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Six months ahead.

Emergence Capital Partners

Emergence Capital, Long a Top SaaS Investor, Zeroes in on Mobile Enterprise Apps

Screen Shot 2015-09-07 at 8.43.58 PMSince its founding a decade ago, Emergence Capital Partners has become among the startup industry’s most highly regarded investors in enterprise software-as-a-service companies.

Fact is, few firms are as specialized. But the approach has paid big dividends. In fact, in 2013, Emergence saw one of the industry’s biggest returns with the IPO of Veeva Systems, an enterprise cloud provider for life sciences companies. In 2008, Emergence invested $4 million in the startup. When it went public, it was valued at $4.4 billion, and the firm’s stake was transformed into more than $1.2 billion.

Veeva’s market valuation has since slid to $3.2 billion, and Emergence has since quietly shifted its focus from SaaS startups to mobile enterprise applications. Among its newest investments: ServiceMax, a company whose applications are used by field service workers who are tasked with, say, completing installations or warranty repairs.

“We think this is a bigger trend than SaaS has been to date,” says general partner Kevin Spain, who just published a detailed industry report that you’ll probably want to read.

We talked with him about it Friday. More from that conversation follows here.

Jeff Clavier on Dilution, Marketing, and Series A Stunts

survivorLast week, for a conference in San Francisco, I was asked to interview Jeff Clavier, the straight-shooting founder of the early-stage investment firm SoftTech VC. We were tasked with addressing the so-called Series A crunch and its ripple effects. As part of that chat — edited here for length — Clavier volunteered some interesting tidbits, including how to prepare startups for their next round of funding, and the most ruthless firm on Sand Hill Road.

You aim for a certain ownership percentage with each deal. Do things usually go as planned? I hear of uncomfortable situations cropping up between Series A and earlier investors.

When you invest at the seed round, you have the legal right to maintain ownership provided that you clear the hurdle of being a major investor, and we always ask to be a major investor and have pro rata rights. However it’s true that there are some Series A firms on Sand Hill – I won’t mention any names but one that comes to mind starts with an S – that always try to cut you out of your pro rata ownership because they always want to take as big a chunk as possible of Series A rounds. They typically want something in the 30 percent range.

If you want to take 30 percent and let insiders take their pro rata, that’s going to be a pretty dilutive round for the founders, so there are some games that they play. The way to counter the game is to organize a bit of a process where you can have multiple firms submitting term sheets, then figure out which is most interesting and the fairest to the founders as well as the insiders.

Are you seeing more Series A firms try to elbow seed-stage investors out of the picture entirely?

Yes, the “piggy” round. . . We have seen entrepreneurs take these rounds in lieu of a seed round – mostly people who’ve been around the block once or twice — and if there’s enough conviction from the VC to help entrepreneurs with the earliest stages of their companies’ life, it’s great for the entrepreneurs.

Is that true from an equity standpoint, too? I wonder whether it’s good that — with so many seed and post-seed rounds today — entrepreneurs have given investors 20 percent of their startups before they even reach a Series A financing.

It’s actually more than that. The seed round dilution is typically 20 to 25 percent dilution, plus [there’s the issue of] the option pool, meaning reserves for future hires. When you tack on your Series A – and some firms try to get 25 to 30 percent ownership for themselves, then you have the add-on of the insiders pro rata, which can be five to seven percent – those two rounds can be pretty dilutive.

What we’ve seen with companies that are doing really well and are sort of “hot” is the percentage target of the Series A investor will go from 25 to 30 percent to 20 to sometimes 15 percent, because when you’re in a competitive situation, paying up is not the only way. Being easy to deal with and friendly from a term sheet perspective is also a way to win those competitive situations.

So really only the hottest entrepreneurs are not getting screwed.

I wouldn’t say screwed. If you can [run your company without outside investors and it’s a hit], you’re home free. [If you can’t], it’s really the support and help that you’re going to get alongside the cash that makes a fundamental difference in the seed-to-Series-A journey. You pay in dilution for what you get in terms of capital and support.

Given that it’s your biggest challenge, how do you help your seed-funded companies nab Series A funding?

Part of it is understanding the market dynamic. You know that some firms like to meet startups very early on and create relationships over a year, for example, like our friends at Emergence Capital. They love to meet companies way ahead of any fundraising, so roughly a year before we know we’ll have to fundraise, we’ll either introduce our companies to them or they’ll ping us, because they’re pretty good at that. Then, a year later, we’ll [reach out to say], “They’re thinking of doing a round, we’d love to get your feedback,” wink, wink.

StrictlyVC: March 19, 2014

Good Wednesday morning! We know some of you didn’t receive yesterday’s email; we’re not sure why but here’s a link with our apologies in case you missed it.

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Top News in the A.M.

The hedge fund Fortress Investment Group, along with venture firmsBenchmark and Ribbit Capital, are buying a stake in Pantera Bitcoin Partners, a hedge fund that buys and sells virtual currencies. San Francisco-based Pantera Capital was founded in 2003 by Tiger Management veteran Dan Morehead, who tells Dealbook that in recent months, his 16-person firm has shifted its attention entirely to work on investments in the virtual currency world.

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Google Glass Meets Healthcare with Augmedix

It’s early days for Google Glass, and an almost absurd minefield of challenges lie ahead of it. But that’s not stopping a small number of startups from springing up around healthcare-related applications that can arguably cut costs, provide doctors more time with patients, and improve health outcomes.

Augmedix — a 20-month-old, San Francisco-based startup that’s announcing this morning that it has raised $3.2 million led by DCM and Emergence Capital Partners — calls itself the “first and largest Google Glass startup” focused on healthcare. Its complicated task put simply: It beams electronic health record information to doctors while they’re meeting with patients, so doctors can, say, query someone’s white blood cell counts in real-time without having to traipse back to their computers in the middle of that patient’s visit or in between patient visits.

Whether or not Augmedix is the biggest company focused on turning Glass into a physician’s tool “by every metric,” as its CEO, Ian Shakil tell me, its claims can’t be far off. According to the research firm Datafox, only a handful of startups are dabbling in any kind of Glass-related healthcare applications at the moment, partly because there’s still too much uncertainty about Glass’s widespread uptake, and largely because Glass isn’t protected under federal information privacy rules, meaning that each patient has to give his or her written consent – an effective but inelegant workaround.

So why is Augmedix treading where few startups are ready to go yet? Shakil, who cofounded Augmedix a few weeks after graduating from Stanford Business School (which is also where he met his cofounders), talked with me about it the other day.

You’re announcing new funding but you closed it in August. Why share the news now?

We just wanted to be out of the media’s eye and focus on execution and on hitting more milestones and making more progress before talking to media.

What sorts of milestones can you share? How many doctors are using Augmedix?

We’re selling to large groups of doctors, rather than doctor to doctor, and so far we have several health systems and doctors groups [as customers] and we’re generating revenue. As healthcare continues to consolidate, our job becomes easier because there are fewer people to sell to. Enterprise sales is also the bread and butter of Emergence Capital, so it’s great to have them [as an investor].

How do you address privacy concerns?

Patients don’t walk in the door to see their doctor wearing Google Glass. They’re handed a laminated FAQ and are educated about [the process] and can opt out of having the doctor wear it.

We’ve also created an entirely separate [from Google] cloud-based service that’s on pipes that we control, and we’ve signed business associate agreements with customers, saying, “We’re doing all the [protected health care information] just like other electronic healthcare companies.” We’ve hardened the device in lots of ways, too, such that it’s even more secure than a smart phone in a health care environment.

As a third-party developer, you’re always at the mercy of the platform. How do you mitigate that risk?

I don’t think the risk is as great as some people think. Also, though our materials are all about Google Glass, we’re hardware agnostic; [our tech] also runs on [the Android-based] Vuzix M100. And there are many other smart glass technologies out there, some operating in stealth mode; it’s becoming a competitive space.

I think Glass is the best right now and that it has the best software environment and hardware, so it’s our go-to. But over the long run, I think we’ll be protected no matter what happens.

You have 36 employees working on creating this technology and getting it into physician offices. Is it safe to say you’ll be raising money again soon?

Yes, actually, we’ll look to raise another round, bigger than the amount we’ve raised thus far, later this year.

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New Fundings

Aquantia, a 10-year-old, Milpitas, Ca.-based high-speed Ethernet connectivity solution for data centers, mobile and enterprise infrastructure, has raised $16 million in Series G financing led by the programmatic integrated circuit maker Xilinx. The company has garnered roughly $160 million altogether, from investors that include New Enterprise Associates, Greylock Partners, Lightspeed Venture Partners, Pinnacle Ventures and Rusnano.

Blue River Technology, a three-year-old, Mountain View, Ca.-based robotics company that’s using computer vision techniques in agriculture (including to identify and kill unwanted weeds), has raised $10 million in Series A-1 funding led by Data Collective, with participation fromInnovation Endeavors and return backer Khosla Ventures. The company has now raised $13.4 million altogether.

Cloud4Wi, a year-old, San Francisco-based Wi-Fi services company that spun out of WiTech, an Italian company offering managed solutions and services in the telco market, has raised $4 million in Series A funding from the Italian venture firm United Ventures.

Cobrain, a year-old, Bethesda, Md.-based “cross-merchant personalization engine” that aims to present shoppers with the goods of various retailers at once, has raised $3 million in seed funding from a group of unnamed angel investors. Cobrain was founded by CareerBuilder.com founder Rob McGovern.

CorTechs Labs, a 13-year-old, San Diego-based company that develops and markets brain imaging software designed to diagnose a variety of brain disorders, has raised an undisclosed amount of Series B funding from Dragasac, a company incorporated in the Isle of Man.

Glo, an 8.5-year-old, Sunnyvale, Calif.-based LED product developer, has raised $30 million in Series D funding, led by an unnamed new investor. Other participants in the round included earlier investors Wellington Partners, Teknoinvest, Nano Future Invest, Energy Future Invest, Foundation Asset Management, and others. Glo, spun out of Lund University in Sweden, has raised roughly $115 million to date.

Heyo, a three-year-old, Blacksburg, Va.-based social marketing platform designed to help small businesses, has raised $2 million in Series A funding from Valleys’ Ventures, a Radford, Va., investment firm.

Integrated DNA Technologies, a 27-year-old, Coralville, In.-based company that calls itself the world’s largest manufacturer of custom nucleic acid products, has raised a slug of funding from Summit Partners. No terms were disclosed, but the company’s founder, Joseph Walder, remains its majority shareholder.

Nitrous.IO, a 1.5-year-old, Menlo Park, Ca.-based cloud-based developer platform, has raised $6.65 million in Series A funding. Earlier investor Bessemer Venture Partners led the round with participation from investors that included 500 Startups, Crunchfund, Facebook co-founder Eduardo Saverin and Golden Gate Ventures. Nitrous.IO has raised a $1 million seed round last April.

Parchment, an 11-year-old, Scottsdale, Az.-based education credentials technology company, has raised $10 million in fresh funding led by The Raine Group. Earlier investors, including Novak Biddle Venture Partners, Salmon River Capital, GSV Capital and ICG Holdings, also participated. The company has raised $45 million altogether.

Percolate, a three-year-old, New York-based a startup that helps brands figure out what content to create and share on social neworks, has raised $24 million in Series B funding led by Sequoia Capital. Earlier investors GGV Capital, First Round Capital, Lerer Ventures, and ad agency WPP also participated in the new funding. The company has raised $34.5 million to date.

Platfora, a three-year-old, San Mateo, Ca.-based that promises to “mask the complexity of Hadoop,” making it easy for enterprises to understand facts in their business across events, actions, behaviors and times, has raised $38 million led by Tenaya Capital. Citi Ventures, Cisco Systems and Allegis Capital, also participated in the round, alongside earlier investors Andreessen Horowitz, Battery Ventures, Sutter Hill Ventures and In-Q-Tel. The company has raised $65 million to date.

RadPad, a 14-month-old, L.A.-based apartment rental search app, has raised $1 million in financing, including from Deep Fork Capital and Post Investments. The funding brings RadPad’s total funding to $2 million, according to Crunchbase.

Reonomy, a year-old, New York-based commercial real estate technology company that provides investors and lenders with data and analytics, has raised $3.7 million in Series A funding led by SoftBank Capital. Earlier investors Resolute Ventures, High Peaks Venture Partners, KEC Ventures, and FinTech Collective also participated in the round. The company has raised roughly $4.8 million to date.

Simply Measured, a four-year-old, Seattle-based company whose software helps its customers analyze conversations and marketing efforts across major social media platforms, has raised $20 million in Series C funding led by Trinity Ventures with earlier investors Bessemer Venture Partners and MHS Capital participating. The company has raised $28.8 million altogether.

SummitIG, an 18-month-old, Dulles, Va.-based company building a new 170-mile dark fiber route in Virginia, has raised a “large term loan” of unspecified size ORIX Ventures and an equity investment (whose size wasn’t disclosed either) from earlier investor Columbia Capital.

Wedpics, a three-year-old, Raleigh, N.C.-based online and mobile platform that encourages wedding participants to share photos, has raised $1 .5 million in Series A financing led by IDEA Fund Partners. Other participants in the round included Great Oaks Venture Capital, the angel group TAP, and numerous other individual investors.

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New Funds

Australian technology investor and former Microsoft executive Daniel Petre is preparing to launch a $50 million Australia-focused technology investment fund, reports Business Review Weekly. Petre is co-founding the fund with Craig Blair, CEO of Zeebox Australia and a former managing director of Expedia Australia. According to the outlet, the duo plan to invest between $2 million and $5 million in each startup they back.

Ysios Capital, a six-year-old, Barcelona-based venture capital firm, is looking to raise a new, 100 million Euro fund to back early-stage life sciences companies, the firm says in a release. The fund will target companies in Europe and North America and will be the firm’s second vehicle. Its first, the 69 million Euro Ysios BioFund I, was launched in 2008 and has already distributed capital to its investors in each of the last three years, says the firm.

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IPOs

Let the games begin. Chinese e-commerce giant Alibaba will hold the kickoff meeting for its planned U.S. initial public offering on March 25, setting in motion the most high-profile listing since Facebook’s offering nearly two years ago, sources told Reuters yesterday. (The WSJ is reporting that the NYSE is the front-runner right now.)

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Exits

It’s a bit premature to include this in “exits,” but Kior, a publicly traded operator of the first U.S. commercial-scale cellulosic biofuel plant, dropped 39 cents to 65 cents per share at the market close yesterday, after telling regulators it has serious doubts about staying in business. The company, which went public in June 2011 (its shares priced at $15 a piece), just raised $100 million in October from Khosla Ventures and Gates Ventures. Bloomberg has much more here.

AdMobius, a two-year-old, San Mateo, Ca.-based mobile ad startup, has been acquired by Lotame, an independent data management platform, for undisclosed terms. AdMobius had raised $5 million in the fall of 2012 fromOpus Capital and Storm Ventures. Still-private Lotame has raised roughly $50 million over its 7-year history, including from Battery Ventures,Betaworks, Emergence Capital Partners, Hillcrest Management,TrueBridge Capital Partners, Pinnacle Ventures and Sozo Ventures.

Cameo, a video-making app that launched last fall, has been acquired byIAC, with its 14 employees headed over the IAC subsidiary Vimeo. Terms of the deal were not disclosed but the company’s CEO tells Re/code Vimeo will continue running Cameo as a standalone app. If Cameo raised outside funding, it never reported it.

Cenzic, a 14-year-old, Campbell, Ca.based company that makes application security testing technologies, has been acquired by 19-year-old, Chicago-based Trustwave, a broader security testing platform. Terms of the deal were not disclosed. Cenzic had raised $15 million in equity, according to Crunchbase, including from Mohr Davidow Ventures,Hummer Winblad Venture Partners, JK&B Capital and Advanced Technology Ventures.

Vega-Chi, a five-year-old, London-based bond trading platform, has been acquired by the institutional trading network Liquidnet for undisclosed terms. Vega-Chi had raised $3.2 million from Octopus Investments in 2011.

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People

Sam Altman, the newly appointed head of Y Combinator, talks, a lot, notes Re/code in new profile of the 28-year-old. Writes reporter Liz Gannes: “If you ask anyone who knows Altman, from former employees to investors to mentors to mentees to friends, they’ll mention his perpetual availability — the way he seems to reach out every day, multiple times per day, on the phone or email or text or instant messenger. Altman estimates he keeps in close touch with ‘low hundreds’ of people on a daily basis.”

Venture capitalist John Doerr has cashed out more off his Googleholdings. On Monday, while you were eating Irish soda bread, he was unloading 3,497 shares on the open market for a total haul of $4.2 million. In late February, Doerr, who reportedly now directly owns just 2,522 shares in the company (value: approximately $3 million), sold 11,774 shares of the stock for a total value of $14.2 million. He also sold roughly $4 million worth of shares in mid-December.

Marc Whitten, chief product officer of Microsoft‘s Xbox division, is leaving to become the chief product officer of the 12-year-old, wireless audio company Sonos. Geekwire looks at what the move means.

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Job Listings

Facebook is looking for a director of global mobile partnerships at its Menlo Park, Ca., headquarters.

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Data

Inspired by investor Hunter Walk’s post, “New Grads: Midstage Startups Are Your Best First Job in Tech,” Datafox has compiled a list of 45 companies that are Series B and C funded, less than 10 years old, and experiencing what the research firm calls “significant traction.” You can check out its findings here.

How hot are investors on the Internet of Things ecosystem? CB Insights says financings in related startups grew each successive quarter of last year, hitting an eight-quarter high in the fourth quarter. Altogether, VCs plowed $1.1 billion into 153 deals, according to the firm.

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Essential Reads

Fund of funds Paul Capital is winding down its portfolio and shuttering all but its San Francisco office after a planned sale to Hamilton Lane collapsed. As much as $300 million of open commitments will be returned to investors, sources tell the WSJ.

Google is in hot water for scanning millions of students’ email messages and allegedly building “surreptitious” profiles to target advertising at them.

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Detours

More than a dozen neurotoxins cause behavioral and cognitive problems. Eek. Here they are.

Night-vision contact lenses might be a thing soon.

What the world eats for breakfast.

GQ meets the people at Buzzfeed who curate all those super adorable pet slideshows you occasionally click through. (We won’t tell anyone.)

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Retail Therapy

Woolpower sweaters. Good enough for the Swedish army.

We also love Oliver Gal, for affordable wall art that won’t remind you of your (fun but gross) college apartment.

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