know something. TPG Growth is no newcomer to startups. The 45-person group that McGlashan leads within 22-year-old TPG Capital hasn’t just been writing checks to startups since 1999, but it has incubated a number of companies, too (including, last year, the film studio STX Entertainment). “I think there’s been a lot of noise lately about PE getting into growth investments, which is a function of absolute check sizes getting so large . . .. but [investing in privately held companies] is part of what we do and have done for a very long time. This isn’t private equity now doing growth. This is what we’ve always done.”

    We talked Wednesday with McGlashan about how TPG Growth works, why the typically private firm is talking with the press suddenly, and how it plans to invest the giant, $3 billion fund it announced earlier this week. Our chat has been edited for length.

    How old is TPG Growth, how many funds has it raised, and how does it differentiate itself from the broader company?

    We raised a $500 million venture fund in 1999. It was one of the largest-ever first time funds and the team went happily off to do VC, which seemed like a good idea in 1999. In 2000, which is when the fund actually closed, things were obviously challenging from a macro perspective. So I came aboard in 2003 to rethink the strategy. With the second half of that fund, we took a different approach [that was more integrated with the rest of the firm], and we’ve maintained it through three subsequent growth funds.

    [Ed: Those are a $1.2 billion fund, which McGlashan says has “about a 25 percent” gross IRR and “19 percent net IRR”; a second, $2 billion fund that he says has a 60 percent gross IRR and net IRR of 40 percent, and the firm’s newest, $3 billion fund.]

    What’s your overarching approach? 

    We want to do investments where our $67 billion platform can be a uniquely compelling partner in delivering growth, and that can mean different things depending on the industry and stage of the business and the nature of the company . . . so we’re agnostic about sectors and geographies. The problem with consumer funds or geography-specific funds is that everything a hammer sees is a nail, and we couldn’t do what we do if we had hammer/nail syndrome.

    How many companies a year do you fund, and who works in your group? Can you describe the hierarchy for us?

    We [typically fund] 10 or 15 companies a year where we can [accelerate the business]… There are nine partners in the group and each [focuses on] a combination of sector and geography. We also have a range of senior advisors that can be deeply involved. Then we have principals, VPs, associates, [as well as access to a] whole, 90-person operating team [at TPG], whose head of human capital [Fred Paulenich] was [senior VP of HR] at Walmart and Levi Strauss [previously].

    So when we go into a company like [famed guitar maker] Fender [in which TPG Growth took a majority stake in early 2013], we’re fixing the core business, including improving the sales organization, but we’re also embarking on a digital strategy, thinking of e-learning and collaboration, and focusing on direct-to-consumer engagement. Even though it’s a $700 million revenue business, it doesn’t have leadership that could go on this journey alone, so we can plug in people who can accelerate that change, and we do the same with all our companies.

    Who makes the ultimate decisions on these investments?

    There about about 30 partners across TPG and 8 managing partners [and from that group] there’s an investment committee [that includes members of TPG Growth]. We don’t have several wizards who are pushing a red or green button. [Firm cofounders David] Bonderman and [James] Coulter and other senior partners are [involved in all the] decisions. It’s important because if you’re an entrepreneur and we’re investing $50 million, we want you to know the firm cares as much about your company as it does with a $1 billion investment.

    How long does it take for a yes or no?

    We don’t make bets, write a check and hope it all works out. We’re signing up for being held accountable as a partner who will deliver value, and that takes real time. There are [some deals] when we move quickly and get deals done in a month. Sometimes, we spend six months getting to know each other. Time isn’t usually the gating issue. We do real work. It can’t happen with a tummy rub.

    You have investments all over the map. Do you have any idea where in the world you’ll be committing this new capital?

    [Our first growth fund] was 60 percent developed world, 40 percent emerging market. Our last fund was more like 80/20. Rough justice, [our new fund will be] 70/30, but we’re careful not to settle on allocation targets. We’re truly global, with investments in Brazil, Indonesia, Africa, Turkey, China; we have a tower company in Myanmar that’s growing like a weed.

    Some of those places are obviously frothier than others. China, for example, seems dangerous from this distance.

    We’ve not invested in China in the last three years because we felt valuations were very challenging with all these R&D funds and local funds and angels and super angels. We just felt that valuations, married to the fundamental risks in that market, didn’t make sense. But we did just approve our first deal recently; we’ve found that there’s been a valuation reset in certain sectors.

    What about private company valuations here in the U.S.? Plenty of people have grown concerned about those, too, particularly given how few companies are going public.

    Overall, what entrepreneurs have been able to do is trade an IPO for private financing, and that offers real advantages to building these businesses. I don’t think that’s going away, by the way. I think that public-private confluence we’re seeing is probably here to stay.

    As for valuations, some of these are great companies, like [our portfolio companies] Airbnb, Uber, Domo, and SurveyMonkey, which we recently exited. There are others – you can imagine that we’ve seen them all – that we’ve passed on.

    You sold your stake in SurveyMonkey? Are you doing much secondary selling? Have you sold any of your shares in Uber or Airbnb?

    It’s a deal-by-deal, case-by-case basis. Honestly, with SurveyMonkey, it wasn’t a case of the company not doing well. It was their strategy to do a series of refinancings and there was tremendous interest because the company is so [fast-growing] and fundamentally profitable that they can generate strong, ongoing yield for new investors. We weren’t looking for a 25 percent annual return.

    We have not sold Airbnb or Uber. The fundamental growth in those businesses is incredible.

    Connie

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  • Need a Breather? This VC is Hoping So

    1c44283.how-iphone-spacesThis week, StrictlyVC chatted with Steve Schlafman, a principal with RRE Ventures in New York who spends a fair amount of his time considering on-demand startup models. Among the deals he has led for RRE are Managed by Q, a 1.5-year-old, New York-based company that provides office cleaning and services like restocking to small businesses; and Shuddle, a year-old company in San Francisco that employs women to shuttle around children on behalf of their busy parents. (The proposed promise: the ride is safer than an Uber.)

    Along with Vayner/RSE, Schlafman also led a $6 million Series A last September in Breather, a company that provides on-demand rooms in cities so that visitors can pop in to relax with friends, finish a speech, or maybe make some calls that would be harder to execute from a crowded coffee shop.

    It may be Schlafman’s boldest, and riskiest, bet. Getting enough repeatable business to make profitable use of Breather’s rooms — which the company leases — would seem to be an enormous challenge. Breather also operates in a crowded sector with more than a handful of competitors, including LiquidSpace, which also invites users to find and book private spaces to rent by the hour, day or longer. (It has raised more than $26 million, including from Shasta Ventures, Floodgate and Greylock Partners.)

    Schlafman, who says Breather might look for capital later this year, isn’t concerned, telling us that it’s all in the execution. Here’s more from our chat, edited for length.

    You call Breather the craziest idea you’d ever seen, yet you invested anyway. Why?

    I became a user, and they’ve just completely nailed the experience of creating a fourth space. Think about it. For a long time, people had their home space and work space and there wasn’t much in between. Then along came Starbucks and cafes and public spaces that had multifunctional uses, but we believe that people need another space, so when you’re in [San Francisco’s] SOMA [neighborhood], for example, and you have two hours, you can pull out your phone, book a room, and have a business meeting or [quietly decompress].

    A lot of startups now offer people an alternative to Starbucks.

    A lot of companies are focused on coworking on demand, including LiquidSpace, PivotDesk and WeWork; they’re very much catering to a business user. Breather is building a tightly controlled experience that’s aesthetically pleasing. You can sell to a business user or a consumer.

    How many rooms does it currently offer users?

    It has 60 spaces right now – something like 15 in San Francisco, almost 40 in New York. The company just opened in Boston, too. What’s nice is that as soon as they put a space on the map, it gets to breakeven. What I love about [cofounder and CEO] Julien [Smith] is that he’s scrappy. He isn’t a Silicon Valley-type operator in a tweed jacket. He’s a child of the Internet who believes in testing, including when it comes to developing relationships with landlords. I’m not sure he’d want me to spill the beans, but he’s looking at asset-light models where Breather isn’t necessarily taking on the lease.

    How many people are these rooms supposed to accommodate?

    These are fairly small rooms, with a couch and a desk and a conference table with chairs and WiFi, and you can fit 5 to 10 people in them, which is great as companies can use it for overflow space or small offsite events, instead of spending a sh_tload of money on a hotel. It’s hard to wrap your head around the concept, but once you use one, you get it.

    That’s a big challenge, though, getting people to think about heading somewhere new. I’d also think establishing repeatable business would be tricky. How is the company juggling that?

    They’ll be introducing a smart pricing algorithm, so that not every hour is created equally. [It’ll be] upwards of $35 to $40 an hour during peak times. You’ll also be able to unlock certain services eventually. In the meantime, based on early cohorts, the payback is very fast on our marketing spend.

    How does Breather ensure that there’s nothing funky going on in these rooms?

    Trust is a huge factor. Every single time a room is cleaned – and we partner with a well-known cleaning service right now — there are reviews coming from the cleaning side, as well as from [the next] consumer.

    Will the spaces always run on the smaller side?

    That’s where we think there’s a good opportunity to build a completely new category. The idea is to have a breather in every city in the world. Will that happen in the next year or two? I don’t know, but once I tried it, I was sold.

    (Readers: We’ll be talking with Schlafman and other investors about the fast-changing on-demand economy next month in San Francisco.)

    Connie

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  • One of Craigslist’s Biggest Threats to Date: VarageSale

    VarageSaleIt’s accepted wisdom that nothing and no one can destroy Craiglist, the San Francisco-based local classifieds marketplace whose success has continued unhampered for roughly 20 years, despite many newer entrants with far snazzier technologies.

    VarageSale might just be different. At least, the 50-person, Toronto-based outfit is gaining enough traction that last month, Sequoia Capital and Lightspeed Venture Partners sank $34 million into its operations.

    What makes the startup, which claims to have millions of users, so promising? A few things, according to cofounder Carl Mercier, who sold an antispam company to security-software maker Websense in 2009 and founded VarageSale with his wife, Tami Zuckerman, in 2012. For starters, users have to be accepted onto the platform by volunteer moderators in the many communities in which VarageSale now operates. (The company has quietly spread to cities in 42 states and in every Canadian province.)

    As key, seemingly, the conversations that happen behind the scenes between Craigslist users — the harried “I’ll take it!” emails, along with the privately asked questions and price haggling — are instead displayed in Twitter-like feeds at VarageSale. It helps build interest in users’ items, suggests Mercier; it also builds community.

    We talked with Mercier this week. Our conversation has been edited for length.

    You say VarageSale has millions of users. Is that single-digit millions? And how many items are selling on the platform each month or year?

    We have millions of users who view billions of items of month. For competitive reasons, we’d rather not be more specific. But 50 percent of our mobile users open the app every day, which is very unusual for a commerce app.

    What are they returning to check out?

    Typically people are coming to the site for information about a specific category they’re following — like clothes for a two-year-old boy, or smartphones. They also come back all the time because they want to make sure they don’t miss that treasure, or because they posted an item and there are 10 people who’ve expressed an interest in it.

    Do you do anything to slow the pace of transactions to foster those conversations? It’s interesting that people don’t just sell to the first interested party.

    It’s more akin to people putting their towel on a beach chair at 6 a.m to reserve it. Maybe the first person to express an interest [lands the item], but once they ask a question, then we see other people become interested — sometimes tens of them.

    You don’t enable people to transact through the site, though. Like Craigslist, that happens offline. Might that change?

    We really want to focus on building up our local communities right now — growing our user base and coverage. That’s where we feel like we’ll have the biggest impact.

    I’d read about VarageSale meet-ups. How do most people come together?

    It really depends on the people and the communities. Sometimes people meet in a parking lot or at their house; sometimes, our moderators organize events every one or two weeks.

    Given your emphasis on community, VarageSale sounds like a hybrid of a number of things, including Craigslist and NextDoor. Maybe even Airbnb? Are people selling home items alone, or are you starting to see other things, like neighbors alerting others to their available in-law unit?

    Hah, no. Airbnb is really good at that. Some people are renting properties [on the platform], but we mostly focus on physical goods.

    You’ve just raised a lot of money. Is this an employee-intensive business? How will you use the capital?

    Building strong communities isn’t something that we can just press a button and it happens. It’s definitely hard work that involves a lot of human intervention. We probably won’t be hiring 1,000 people, but we think we’ll add 30 to 40 employees in the next year. We already have a small presence in Europe, Australia, and Japan that we’re growing.

    Will your eventual business model center on transaction fees? Local advertising?

    Revenue isn’t a priority for us. We want to focus on improving user experience and we have great partners [in our venture investors]. With the money we now have in the bank, we have runway for a few years.

    Connie

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  • First Data Waves Its Flag in Silicon Valley

    first-data-logoSoon after Frank Bisignano joined the payment processing giant First Data as CEO two years ago, Bisignano — who was formerly co-chief operating officer of JPMorgan Chase — set his sights on beefing up the company’s corporate venture firm. Among his first steps: appointing Pete Donat, a longtime VP at First Data (and a VP at both Visa and MasterCard before that), to lead a four-person team that now assesses startups and alerts different unit heads within the 23,000-person company to technologies that might benefit them.

    “Frank really wanted to put extra emphasis on innovation in Silicon Valley,” says Donat, “so we hired a team out here, and we’ve been increasingly active over the last year.”

    “Active” is somewhat subjective. The team saw 300 companies last year and invested in six – not exactly the blistering pace one might expect from the company, which has been owned by KKR since 2007.

    Then again, First Data — which has struggled to find new areas of growth in recent years — is in the middle of a turnaround that involved a $3.5 billion private placement in the company last year, including more capital from KKR.

    Some of the capital freed by that investment is now streaming into startups that the company hopes will help it develop more products. Among them is Booker, a four-year-old, New York-based online booking platform that helps small businesses sell their services online. “It’s a really cool company with lots of great potential and synergies that fit with First Data and our merchant clients,” says Donat. (First Data participated in Booker’s $35 million Series C round last month.)

    That private placement should also help First Data when it comes to acquisitions, which are clearly of interest to the company. Over the last two-and-a-half years, First Data has acquired three startups: the cloud-based payment software developer Clover Network; Perka, a digital rewards-program designer; and the mobile-gift-card company Gyft. It also created Insightics, a business unit it developed with the analytics company Palantir Technologies to glean more insights into customer spending from its merchant customers’ credit-card records.

    As for startups looking to get on First Data’s radar, approaching as a partner seems to be the best course. Donat says his team finds most of its investment opportunities from people who “knock on our door and say, ‘I need one of your capabilities.’” When the team does “go outbound,” he continues, “we go out with a short shopping list and the likelihood of a us doing a deal goes up.”

    Asked if his group might adjust its pace to invest more actively, Donat says 2015 might see “slightly” more deals from the group, but that he doesn’t expect things to “change dramatically. Once we [back] a deal, we want to ensure that we’re supporting that company. We probably overinvest in the amount of time we spend, helping [founders use First Data] to grow their revenue.”

    Either way, Donat notes, First Data is “very committed” to its venture arm and “very committed to growing its presence in the Bay Area.”

    Indeed, he says that when he opened First Data’s office in Palo Alto in early 2013, there were three people in the office. Today, he says, between Gyft, Clover, Insightics, and a separate digital commerce unit, the office is home to more than 100 employees.

    Connie

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  • A VC Adds a Thesis: “Wrist First”

    Peter RelanPeter Relan, a veteran of Hewlett-Packard and Oracle, has spent the last decade nurturing young companies at his YouWeb incubator in Mountain View, Ca. At first, he focused on mobile social gaming companies, investing $2 million across a variety of startups and enjoying at least one big hit when OpenFeint, a social gaming network, was acquired in 2011 by the Japan-based Internet media company Gree for $104 million.

    In 2013, Relan began raising a separate $10 million from wealthy individuals for a program within YouWeb called 9+, an incubator and accelerator that focuses on marketplaces, wearables, and so-called Internet of Things technologies.

    A number of highly promising companies are again emerging from the outfit, insists Relan, including the online video gaming company Hammer & Chisel, launched by OpenFeint founder Jason Citron. (It has raised $12 million in funding from 9+, IDG Ventures, Accel Partners, Benchmark, and Tencent.)

    Relan also points to GotIt, a seed-funded photo-based on-demand marketplace that’s begun talking with investors about a Series A, and the “connected kitchen” startup Camellia Labs, founded by former Salesforce senior engineering manager Guarav Chawla. (“Everybody in Silicon Valley who’s in the design business is stumbling over themselves, trying to be the product design shop for [Chawla],” says Relan.)

    Still, what’s capturing much of Relan’s attention these days, he says, are “wrist-first” technologies — apps developed expressly for smartwatches, which he expects will represent a huge opportunity over the next couple of years as the Apple Watch streams into the marketplace.

    One of his bets, for example, is on a nascent company called Awear, whose app enables users to send and receive SMS messages with a couple of clicks. It doesn’t sound terribly revolutionary, but it represents a “10x” leap in terms of speed, says Relan, who notes that it’s a lot easier to tap a watch than “fish a phone out of your pocket or handbag, then unlock it, open the right app, and respond.” (Awear first launched on the Pebble smartwatch and 10 percent of Pebble customers have downloaded the app, says Relan.)

    Relan thinks the possibilities extend far beyond communications, too. “Think of games that are easy to play in one or two clicks. Or the B2B app that notifies an executive that he received 400 orders during an important meeting. Or an app that can deliver an EKG to your doctor with the tap of a button.”

    Smartwatches may have low computing power, he notes, but smartwatches combined with the power of the cloud begin to look pretty compelling.

    More, says Relan, he has seen this movie before.

    “When the iPhone was just being introduced [and we began focusing on mobile social gaming], the hard-core gamers laughed at us. They said, ‘[The phone] is tiny. It has no keyboard, no controls.’ But I said it would be 10 times more convenient to play, and now mobile social gaming is multibillion-dollar industry.”

    “Whenever a new platform succeeds, it’s because it improves [on the status quo] by at least a factor of 10,” Relan continues. The Apple Watch might not be 10 times better than the smartphone, but he fully expects it to let users do things 10 times faster — and that’s enough to get him excited about what’s next.

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    Connie

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  • In a Heated Market, a Secondaries Player Casts a Wide Net

    world_600wWhen Manhattan Venture Partners publicly launched last month, the merchant bank joined a growing number of players who are matching investors with startups that are in no apparent rush to go public.

    Talking recently with StrictlyVC, plugged-in investor and AngelList cofounder Naval Ravikant opined that it’s “possible that the amount of secondary trading going on in Silicon Valley under the covers is going to match the amount of primary financing soon” as household names like Uber and Airbnb and Dropbox move more slowly than expected toward IPOs.

    Perhaps it’s no wonder then that Manhattan Venture Partners is casting its net far beyond the Bay Area. Last week, we talked with the firm’s cofounder, Jared Carmel, and its chief economist, Max Wolff, about which markets, exactly, the new outfit is chasing.

    Most of the so-called unicorns are headquartered — broadly speaking – in Silicon Valley. But you’re also looking elsewhere. Why?

    JC: We’ve expanded overseas because we’re starting to see demand for what we do from [India-based] Flipkart and [China-based] Xiaomi and the like. Those companies aren’t current customers, but [the China-based e-commerce giant] Alibaba was one of the big positions we took last year. We had a significant amount of shares that came from an executive last April, prior to its [September] IPO.

    MW: We see the center of gravity in pre-IPO tech companies beginning to drift both south and east from the U.S., which is pretty consistent in terms of the global economy as it drifts more toward the global south away from the U.S. and Europe. It’s much more advanced in the global macro sense than in the private company sense. Today and in the foreseeable future, Northern California will remain at the center of a lot of this activity. But right now, as large and aggressive as Uber’s [$40 billion] valuation is, it’s still $5 billion less than the valuation of Xiaomi, a handset maker that no one in the U.S. has really heard of outside of the business press. We’re at a moment historically where we’re living in the long shadow of the largest tech IPO ever – Alibaba, which, by the way, when we first began talking with people about it long ago, they thought was a [brand of] hummus.

    Culturally, are secondaries seen as an acceptable practice in China and elsewhere? Obviously, in the U.S., they were long stigmatized as a last resort for troubled companies.

    MW: There’s more acceptance of secondaries and more acceptance of high, late-stage valuations than at any time in the recent past. We’ve seen large [foreign] institutional investments into secondary shares really since Facebook, and given that many of those investors – who’ve also backed LinkedIn and Tesla and Twitter – made money, we’re seeing them come home and really start to introduce [secondary investments] to the whole market.

    JC: It’s still pretty new in the U.S., so it’s even newer in many countries, and I don’t think it’s as well-understood or accepted as in the U.S. But as we’re starting to see companies get into seven-plus years in their lifespan, they’re seeing that their best employees are heading off to other projects and companies and they’re beginning to understand that a secondary or liquidity program can also act as a retention tool.

    You’re also talking with U.S. companies. What are you seeing? What’s hot? What’s not in terms of institutional demand for secondary shares?

    JC: Games [companies] have really been in the doldrums, owing to private and public investments that didn’t necessary end well in recent years. Social is definitely deeply out of favor. Another sector that people are much less excited about are flash deal sites. Red hot: privacy and private messaging and driver logistics companies.

    Connie

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  • China’s Economy Has Hit the Skids; Why Haven’t Internet Investors Noticed?

    China-PBOCChina’s economic growth has slowed to a quarter-century low of 7.4 percent. You wouldn’t know it, though, looking at the gigantic rounds that China-based Internet companies are raising.

    Just this week, Apus Group, a six-month-old, Beijing-based Android app development firm, raised a whopping $100 million; Beibei.com, a nine-month-old, mother and baby-focused e-commerce site in Hangzhou, raised $100 million; and Meituan, a four-year-old group discount platform that’s headquartered in Beijing, pulled in $700 million. There was also that little announcement by the Chinese government late last week about the venture capital fund it’s establishing with $6.5 billion to support start-ups in emerging industries.

    The word “bubble” invariably comes to mind. But there’s something far different going on, insist those bullish about Chinese tech companies.

    Take Glenn Solomon, a managing director at the cross-border investment firm GGV Capital and a frequent visitor to China. Though he acknowledges that “China’s economic growth will inevitably slow as the law of large numbers takes effect,” he says two very different economies in China — old and new — explain the seeming disconnect between that slowing growth and all the money sloshing into tech startups.

    In China’s retail industry, for example, overexpansion has hurt large, established brick-and mortar-retailers who are seeing flat or slowing growth and retrenching. Meanwhile, Alibaba and other new e-commerce players are growing extremely rapidly, says Solomon, noting that “on the ground [in China], there are delivery trucks lining the streets.”

    That divergence is “pronounced and growing” across other industries, too, says Solomon. “Companies in the Xiaomi ecosystem focused on home automation are rapidly going direct to consumer, while traditional players in this area are seeing a slowdown.”

    Travel, mobile commerce, and companies whose apps aim to improve their users’ offline experience — among them the GGV-backed Tujia.com, a site similar to Airbnb that raised $100 million last June, and Didi Dache, a taxi app that closed on $700 million in December — are also trouncing weaker, traditional offline players, he says.

    Yet there are other reasons to rationalize those big investment rounds, suggests Michael Feldman, an independent consultant based in Hong Kong who advises on cross-border technology investments from China to Israel.

    Feldman notes that unlike, say, Facebook, which only recently began reaching into new businesses, the “tentacles” of China Internet giants like Tencent Holdings and Alibaba stretch into everything from car service apps to their own mobile payment services, including Tencent’s Tenpay, and Alibaba’s Alipay.

    That growing reach is a scary prospect to startups and would-be entrepreneurs. “In almost anything you do online, you could potentially be competing with them,” notes Feldman. But in their race to compete with one another, such behemoths have also grown more acquisitive than they used to be — creating once-scant M&A opportunities. “It used to be that they’d either copy your product or pay a team to join their company, then they’d destroy the competing company,” explains Feldman. “Now that they’re kind of globalizing, they’re beginning to behave differently.”

    China is also seeing its first generation of battle-tested tech entrepreneurs launch companies, which is emboldening investors to back them with big checks, notes Feldman. “Everyone knows the PayPal Mafia and Google Mafia and Facebook Mafia. China now has its own mafias,” including those to spin out of Alibaba, Tencent, Baidu and Xiaomi, among others.

    If that development is leading to some froth, Feldman, like Solomon, doesn’t seem terribly concerned. As in the U.S. and elsewhere, he suggests, China’s tech economy isn’t as closely tethered to the country’s broader economy as one might imagine.

    “Ultimately, it’s about the adoption of mobile,” Feldman says. “As in most of the world, it’s just totally changing society. At this point, the mobile revolution seems to be an unstoppable force.”

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    Connie

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