Bessemer Venture Partners – StrictlyVC, LLC

Drone Maker CyPhy Raises $22 Million for Two-Prong Strategy

Robot maker iRobot has long had two major lines of businesses: its famous disc-shaped vacuum cleaning robot called the Roomba; and another robot that, well, disposes of bombs.

Cofounder Helen Greiner says iRobot — now a publicly traded company currently valued at $940 million — “wouldn’t been able to have struggle through” without both.

No wonder Greiner is again focusing on disparate lines of business at her seven-year-old drone company, CyPhy Works in Danvers, Mass, a startup that has just raised $22 million in Series B funding.

On the one hand, CyPhy is about to start mass producing its Persistent Aerial Reconnaissance and Communications (PARC) drones, which can fly as high as 500 feet in the air and hang there for 100 hours at a time. How? They’re tethered to the ground with a highly specialized microfilament that both powers them and acts as a secure communications link. As an added bonus, the tether keeps the robots from flying away in sandstorms and other harsh conditions.

The PARC drones have mostly been used to date by the U.S. military, which employs them at combat posts to monitor compounds. The drones can also accept a variety of payloads. But now that the FAA has begun more freely authorizing the use of unmanned aerial vehicles for non-governmental purposes, Greiner is expecting enterprise customers of all kinds to start ordering them, from mining to port security to construction to even media companies.

More here.

VC David Cowan is Betting on Space (and Counting on Space Travel)

This morning, Spire, a nearly three-year-old, San Francisco-based maker of small, software-packed satellites, announced $40 million in fresh funding from investors, including Promus Ventures, which led the round, and Bessemer Venture Partners. (We wrote a piece for TechCrunch about the news here.)Late last week, we talked with Bessemer partner David Cowan about the deal, and why he’s intrigued by space startups more broadly. That conversation follows, edited for length and clarity.

How did you settle on your investment in Spire?

As an early investor in Skybox [a satellite imagery company acquired by Google last year], we were approached by pretty much every early-stage space startup out there. Back when Spire was called NanoSatisfi, [founder] Peter [Platzer] reached out to us, but the company looked as flaky as the rest of them, meaning, here was a smart guy with an ambitious idea that he was going to put up a big constellation. But after one-and-a-half years, he actually did all the things he said he was going to do. In fact, when we looked to find who might be taking advantage of Moore’s Law in space, Spire stood out as the company most likely to lead the trend. It’s pretty clear that by this time next year, Spire will have the largest constellation known to man [based on the number of satellites it has in space].

Right now, that honor belongs to Iridium, which has around 75 satellites up there. Give readers a sense of how different the two companies’ satellites are.

Iridium’s satellites are on the order of a metric ton, whereas satellites now being developed are basically 10-centimeter cubes, so maybe the size of a Kleenex tissue box. Spire’s satellites amount to three of those cubes [each].

How dramatically do they compare in terms of power?

It’s a different class. Iridium satellites are high-capacity and high-powered, but they cost a lot of money and time to build and launch. This new generation of satellites is so small and cheap that you can basically make them out of cell phone parts, with the camera and radios and GPS that goes into them. They aren’t space-hardened. Solar flares and other stuff in space [take a toll much faster]. But you aren’t looking to get 12 years out of them. You’re looking to get two or three. It’s a different attitude. You sprinkle them out there. You’re constantly changing them and tweaking them. It’s like comparing a network of mobile devices with a mainframe.

Who are Spire’s biggest customers?

The first two major applications that we’re addressing are marine craft tracking via the AIS beacons that ships have when they’re out in the open sea; the second is weather. Starting a year from now, it’s expected that the U.S. will be blind to the weather — that the [three] satellites [the government has been relying on] will no longer be functioning. As you can imagine, it’s imperative that we have weather data. It’s critical to agriculture, critical to national security, critical to understanding climate change.

To date, the government has had its own satellites to produce this data, but there’s generally a movement to outsource more and more in the industry. It’s why SpaceX has received a mandate to carry astronauts [encouraged by NASA]. Congress is saying the same about other formerly proprietary NASA activities, too, including authorizing the government to buy weather data.

It sounds like Spire has other ambitions, too.

We’re not satisfied to just do the weather. It’s a big market but there’s no reason that, once the satellites are out there, we can’t put more antennae on them and [wring more information] out them. There’s been a lot of awareness in the last couple of years that we have aircraft disappearing off the grid, for example. There are currently satellites in space that talk with airplanes when they’re underneath those satellites, but there aren’t satellites tracking flights going over the North Pole; a system with lots of little satellites that blanket the planet [could solve that problem].

Basically, there are no application-specific satellites any more. It’s like the internet, where the same pipes that are carrying this call also carry email and Netflix and so much more.

What other space companies has Bessemer backed?We have two other related investments, though only one is disclosed: Rocket Lab, which is building rockets to deliver this whole new class of nano satellites. Think of it as a low-end SpaceX.

What do you make a space tourism?

It interests me as a customer but not as an investor. I think it would be great. Ten years from now, I won’t have school-age children and it will be way safer, so I’m hoping I’ll be a customer.

Piazza, Backed By Sequoia and Others, Looks to Next Round

You might not be familiar with the 25-person, Palo Alto, Ca.-based startup Piazza, but plenty of engineering and other STEM students are aware of it.

The online platform where students and instructors come together to learn and teach was first conceived by founder and CEO Pooja Sankar, who as a first-year student at the Stanford Graduate School of Business, felt isolated at times in her learning experience. It reminded her of her undergraduate experience at Indian Institute of Technology Kanpur, the engineering school in India, where there were 400 boys and 20 girls in the computer science department.

Says Sankar, “I felt at a disadvantage because I didn’t have a support group to master concepts, classes, career, or how you choose a company or a startup.”

Sankar felt alone in having so many unanswered questions, but it turns out she was far from it. Today, says Sankar, roughly 1 million students around the world are posting questions to their particular course pages on Piazza, to which their peers and instructors are responding. In fact, she says, 50 percent of computer science and STEM majors at the top 20 U.S. schools — as well as at elite schools in Iran; Pakistan; Israel; Ontario, Canada and elsewhere — spend between two and three hours on the platform each day. (Altogether, says Sanker, students and educators at 1,000 universities in 60 countries are now using the platform, including at such prestigious schools as Princeton, Harvard, Stanford, and the Imperial College of London.)

Now Piazza is cultivating a new fan base – company recruiters. Explains Sankar: Up until now, executives have been setting their recruiting strategies in the dark,” says Sankar. “It’s, ‘We’re going to fly our guy to [Carnegie Mellon],’ and they literally send their VP of engineering around” with the hope of connecting with the right people.

Where Piazza can help them: the troves of data it’s collecting on students, including what courses they are taking and the types of questions and answers they are contributing to the platform, all of which companies are now using to run targeted searches and to send personalized messages to students who opt in to its recruiting service.

Currently, there are nearly 250 companies using Piazza in their recruiting efforts, up from 40 when the service officially launched in February of last year.

Sankar characterizes their range as “broad – from 10-person startups to 100,000-person companies” and Piazza charges them for yearly subscriptions to the service accordingly, with prices ranging from $2,000 to “six-figures.”

Things are going so well, says Sankar, that Piazza — which has so far raised $15.5 million from investors, including Sequoia Capital, Bessemer Venture Partners, Khosla Ventures, SV Angel and Kapor Capital – will be in the market for more funding soon.

“We’re at a stage where we’re doing what we wanted to do with our last fundraising,” she says. (It closed 16 months ago.)

“Now we want to throw fuel onto the fire.”

For a new survey from Piazza about the companies where students most want to work, check out our related TechCrunch piece this morning.

As On-Demand Valet Battle Intensifies, Luxe CEO Shifts Gears

The battle to baby your car is heating up. This morning, Zirx, a year-old, San Francisco-based company that will park your car, wash it, fill up its gas tank, and rotate its tires, is announcing $30 million in new funding. The round comes roughly a month after Luxe, another San Francisco-based valet app, raised $20 million. (Luxe has now raised roughly $25 million altogether, while Zirx has raised around $36 million.)

Yesterday, we talked with Luxe CEO Curtis Lee – a former product manager at Zynga, YouTube, Google, Skype, and Groupon — about the competition, and whether and when these types of companies turn profitable. Our chat has been edited for length.

You now have 40 full-time employees and hundreds of contract workers parking customers’ cars in San Francisco, L.A., and Chicago. Yet you say that parking cars is step one. What’s next?

We’re more of a services platform than anything else. We happen to park your car, but we’re already doing gas fill-ups, car washes, and oil changes . . . Your car is effectively an urban locker, and we want to get stuff delivered to your car, as well as do things with it, like pick up your keys, get your groceries . . .

How do you decide when to roll out new services?

I’m a product manager. My cofounder [CTO Craig Martin] is a engineer. We worked at Zynga together, and we tend to like to do experimental things often. If they work, we double down. If they don’t, we won’t. And we saw that early on, the primary reason customers decided to use us was for our additional services.

What are you charging for some of these services?

Our rates vary depending on the city, but in San Francisco it’s $5 an hour [to have your car valet parked] and $15 per day. Car washes are $40. Gas fill-ups are the cost of the gas plus a $7.99 surcharge.

Are you dealing with much poaching?

Certainly, other companies are trying, especially because our guys are so obvious on the streets [wearing the Luxe uniform, which are bright-blue jackets]. We’re the only company that shows customers where our lots and our valets are on a map. That makes us vulnerable sometimes, but our retention remains very high. We think [our workforce] is fairly happy. We also have more demand than our competitors, and [valet pay] is hourly based, so [our valets are] not going to make as much money elsewhere. It’s like Uber; people want to work for Uber because it has the [consumer] demand.

What of allegations that on-demand startups short-change workers by classifying them as independent contractors?

We’re not obsessed or worried about it. I think it’s more a philosophy thing than the letter of the law. You treat employees – and independent contractors – with respect. It’s not as much about classifications. Who knows what will happen. [Any potential legal changes] aren’t in our hands. But we’re keeping an eye on it.

Do you pay your valets minimum wage? Do they make much in tips?

It’s completely optional, but our customers can give tips [via our app] because they were trying to do it regardless, through cash. Our guys make way more than minimum wage for sure because of the demand we get.

Also, our guys don’t need to own cars. There’s no equipment necessary [beyond a scooter to get to customers more quickly]. Twenty percent of Uber drivers’ salaries go toward wear and tear and gas.

It’s seems like potentially hazardous work, zipping around town to pick up and drop off customers’ cars as quickly as possible.

We put [our valets] through extensive training so they understand where they need to drop off people’s cars, as well as make sure they aren’t doing anything that puts them at risk. Our bright blue jackets are also designed to ensure people see them. And we have a valet office where people can hang out and eat free food and relax and, if there are issues, go to office hours and talk with us.

Your arrangement with city garages is pretty central to your future profitability. Are these typically monthly arrangements for spots?

We have different agreements with different parking lots all the time — everything from monthly to yearly to daily arrangements. But parking lot owners take care of us and we take care of them, turning over the space enough times that we can make a profit on a per unit basis. The best analogy is to Priceline. For hotels, unused rooms are sunk costs. Priceline has created a billion-dollar business just by providing discounts to customers and getting [hotels paid] for their underutilized inventory.

Still, some VCs think services businesses like yours are too cost intensive. What are they missing?

We’re basically creating a behavioral change. Those days of searching for parking, wasting time, wasting gas – they’ll disappear in time. Also, parking alone is a $100 billion market globally and a $30 billion market in the U.S. And you’re seeing tremendous growth of car ownership internationally, including in Brazil, China, and India, all of which are undergoing massive urbanization without enough infrastructure to keep up. There are just huge opportunities for us.

Will you be fundraising again this year?

We’re open to raising [again] when the time is right.

Photo courtesy of Forbes.

(Bay Area readers, to learn more about the shifts in on-demand startups, you might want to check this out next month. We’ll be there to moderate a panel.)

Mithril Capital Bets Big on Diabetes

Mithril Capital Management prides itself on funding unique “growth companies regardless of sector or geography,” says Ajay Royan, who founded the San Francisco-based venture firm with investor Peter Thiel in 2012. Last month, for example, it backed a Berlin-based, publicly traded company with an approved treatment for brain cancer.

Fractyl, a company aiming to better control type 2 diabetes, also fits the bill. In fact, Mithril — which has just led a $40 million financing for the three-year-old, Waltham, Ma., company – thinks Fractyl might become the “single most impactful company in our portfolio,” says Royan.

Certainly, the market opportunity Fractyl is chasing is enormous. More than 350 million people around the world suffer from type 2 diabetes, and as many as one in three U.S. adults could have diabetes by 2050 if current trends continue, according to the Centers for Disease Control and Prevention.

While the disease is usually managed through exercise regimens, oral medications, and insulin shots, in more extreme cases, bariatric (weight loss) surgery is recommended, and it’s here where things get interesting.

Bariatric surgery has been shown to return a person’s blood sugar levels to normal roughly six months after the procedure. Traditionally, it was believed the surgery is effective because the size of the stomach is reduced, but researchers and doctors have begun to believe it owes to a change in gut metabolism.

“The [first section of the small intestine] contains cells that function as chemical sensors,” explains Royan. “As you eat food, a portion of your small intestine anticipates the food’s composition and signals a hormonal response to start preparing insulin or whatever is appropriate for that food.” In diabetics, that portion of the gut is scarred, so the body’s response is off.

The big idea of Fractyl cofounder and CEO Harith Rajagopalan — a cardiologist and medical device entrepreneur — was to address the issue by altering the physiology of the gut. Specifically, Fractyl has created a device that’s inserted into the small intestine using an endoscope; after expanding and smoothing out the targeted part of the tract, it applies heat via a catheter balloon filled with hot water that kills the surrounding layer of skin. If all goes correctly, the old cells slough off and new cells with hormone receptors are generated in their place.

So far, the idea is looking spot on. Thirty-five patients have participated in trials, with the results validating the company’s approach. Still, it’s early days. The trials began just eight months ago, meaning no one yet knows how effective the treatment will be over a longer period of time.

There’s also competition to consider. Though Fractyl has some deep-pocketed venture firms, including earlier investors General Catalyst Partners, Bessemer Venture Partners and Domain Associates, the kind of skin ablation done by Fractyl’s device isn’t unique, even if no one is doing it precisely the same way.

Royan says he isn’t concerned about potential copycats, pointing to Fractyl’s “significant IP filings.” More, he insists, Fractyl’s design will be very hard to beat. Asks Royan,“Were there cell phones before and after the iPhone? Yes.” But the iPhone’s design has kept it at the fore. For his money, so will Fractyl’s specific approach to fighting diabetes.

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Foreign Firms Rule the Roost in Israel, Says Local VC

Israel’s startup scene has probably never looked quite so promising to investors. In 2013, five venture-backed companies headquartered in the country netted $2.7 billion at the time of their respective exits, says CB Insights. Within that group: Google acquired the social mapping service Waze for $1.1 billion; the Web development platform company Wix went public (its market cap is currently $670 million); and Cisco acquired the mobile networking firm Intucell for $475 million.

The country’s prospects this year look just as bright. Last month, for example, Israeli-run Viber, a voice and messaging service with a development center in the country, was sold to Rakuten of Japan for about $900 million. Around the same time, Covidien, the health care company, completed its acquisition of Given Imaging for $860 million. (Given makes a capsule with a camera that is swallowed, allowing doctors to see patients’ intestinal tracts.)

“Three years ago, the [Israeli] press was complaining about a lack of big, $500 million exits,” recalls Adam Fisher, who co-manages the Herzliya, Israel office of Bessemer Venture Partners. “Now billion-dollar exits are growing boring to [reporters]. That’s good news.”

It’s good news for global firms like Bessemer, at least, which set up an office in 1992 and in 2007 plucked Fisher out of Jerusalem Venture Partners, which he joined straight out of Georgetown Unversity. Fisher says he has led “15 or so” investments for Bessemer and that roughly half have produced stellar returns, including Intucell and Wix.

From where he’s sitting, both Israeli venture firms and U.S. firms without a local presence could miss out on Israel’s maturation into a mainstream tech market – which, by the way, is just fine with him.

“Israeli funds had proprietary deal flow” during the last bubble, but “I don’t think any Israeli fund ever created a strong brand,” he says. “Why work with a small, no-name fund when you can work with Bessemer?”

I ask Fisher if things might change. For example, the country’s former Finance Ministry Director General Haim Shani and the former head of Microsoft’s R&D operations in Israel, Moshe Lichtman, are reportedly close to raising $250 million for a new venture fund. Another Israeli venture firm called Stage One is raising $100 million for a second fund that has reportedly already closed on roughly $75 million. Isn’t it likely that competition will increase?

Fisher notes that activity is picking up but says that in many cases, Israeli VCs are “going for the scraps.” Bessemer, he says, has “50 odd professionals across the U.S. working at deals – networking. We have a huge trove of competitive industry information that no local fund can compete with.”

As for U.S. investors who might be tempted to spend more time in the region right now, Fisher says the venture community is “welcoming,” but “It’s a tight network … I’ve been here 15, 16 years, and those of us who are active literally know everybody, along with who they’ve worked with, and who was in the army with them.”

Language is an issue, too. “Everyone speaks in English, but if you don’t speak Hebrew, you’ll be a few steps behind, no question about it.”

To be a successful investor in Israel also “takes a certain culture,” he adds.

“I fit here in Israel. I fit there [in the U.S],” says Fisher, who has twice lived in the U.S. “There aren’t many people who fit that profile.”