First Round Capital

Flightcar Raises Fresh $20.7 Million, Amid Major “Restructuring”

Imagine a young startup where two of three founders are pushed out the door. Imagine that this same startup parts ways with its COO, its SVP of Finance, its VP of Guest Experience, its VP of Engineering, its VP of Marketing and roughly half its other full-time employees, all within a period of months. Not last, imagine that the remaining cofounder, who is 20, has never before held a full-time job.

Sound like a great company into which to sink a small fortune? Investors in Flightcar, a 3.5-year-old, San Francisco-based startup, apparently think so. In fact, Priceline Group, Tencent Holdings, and earlier backers GGV Capital, General Catalyst Partners, Softbank Capital and First Round Capital came together last month to quietly provide the company with $20.7 million in Series B funding. It has now raised roughly $40 million to date.

Flightcar was formed to address a very real problem: the hassles involved in airport parking. The idea: while you’re away on a trip, someone else arriving into town can use your ride. You leave your car with a valet and skip the process of schlepping back and forth to a far-flung lot. You also avoid parking fees that can add up fast. Your car, meanwhile, gets insured against theft and damage, it’s thoroughly cleaned, and you’re given a little cash for every day your car was rented.

The idea isn’t foolproof for many reasons, including growing competition from Uber. But Flightcar had been ticking along just the same, striking deals with three airports – San Francisco, Boston, and L.A. — by September of last year and raising $13.5 million in the process.

Then, encouraged by investors to start scaling as rapidly as possible, the figurative wheels began to come off.

More here.

The Industry Gets a New, $50 Million Micro-VC Fund of Funds

Today, Venture Investment Associates, a 21-year-old fund of funds group that commits capital to venture capital, growth capital, and private equity groups, is announcing that it has closed on an oversubscribed $50 million seed fund of funds that counts some pretty tony institutions as LPs. Managing director Chris Douvos — who joined the firm in 2011, having worked previously for TIFF (The Investment Fund for Foundations) and Princeton University’s endowment — won’t let StrictlyVC name those investors. But we talked recently about numerous other facets of the new fund, and who it’s liable to back. Our chat has been edited for length.

This is your second formal micro-VC fund of funds, and half of it is already committed. Is that right?

Yes, we’ve been investing in [micro-VC] since 2004; we were part of First Round Capital’s friends-and-family round. But we closed on an oversubscribed $25 million fund of funds in 2012, 80 percent of which went to four managers: True Ventures, First Round Capital, Data Collective and [O’Reilly AlphaTech Ventures]. And half of this oversubscribed $50 million fund is deployed among First Round, True, and Data Collective. We’re also likely to do OATV again when it comes back in the market.

That’s concentrated.

I believe investing is about conviction. I would give [First Round founder] Josh Kopelman the last dollar in my kids’ college funds.

What kind of ownership percentage do you target?

When we’re a major institutional backer of a new entity, we like at least 10 percent of the fund. In the case of OATV, back in 2006, we did 15 percent of the fund. At Data Collective, we [bought] 10 percent of fund in 2012. We have a group of [institutional] investors who are super sophisticated and we’re sort of bird-dogging ideas for them.

What new idea are you spying? What other types of funds are you looking to back right now?

We’re looking to find another group or two where we can really make an impact and put them in business. Having invested in the space for more than a decade now, it’s easy to tell who the tourists are and who the long-term players are. I focus on groups that somehow punch above their weight, that offer a platform dynamic where their companies will materially benefit from interaction with the VC but where the VC doesn’t end up being a bottleneck.

I’m not looking for sharpshooters that are the next really smart ex-entrepreneur, because I’ve seen that model rise and fall several times. There are a plethora of these people raising funds; I think we’ll have a Cambrian explosion and the species will kind of die off during the next financial crash. It’ll be like a meteor hitting.

Are you seeing many newer firms emerge with platform approaches? I take it you’re looking for another True or First Round – firms that do a lot to facilitate interactions between the founders of their portfolio companies.

Firms that demonstrate platform dynamics are really special, but they’re few and far between. There’s no one on my radar screen right now.

Do you care where a firm is based? Would you fund a firm that’s not in the U.S.?

This is an information business, and when you’re investing far afield, you start outrunning your supply lines of information. You’re investing in people and you need to understand their motivations and their fears and their contexts, and it’s hard to know those when they’re thousands of miles away.

Do you favor VCs who spin out on their own to entrepreneurs?

I think operating experience is overrated and that people undervalue the investing experience of people who’ve written checks of institutional size. When I’m looking at an entrepreneur, I’m asking myself: How do they think about investing as a fiduciary, because it’s a very different skill set and thought process.

There’s a bias in the Valley that [investing experience] is a secondary consideration and that finding a cool technology or exciting team will make everything work out. But we’re starting to see with late-stage deals that are heavily structured and sapping the returns of earlier investors that [those ties] aren’t sufficient to the end goal of making money for investors.

What do you make of AngelList? Do you think more entrepreneurs should or will begin using it to form their own micro VC outfits?

I think AngelList Syndicates and [the accredited investor platform] FundersClub could really reshuffle the landscape. We don’t know yet how those stories play out. We made a small investment in AngelList’s Maiden Lane [a fund that backs investors on AngelList] partially to have a front row seat as things unfold.

But part of me wonders about a lot of people who are raising these small funds. Traditional fund structure is deeply flawed. The average fund lasts twice as long as the average American marriage. It often outlasts their LP’s tenure at an institution. They’ve got to be thinking: Why not raise money via AngelList instead?

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A Small New Fund with a Game-Changing Idea

Unlike venture capitalists, who get to place dozens of bets in search of a winner, founders typically have one shot at winning the startup game.

Kent Goldman, a former partner with First Round Capital, thinks he has struck on a way to improve those odds. Today, Goldman takes the wraps off a new, San Francisco-based, $30 million seed fund called Upside Partnership that will give every founding team in its portfolio a piece of its carry, making them effectively Upside’s partners.

That’s right. Goldman will take what he characterizes as a standard management fee. But he’ll be sharing an amount of carry that he expects will reach “significantly into the double digits,” albeit “less than half” of Upside’s overall upside.

If a venture capitalist somewhere just spit out his coffee, it’s understandable. Like it or not, Goldman may have just changed the game for everyone. What founder wouldn’t want a piece of a venture portfolio at no additional cost? And what better motivation for founders to help one another?

VCs like to talk with entrepreneurs about what’s fair. Goldman’s model — where founders will receive carry on a sliding scale, based on Upside’s initial check size — doesn’t get much fairer.

Other details about the fund: Unlike the many specialized seed funds springing into existence these days, Goldman says he went in the opposite direction, with plans to focus very generally on “purpose-built founders who can explain why this is the right time in their life to pursue their passion.”

Certainly, if Goldman is predisposed toward certain sectors, you wouldn’t know if from his portfolio at First Round, where his varied investments included the hotel booking application company HotelTonight; the real time analytics platform MemSQL; and Airware, a platform that helps other companies develop commercial drones.

Goldman says he plans to write relatively small checks, too, staying in the “$300,000 range” when possible. For one thing, he thinks there’s a dearth of VCs who are willing or able to meaningfully help startups without more money riding on those companies. He also suggests that getting into the best deals might be easier if he’s not asking founders or other investors to “make room for me.”

As for fundraising, Goldman, who is the fund’s sole general partner for now, says it took roughly four months, with most of the capital coming from institutional investors. In fact, Goldman says that less than $2 million came from individuals, including First Round founder Josh Kopelman, with whom Goldman remains close.

It begs the question of why Goldman left a plum job with First Round in the first place.

“Venture tends to not be a terribly entrepreneurial industry,” Goldman says. But he had his big idea, and he couldn’t let it go.

“I view this like any founder who leaves a great company to try something on their own,” he says. Particularly when that company’s mission involves meeting with entrepreneurs every day, it’s “hard not to catch the bug yourself.”

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Accel Partners Backs Father-Son Team in Sookasa

Sookasa, a 2.5-year-old, 12-person startup in San Mateo, Ca., is taking the wraps off its business today, as well as unveiling $5 million in Series A funding led by Accel Partners, which it closed on last August.

No doubt Accel was attracted to the startup’s technology, which promises to dramatically simplify the protection of sensitive files across popular cloud applications and mobile devices. As services like Dropbox and Box become increasingly ubiquitous and more employees use them to share files with each other and people outside their companies, businesses in particular need a better way to manage and protect that data. Sookasa, a cloud-based offering, says it make the process of encryption so easy that even a sole practitioner can get up and running as easily as he or she can sign up for Dropbox itself.

Yet Sookasa is interesting for another reason. In addition to cofounders Madan Gopal and Chandra Shetty — both senior engineers from Cisco, formerly — Sookasa’s founders are a father and son who serve as CTO and CEO, respectively. Israel Cidon was long a professor at Technion in Israel; he also founded four prior companies, including Actona Technologies, acquired in 2004 by Cisco. Asaf Cidon, a PhD candidate at Stanford, spent a year working in R&D at Google after spending three years in the intelligence section of the Israel Defense Forces.

Asaf Cidon talked with StrictlyVC the other day about the company and what it’s like to work with his dad.

You want to allow professionals in regulated industries, like health care, finance and legal, to use their favorite cloud services in a secure way. How is your service different from what already exists?

The issue with other types of solutions is that they’re only good as long as you’re accessing the cloud through a company computer or company network. If you’re sharing with someone outside of company, they can’t access the files. We encrypt files anywhere they go.

What was the impetus for the company?

Dad and I are both geeks who’ve been mucking around for years on crazy ideas and we were [storing] a lot of our documents on Dropbox. And we asked ourselves: Where is our data? Where are all the copies of these files and who can access them? What we found was those are really hard questions to answer. These services keep a lot of different copies and it isn’t clear who can access them. It’s an interesting problem to address for consumers, but even more so for businesses, where you can get fined $5 million for a HIPAA breach, for example.

Not many entrepreneurs launch companies with their fathers. What it’s like?

There probably aren’t many cases where founders have started a tech business with family members — though Mendel Rosenblum cofounded VMWare with his wife [Diane Greene], which is an even more precarious situation. [Laughs.] My dad and I really get along, though. We’re also very different. He’s a professor who’s really interested in hard problems; he’ll obsess for a week over [some aspect of] encryption architecture. I love the business side and how we find the right business positioning and sales, which I didn’t always know I would.

You raised $5 million in Series A funding in August, after raising $1.7 million in seed funding in 2012. Why announce it now?

First, we had to go through extensive security and HIPAA audits by [the audit firm] Praetorian, to [ensure we meet all the technical safeguard requirements]. We also wanted to wait until the product was simple enough for the public to use. We have customers, but an encryption product isn’t necessarily easy to explain to a doctor or nurse or even a lawyer. Now the product is in a state where you put your folder in Dropbox and it’s encrypted, it’s done. You don’t even know it’s there.

For inquiring minds, will be you be in the market for more funding this year?

We’re not right now looking for a Series B, but we’ll need funding to expand. We’ll probably need inside sales [staff] pretty soon. With our ambitions, we’ll be going through at least one more round — to put it mildly.

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