StrictlyVC, LLC

Six months ahead.

Startup

Sense, a New Sleep Tracker with a Kickstarter Campaign, Has Raised at Least $10.5 Million from Investors

SenseJames Proud, a former Thiel Fellow who sold his first company, is back with a new company and sleep-tracking product called Sense that’s “part-Nest thermostat, part-Fitbit,” as Forbes describes it.

In its original story, Forbes makes the company sound bootstrapped, saying Proud “seeded the company with earnings from selling his first startup,” and that the company’s “unmanufactured product” is now “subject to the whims of backers on Kickstarter,” where it launched a campaign this morning.

If that’s true it’s a little odd, given that Hello, the parent company of Sense, raised at least $10.5 million from 44 investors as part of an $18 million round back in January. So shows an SEC filing we’d stumbled across earlier this year.

Maybe the company used up that capital to develop the company’s slick prototype. Hello hasn’t yet responded to a request for more information this afternoon. [Update below.]

Even if it was short the $100,000 it needed to ship its product, it seems like it would have made sense to disclose the funding to Forbes. Instead, I did, asking the Forbes reporter in a tweet if the company was bootstrapped and sending him a link to its Form D. He later thanked me and updated the story, writing that “Forbes uncovered documents that Hello Inc. raised funds prior to launching its Kickstarter campaign. Details on that fundraising round have been included in the above story.”

Forbes added elsewhere that “Proud did not discuss Hello’s previous fundraising and was only willing to talk about Kickstarter.”

Forbes wasn’t the only outlet that didn’t report on Hello’s backing. The Verge, Buzzfeed, The Next Web, Ubergizmo and others to write about the device and its Kickstarter campaign, didn’t mention anything about it, either. TechCrunch meanwhile reported that Proud “didn’t disclose external venture funding, but you could assume there’s probably some significant round given that they’ve been working secretly on the product for about a year.”

For what it’s worth, I think it’s smart for venture-backed startups to test out their products on Kickstarter and other crowdfunding platforms. But if those companies want to turn to the public for support, they should be up front about their financing situations, both with reporters and with the people who might contribute to their campaigns.

Kickstarter may not insist on knowing about its customers’  balance sheets. (I’m still waiting to hear back from the company about whether publicly traded or venture-backed companies need to provide it — or campaign contributors —  with salient information about their financial picture.)

I happen to care, though. Maybe it isn’t sporting of me, but if a company is going to go to such great lengths to tell people its creation story, why leave out something so significant?

UPDATE: Last night, Proud wrote me on Twitter that “always when asked about funding, simply said we’re not talking about it right now, but acknowledged we had raised money.” He then added, “[T]oo many companies launch with a focus that *isn’t* product. I did not want that to be the case for us.” Kickstarter has also responded to my questions this morning, saying that neither venture-backed nor publicly traded companies need to provide disclosures to potential campaign donors.

More Startups Seek Out “Step-Up” Candidates, Hike Pay

step-up candidatesVenture capitalists poured $13 billion dollars into startups in the second quarter of this year, the most money they’ve parted with since the first quarter of 2001.

That wave of cash — part of a years-long buildup — is having a major impact on jobs. To better understand what’s going on with the high-tech employment market, we talked yesterday with Joe Riggione, cofounder of the executive recruiting firm True Capital. Our conversation has been edited for length.

What’s the latest and greatest in high-tech hiring?

We’re starting to see a lot of companies get fatigued in their [ongoing battle] to attract executives and keep them excited. There’s just so much noise. The number of VP of Marketing searches in the Valley right now is absurd, with everyone calling the same people. So people who are working a step below VP level are [becoming very attractive]. They maybe get a little less comp and a little less equity, but their incentive is the title and responsibility.

And there’s no shortage of good people at the director level from which to choose?

There are a lot of good senior directors or VPs of Product Marketing who right now report to the CMO, so there’s not a shortage, but it’s definitely competitive among search firms to find the best talent. A top-tier [venture] firm just retained us for about six months to make introductions to top product and marketing and CEO talent. It isn’t about specific opportunities . . . it’s about taking those people out for coffee.

Is there a danger that companies are promoting people into roles for which they’re not equipped?

Most of the time, these are people who’ve been with a company as it has scaled, so they might be at a director level but they’ve already run a team. Think of a director of product marketing at [the online storage company] Box or [the cloud telecom company] RingCentral. In many cases, these are people who work at companies that have already gone public or are about to, so it’s a much lower-risk hire than maybe a director who hasn’t led a team.

What other trends are you tracking right now?

The equity conversation is changing substantially; it’s moving from talk about percentages to value. Deals are more competitive than ever, and [recruits are better educated], so you can’t get away with a tricky cap table any more. Employees know the difference between 1 percent of a company that’s worth one thing and .75 percent of another company [that could prove to be more valuable].

Is it harder to hire people into growth companies whose shares are already richly priced?

Frankly, it’s easier than [recruiting at earlier-stage companies]. VCs are so well-networked that they know everybody already [to recruit into a young company]. When you’re in the growth-equity stage of things, they don’t, so it’s easier to get them excited about a good candidate versus [their] having a bias. They’re more open-minded.

How has compensation changed over the last year? Have any stats for us?

Our compensation data for 2013 versus 2014 so far shows that compensation is flat for VP of Engineering jobs. CEO pay has risen 11 percent in the last year; CFO pay has risen 14 percent; and VP of Sales jobs are up 13 percent.

Why is CFO pay up so markedly?

There’s a lot of demand for CFOs with public company experience. A lot of startups are getting out [onto the public market] or hope to.

And CEOs? Same story?

We recently had a CEO opportunity at a growth-stage company where the execs were trying to recruit a finalist candidate from one of the top four publicly traded software companies. The [hiring company] was willing to give this person a $1 million signing bonus, which isn’t commonplace. But his employer gave him even more to stay.

Focusing on Privacy Issues, Before the Sale

subscriber listsEarlier this week, The Recorder observed that maintaining strong privacy standards is now a serious requirement for startups interested in M&A, not some “item on a deal-making checklist or a vague commitment to users.” Since the biggest asset of many startups is often data like subscriber lists, neglecting privacy standards can be a deal-killer, the outlet observed.

Surprisingly (to me), one attorney told The Recorder of the issue: “Only a tiny minority of companies really have their act together; a good number of companies are completely out to lunch.”

To find out more about how big a sticking issue privacy has become for acquirers, I talked yesterday with Christine Lyon, an attorney at Morrison Foerster who focuses on privacy and employment law.

Lyon told me that a big part of the shift owes to increased regulatory scrutiny, saying the Federal Trade Commission “has been more active in privacy enforcement generally.”

I asked Lyon who tends to be the most “at risk.” She cited mobile app makers, largely because “they might not think of themselves as collecting personal information, when they are.” (Names and email addresses are considered Personally Identifiable Information, or PII.)

Sometimes, she said, it’s simply a case of “delayed compliance. The [mobile app] startup thinks, ‘Once we’re up and running and have more money, we’ll roll out a policy.’” Unfortunately, says Lyon, “at that point, you’ve collected data, and you’re sort of stuck figuring out how to implement [a privacy policy belatedly].”

Perhaps unsurprisingly, Lyon also mentioned that two other types of companies that should pay special attention to new state and federal privacy laws are sites that either cater in some way to children or deal with health-related information. When it comes to both, the risk of a misstep is much higher, said Lyon — not to mention that buyers in both cases are always “very interested in what sorts of consents were obtained.”

To correct what the FTC would consider a material issue in their privacy policies, a startup can do a couple of things. First, it can try getting the consent of its users retroactively, though most users won’t give it. (Who wants to be bothered?) Another option is to offer users the opportunity to “opt-out” from permitting a company to transfer its data to an acquirer.

Unfortunately, neither solution may be enough to appease a potential acquirer in the current environment. “An area that’s high risk for enforcement will get buyers’ attention,” she’d told me. “We’re just seeing a lot more issues like this cropping up and sometimes killing deals.”

The lesson here is obvious: companies that skimp on privacy could ultimately end up leaving a lot of money on the table.

Sign up for our morning missive, StrictlyVC, featuring all the venture-related news you need to start you day.

Michael Chasen’s New “Billion-Dollar Idea”

SocialRadarMichael Chasen speaks a mile a minute, and maybe there’s a reason why. He’s a serial entrepreneur who has discovered his next calling – providing location-based connections for young, mobile users. It’s a well-worn story at this point, but Chasen may just be the one to make money in this space.

If Chasen’s name sounds familiar, it’s likely because of Blackboard, an education software company that he cofounded with his college roommate in 1997. Blackboard went public in 2004 before it was acquired in 2011 by Providence Equity Partners for $1.64 billion.

Needless to say, Chasen never has to work again. But while visiting colleges during his Blackboard days, he realized his latest idea – connecting people who are in close proximity to each other through their phones – might be an even bigger opportunity than Blackboard. As a result, he quickly put together a 20-person company and, in June, closed on $12.5 million from NEA, Grotech Ventures, and a long line of celebrity entrepreneur-investors, including Steve Case, Ted Leonsis, and Dave Morin. He could have raised more. (“We actually had over $20 million in interest for the $12 million round,” Chasen tells me at at a San Francisco coffee shop. “We had investors we said no to, and we had to scale people back.”)

Investors were presumably taken with Chasen’s track record. But Chasen also argues that his company, SocialRadar, which is based in Washington, D.C., is a billion-dollar idea. Its objective: to cross-reference the location beacons in our pockets – our smartphones – with the now two billion social profiles online, to create real-time information about the people around us, whether they’re 300 feet or 50 miles away.

“With SocialRadar,” says Chasen, “you can walk into a room, and we’ll tell you there are 10 people here who you know: five coworkers, three people you went to college with, and two people who live on your street. Beyond that, we’ll tell you that your one college friend recently got his MBA and another was recently married.” Adds Chasen, “Right now, people might think, Why do I need to know who’s around? But it’s about having that information at your fingertips. You might not act on it, but maybe you will. It all depends on the context.”

SocialRadar is still in beta, with plans to launch by year end. (Chasen says the team is still working on all kinds of features, including around privacy, so that if you want to see who is around you but don’t want to be seen, you can list yourself as “anonymous” or use the app completely invisibly.)

Once it scales, SocialRadar intends to make money through directed commerce, by presenting location-aware offers and the like. But Chasen says the focus is very much on growing the business first  — something he thinks he can do quickly by leveraging location information from Facebook, Instagram, Twitter, LinkedIn, and Google to show users who’s around, regardless of whether those acquaintances already have the SocialRadar app.

The strategy isn’t without huge risks. The location-based landscape is filled with the bones of entrepreneurs who’ve tried to make money off seemingly useful services and failed. More, some of these services might object to SocialRadar monitoring their users’ data. If Facebook, in particular – the veritable 900-pound gorilla in this space – decides that it doesn’t want to play nice, SocialRadar could find itself in a very tight position.

Then again, Chasen has proven that he can make money in a tough space. The number of investors who’ve made money in education is minuscule, and yet he succeeded twice, first in taking the company public, then in selling it to a major private equity firm. Chasen also seems realistic, the product of his many years as an entrepreneur, no doubt. As he puts it: “Just like mapping software has fundamentally influenced the way that people use technology and get around, this technology has the same potential. Five to 10 years from now, everyone will have this technology and use it on a daily basis — whether or not it’s SocialRadar.”

Sign up for our morning missive, StrictlyVC, featuring all the venture-related news you need to start you day.

Related articles

Rover: A Dog’s Tale

RoverWant to get in on potentially massive new opportunity? Here’s the pitch in three words: Home dog boarding.

It’s not a joke — not to venture capitalists who’ve recently been funding all things dog related, including online marketplaces that connect pet owners with carefully vetted sitters. One such business is 20-month-old DogVacay in L.A., which raised $6 million from Benchmark Capital last November. Another, Seattle-based Rover —  a two-year-old startup that has already raised nearly $16 million in funding from Madrona Venture Group, Foundry Group, and Petco — will be in the market again soon.

I talked with Rover CEO Aaron Easterly last week about his 26-person company and whether VCs can make money on the concept. Here’s an edited transcript:

You have close to 200,000 pet owners signed up to your platform, and about 25,000 dog sitters. How much repeat business do you see?

The repeat usage and stats are incredibly predictable. Once people discover Rover, they stop calling in favors with friends and family and start calling us for day trips and weekends away.

What’s the average stay, and how much do sitters charge?

The average stay is a little over four days, and prices range from $20 to $45 a night. A sitter who can take the dog to work or work from home, or someone who has access to parks or a backyard [can often] charge more. Also, as a sitter develops a reputation, that person can increase his or her prices.

What does Rover collect?

We collect a 15 percent fee on each transaction. We also offer add-ons that people can select, like an annual $49.99 protection package that includes a 24/7 vet consultation and special Rover tag for added safety and security.

Some VCs might wonder how tech-heavy your platform is.

You’d be surprised at the analytic rigor that we apply to the business. We only accept about 15 percent of new applicants. We use data modeling and statistical techniques pulled from other industries, so in addition to having a human being vet every applicant who comes into the system, we can predict how successful that person will be within a certain amount of time [among numerous other things], all of which goes into improving the marketplace.

How many dogs can a sitter watch at once, and how much money can they make?

They can watch one dog or two but not seven. We have some pet sitters making over six figures annually, and that’s growing.

What’s your growth strategy?

We see three ways: through geographic expansion, which can include international; by expanding to pets other than dogs; and by expanding our service range to include things like bathing and walking services and things like that.

How big is the U.S. market, where people seem particularly likely to treat their pets as children?

The dog boarding/dog sitting is roughly $6 billion annually in the U.S., but it could be much, much bigger. Many pet owners just despite the idea of taking their dog to a kennel. To them, it’s like taking a kid to an orphanage, a place where dog might sleep and get a meal but could have a terrible experience. If every dog owner used an inexpensive solution like Rover, it could become a $61 billion business. The opportunity here is to figure out this market — which involves just 8 to 9 percent of pet owners — and increase it.

Related articles