Chris Dixon

Bill Gurley on the Newest Super Fund Trend

On Monday, the National Venture Capital Association and Thomson Reuters released some surprising data. Despite few opportunities to exit from their investments, 57 venture firms managed to raise $12 billion in the first quarter — more money than VCs have raised since the second quarter of 2006. More, just seven firms counted for nearly two-thirds of all that money, with four raising north of a billion dollars apiece.

“It’s not just the size of the funds but the velocity” at which VCs are returning to their investors, known as limited partners (or LPs), says an astonished Bill Gurley of the venture firm Benchmark. “The Kauffman fund said that billion dollar funds sucked, then everybody went out and raised billion-dollar funds.”

Gurley is referring to a 2012 Kauffman Foundation report that suggests venture capital isn’t a great place for institutions to invest, and that big venture funds are a losing proposition almost entirely.

According to the organization’s findings, which it based on its 20-plus years of investing in more than 100 venture funds, only 20 percent of its investments had generated returns that beat a public market equivalent as of 2012, and even then, the funds outpaced those public market indices by a measly three percent. Kauffman further found that only four of 30 venture funds that exceeded $400 million delivered better returns for investors than a small-cap common stock index.

What’s changed in four years’ time? As far as Gurley is concerned, not a thing. Gurley — whose firm raised one billion-dollar fund in the late ’90s and quickly reverted back to sub $500 million funds — says he doesn’t think big venture funds add up for anyone other than VCs, whose management fees typically equal two percent of a fund. “If you talk with an LP, you’ll hear that funds raised in times of scarcity perform the best, while those raised in peak [fundraising] moments don’t have the best returns. The only type of return that’s guaranteed is excessive fee income. You get that no matter what, which is a conflict, for sure.”

More here.

Chris Dixon on Competing with Internet Giants for AI and VR Talent

VC Chris Dixon of Andreessen Horowitz thinks it’s a lot harder to predict financial cycles than it is to see a new computing platform coming down the pike. As he noted in a recent post, new cycles tend to begin every 10 to 15 years; assuming the 2007 introduction of the iPhone kicked off the last wave, we’re fast heading toward the Next New Thing.

Or things, technically, according to Dixon, who we caught up with yesterday. Among the trends that Dixon is watching closely, he says, are virtual reality, augmented reality, IoT, wearables, drones and cars. (Missing from the list: bitcoin, which has long held Dixon’s fascination but that he refers to as a “long-term project.”)

Not that it’ll be easy to make money off these newer technologies. In fact, Dixon suggests it could be ridiculously challenging, given how quickly Facebook, Google, and Amazon are bringing aboard related talent. Here’s more from yesterday’s interview, edited for length:

People think of you as the person at Andreessen Horowitz who invests in weird stuff.

We obviously invest in a wide range of things. My own area of interest has been in drones and VR and AI and maybe more speculative categories. Some startups, the question is more about ‘Will this startup win versus other solutions,’ where, in speculative categories, the question is whether it’s going to work at all.

You can kind of jokingly call it weird, but if you look at where Amazon, Facebook, and Google are investing — I think Google’s VR team is significantly bigger than Facebook’s; Microsoft has 1,500 people working on HoloLens; and from what I can tell from its hiring and acquisitions, Apple is [investing a lot of money] — probably the biggest area [of interest and investment] is AI. Large tech companies are investing very heavily in this stuff [whereas] there’s much less investment by VCs.

Because VCs don’t understand the tech or else the opportunity?

No, because it’s hard to figure out where the start-up opportunities are and because [some of this tech] requires so much money. With virtual reality, you have to build a complex platform then line up content partners. Or self-driving cars — I’d assume that Google has spent many billions of dollars on it already, including mapping. The venture world isn’t set up for that. It works around the model of seed rounds, A rounds, $20 million B rounds, not for massive projects. It’s kind of a puzzle if you’re in VC how to make those investments.

You’ve remarked before how quickly teams are getting snapped up, which must compound the issue.

Wit.ai [a Y Combinator startup that built voice-activated interfaces] that Facebook bought and now powers its Messenger platform was only [in our portfolio] for a few months when Facebook bought it. It sounds paradoxical, but our model depends on companies staying independent for a period of time, and because large companies have been so aggressive, it’s harder for us.

When it comes to machine learning, you’re competing with offers from Facebook and Google and Amazon and [their offers] are considerably higher in terms of cash compensation. They pay a lot for people with that expertise, and startups will never [be able to match it]. So you have to really convince people that what you’re building is important.

VCs can’t wait out this next computing cycle obviously. So how do they nurture lower-capital models?

More here.

VCs and Twitter: A Simple Relationship Turns Complicated

Over the weekend, New York Times reporter Jenna Wortham wrote of Twitter that it “seems to have reached a turning point, a phase in which its contributors have stopped trying to make the service as useful as possible for the crowd, and are instead trying to distinguish themselves from one another.”

If Wortham is becoming disillusioned with the platform, she’s hardly alone. Even venture capitalists – among Twitter’s savviest and earliest users –no longer view Twitter with the same zeal they once did, with a growing number turning away from the service for longer periods of time, if not logging off altogether.

Chris Dixon of Andreessen Horowitz talked with investor-entrepreneur Semil Shah last November about why he no longer tweets as actively as he once did. “I actually think Twitter has changed,” said Dixon, whose tweet count is nearing 15,000. “Part of it is Twitter just got more popular…For me, the golden days of Twitter were 2010 maybe, 2011, where it was a bunch of early adopter/startup people…now, everyone realizes that if you say something wrong, it’s going to be excerpted and put on Business Insider…so I just think everyone is vastly more on guard, and it’s just not as fun.”

On New Year’s Day, another power user, Shervin Pishevar of Sherpa Foundry, announced that after an astonishing 34,777 tweets dating back to 2007, he’d decided to “take a break” – for all of 2014. It was time to “disconnect from this overtly present present and live in the moment more,” Pishevar wrote on Medium, the newest publishing platform launched by Twitter’s cofounders.

In a more recent renouncement of the platform, Paul Lee, a general partner at Chicago-based Lightbank, tweeted last Wednesday that he was “Going to be taking a break on twitter for a while (at least trying).”

When afterward, I asked Lee why, he explained that Twitter “ended up taking a lot of mindshare and creating a lot of noise in my head.” Though Lee consumes more than he publishes (over the last six years, he has sent 2,342 tweets), he finds Twitter just as distracting as someone who more actively participates in conversations.

“Imagine you’re in a meeting and you have eight people sitting on your shoulders,” he said. After logging on, even for brief periods, “It kind of felt like that. My mind was going 100 miles per hour.”

Plenty of VCs still actively use Twitter, of course. Homebrew cofounder Hunter Walk says that among the ways it helps him as an investor is his ability to share his thoughts, meet new people, and “lazyweb” questions about who is working on what.

Walker, who says he spends “toooo much” time on the platform (he has composed more than 18,000 tweets), says it doesn’t exhaust him primarily because he tries to use it “as a human being who also happens to be a VC.”

Josh Felser, a cofounder of Freestyle Capital, similarly says that his approach is not to overthink things but rather “say mostly whatever I want.” Felser (12,600 tweets) also notes that Twitter is “helpful in building my business brand” particularly given that “most entrepreneurs are on it.”

Lee acknowledges the same value in Twitter that Felser sees. In fact, he says Lightbank has funded two startups that it sourced through Twitter. “So from a branding perspective – meaning branding of [Lightbank] and self-branding – it’s been really effective.”

Still, Lee says he’s prepared to avoid it for a while, even if he’s uncertain for how long. “It’s only been a few days,” he told me Friday morning. He said he was already feeling “less tied to it, less compelled to check it.” But he was also quick to call it “an experiment. I don’t want to get ahead of myself.”

Meanwhile, the Twitter fatigued might pay special attention to Marc Andreessen, someone known for the shrewd way in which he has marketed his venture firm. A big fan of “counterprogramming,” Andreessen has taken to Twitter with great relish over just the last month.

In the six years prior, he sent out two tweets.

Correction: The original version of this story referred to Wortham by her Twitter handle, @jennydeluxe.

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StrictlyVC: November 20, 2013

Happy Wednesday, and thank you for reading!

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Top News in the A.M.

Tim Draper is leaving Draper Fisher Jurvetson, but not forever, he says, as was reported by Fortune yesterday afternoon. In an email to StrictlyVC last night, Draper said that Fortune “got it wrong. I am not leaving DFJ. Ever. I am just skipping a fund to do some work building Draper University and experimenting with new models for venture capital. I expect both my experimenting and my continued angel investing will provide great intelligence and deal flow to our team at DFJ. I will of course be an investor in any new fund we create.”

Asked whether he will now be more involved with his personal investing vehicle, Draper Associates, which focuses on seed-stage opportunities, Draper wrote, “I started as an angel investor, and I continued throughout my career. It helps with deal flow, intelligence, etc.”

Fortune reported yesterday that Draper isn’t the only one to be parting ways with the firm in the near future. According to its sources, cofounder John Fisher is also leaving, as are longtime managing directors Jennifer Fonstad and Don Wood and China investment chief Hope Chen. You can learn much more here. (Incidentally, StrictlyVC authored the now infamous cover story for which Draper posed as Captain America. For what it’s worth, it was the photographer’s last-minute idea, and Draper was very sporting about the whole thing.)

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In VC, Going it Alone, with Plenty of Company

A growing number of venture firms have been springing up around a single general partner, including PivotNorth, led by Tim Connors; Acero Capital, led by Rami Elkhatib; Cowboy Ventures, led by Aileen Lee; and K9 Ventures, led by Manu Kumar.

Now add to the list Cindy Padnos, the lone GP of Illuminate Ventures, an Oakland, Calif.-based outfit that is today announcing a new, enterprise-focused, $20 million fund. In a call on Monday, Padnos said she was able to raise the new pool after investing a “few million dollars” in an earlier, proof-of-concept “Spotlight Fund” that has taken off.

Two of Spotlight’s five portfolio companies have been acquired: 3D game design platform Wild Pockets was purchased by Autodesk in 2010, and data and audience management platform Red Aril was acquired in 2011 by Hearst Corporation. (Terms of both deals remain private.) Meanwhile, the fund’s three other portfolio companies have been marked up considerably since Padnos invested. Among them: the SEO management platform company BrightEdge, which Illuminate backed as a Series A investor; the startup has gone on to raise nearly $62 million altogether, including from Battery Ventures, Intel Capital, and Insight Venture Partners.

Padnos – a Booz, Allen consultant turned operator turned venture capitalist – gives a lot of credit for her success thus far to a venture partner in Seattle and an advisory counsel of roughly 40 people whom she has assembled over the years.

She also believes she has struck on a strategy that clicks in a today’s market, investing in enterprise startups that are bootstrapped or angel financed but not quite ready for a large-scale Series A rounds.

Indeed, Padnos — who says her “sweet spot” is writing initial checks of $500,000 as part of $1 million to $3 million rounds — has already made several new investments out of her new fund: Hoopla, a company that makes “workplace gamification” software; Influitive, a marketing company that analyzes data around social media; and Opsmatic, the newest startup by former Digg CEO Jay Adelson.

Asked whether she is seeing any particularly interesting trends, Padnos tells me she’s most closely watching the “whole world of enterprise mobile.”

But the growing group of single-founder firms that Illuminate has joined is fairly interesting, too.

New Fundings

ALOHA, a two-year-old, New York-based company that makes nutritional supplements, has raised more than $4 million from a long list of investors, including First Round Capital, Highland Capital Partners, FF Angel, Khosla Ventures and Forerunner Ventures. ALOHA’s funding comes just one month after a similar product, out of San Francisco-based Soylent, attracted $1.5 million in seed funding.

Apartment List, a two-year-old, San Francisco-based company that consolidates the apartment listings of numerous services into a vast, searchable database, has raised a $15 Million Series A investment round led by Matrix Partners.

August, a year-old, San Francisco-based maker of a “smart” lock for doors that can be controlled through a smartphone, has raised $8 million in Series A funding. Maveron led the round with participation from Cowboy Ventures, Industry Ventures, Rho Ventures and SoftTech VC. The company previously raised $2 million in seed funding from long line of angel investors.

FinanceIt, a three-year-old, Toronto-based company whose software platform enables its customers to offer point-of-sale financing to their own customers, has raised a $13 million Series A round from TTV Capital, Inter-Atlantic Group, and Second City Capital.

LittleBits, a two-year-old, New York-based company that makes modular electronics that snap together for good-old user enjoyment, has raised a new, $11 million round of funding, according to an SEC filing that lists Joi Ito, True Ventures, and new investor Foundry Group. The funding appears to bring the capital that LittleBits has raised to date to around $15.5 million.

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People

Chris Dixon, the angel investor-turned-VC, talked with investor-entrepreneur Semil Shah this past weekend about why he no longer tweets as actively as he once did. “I actually think Twitter has changed,” said Dixon. “Part of it is Twitter just got more popular…For me, the golden days of Twitter were 2010 maybe, 2011, where it was a bunch of early adopter/startup people…now, everyone realizes that if you say something wrong, it’s going to be excerpted and put on Business Insider…so I just think everyone is vastly more on guard, and it’s just not as fun.” (Click here to watch more of Dixon’s sit-down with Shah.)

Andy Rachleff, the former Benchmark GP turned CEO of Wealthfront, argues against being stingy when it comes to follow-on equity grants for employees. Here’s what he specifically suggests.

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IPOs

Yesterday, China‘s top securities regulator reiterated the country’s commitment to easing control over the IPO process, but he added that the government will intensify its audits of startups in order to prevent “more junk stocks.” (Reuters has much more here.) Last October, of course, the Chinese government banned IPOs because of volatility in the stock market and investor concerns over the financial reporting of some newly public companies.

Trevena, a six-year-old, King of Prussia, Pa.-based clinical-stage biopharmaceutical company whose lead therapy is an intravenous treatment for acute decompensated heart failure, is scheduled to go public today. The offering is expected to raise $75 million and establish the company’s market cap at around $290 million. Trevena’s biggest shareholders include Alta Partners, HealthCare Ventures, New Enterprise Associates, and Polaris Venture Partners.

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Exits

Tier 3, a seven-year-old, Bellevue, Wash.-based enterprise cloud management startup, has been acquired by the Louisiana-based telecommunications heavyweight CenturyLink. Terms of the deal were not disclosed. Tier 3 had raised $18.5 million over the years from Intel Capital, Ignition Partners, and Madrona Venture Group.

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Happenings

Goldman Sachs Private Internet Company Conference gets underway in Las Vegas today. TechCrunch has its top-secret agenda, featuring the event’s speakers — who typically represent the startups that Goldman deems the most promising pre-IPO candidates. Unsurprisingly, the execs to present this year include Dave Goldberg of SurveyMonkey, Robert Hohman of Glassdoor, Carrie Dolan of LendingClub, Dave Gilboa of Warby Parker and, yes, Evan Spiegel of Snapchat.

USB‘s annual, three-day Global Technology and Services Conference rolls into its second day in Sausalito, Calif. You can find the agenda here.

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Data

According to CB Insights, all these investments in “quantified self” companies — startups whose technologies monitor consumers’ fitness and stress levels, among other things — are starting to add up. In fact, the research firm says venture investments in both hardware and software-related startups have reached $318 million over the last year. You can find more data on the trend here.

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Job Listings

FT Partners, the San Francisco-based investment bank, is looking for an associate to join its SF office in a role that begins next July. According to the firm, associates are involved in “all aspects of originating and executing live transactions, including extensive financial modeling and analysis, company valuation, corporate and industry research, strategic analysis and recommendation, identification of business development opportunities, due diligence” etc. (You get the idea.) To apply, you need previous experience in investment banking, strategic consulting, venture capital, or in a similar industry that requires assigning value to companies.

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Essential Reads

Let’s face it. We don’t know a single useful number about the hottest company in tech.

Facebook? Pinterest? Puh-lease. Venture-backed Wanelo is where the action is happening now, suggests Buzzfeed.

Touring the new, New York offices of payments startup Square.

It’s too soon to break out the champagne, but two separate but similar patent troll bills are moving their way up in the Senate and House of Representatives.

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Detours

George W. Bush is a surprisingly good artist, judging by this portrait of his daughter’s cat, Eleanor.

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Retail Therapy

Japanese company EntreX created a chip dispenser for people who get their arms stuck in Pringles cans. Alas, the dispenser was recently discontinued; apparently the market wasn’t big enough, which is unfortunate, as you could see the product being a good fit for members of Congress. (Zing!)

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