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A New Way to Fund Unicorns Starts to Look Less Magical

unicornIf you haven’t heard of a fairly new twist on investing called special purpose vehicles (SPVs), you probably aren’t an institutional investor or a wealthy individual with direct ties to either a venture firm or a high-flying startup like Pinterest or Postmates.

But don’t worry if you’ve missed the opportunity to invest in one. Investors may find they weren’t worth the risk if valuations of so-called unicorns — some given “haircuts” recently by their mutual fund investors — start to slip more broadly.

The vehicles – essentially pop-up venture firms that come together quickly to make an investment in a single company – began surfacing around 2011, leading up to Facebook’s IPO, and they’ve been on the rise since. In April, the Wall Street Journal reported on several low-flying SPVs that have been used to connect investors with high-profile, still-private companies like the data analytics company Palantir Technologies and the grocery -delivery outfit Instacart.

Another company that has raised money via numerous SPVs is the digital scrapbooking company Pinterest. When it set out to raise more than $500 million earlier this year, the venture firm FirstMark Capital raised a $200 million for a SPV to help fund it. In 2014, Pinterest separately raised $131.1 million through two SPVs organized as Palma Investments by SV Angel, the seed-stage fund founded by renowned investor Ron Conway.

It’s no wonder that investors are drawn to the vehicles. In the case of Facebook, early access to the company produced big dividends for investors. Investor Chris Sacca similarly amassed an outsize stake in Twitter for investors Rizvi Traverse and J.P. Morgan by creating SPVs that paid off. (How richly depends on when they began cashing out. As of late September, Rizvi Traverse had sold more than 10 percent of the 15.6 percent of Twitter it owned at the time of its November 2013 IPO. Twitter’s shares peaked in January of 2014 at $69 per share; they’re now trading at roughly $26 apiece.)

Whether investors in newer SPVs will see such rewards remains a question mark – and there a lot of investors in newer SPVs.

More here.

FirstMark Capital: Health Care Investor?

stethoscope1FirstMark Capital, the early-stage, New York-based venture firm, is best-known for its consumer investments, including Pinterest, the mega-successful online bulletin-board network whose newest, $225 round of funding valued the company at $3.8 billion. (FirstMark participated in its $500,000 seed fund in early 2010.)

Lesser known is FirstMark’s newer, self-imposed mandate to fund more healthcare IT companies, which its partners view as a giant opportunity that happens to be highly complementary to the firm’s existing skill set.

Not only is the health care IT market “gigantic” and the “cost curves unsustainable,” as managing director Amish Jani recently noted to me, but thanks to numerous trends — like cloud platforms that connect practitioners and patients in new ways — it has also become accessible to investors who might not have PhDs but who know their way around platform technologies.

For example, FirstMark has backed Gravie, a consumer marketplace for healthcare insurance; Greenphire, a company that makes Web-based payment software that’s marketed to the clinical trial industry; and Superior Access Insurance Services, an online insurance exchange that’s used to connect carriers with insurance agents.

Its investment in BioDigital is another example of a health care company that FirstMark seems well-suited to help. The 11-year-old medical visualization firm already develops 3D animations of the human anatomy for drug makers and medical device makers; with the help of FirstMark — which led a $4 million Series A round for the company in September — BioDigital is working toward new, freemium models, too, including with consumer Web companies that want to augment their content with its technology.

Still, not everyone thinks the strategy of FirstMark — or other Internet investors like Social+Capital Partnership that are suddenly focusing more on healthcare IT — makes sense. Bijan Salehizadeh, for one, a longtime PhD and managing director at NaviMed Capital in Washington, D.C., recently wrote a thoughtful piece about how easy it is to underestimate the complexities of healthcare investing, not least because healthcare is a “slow-to-evolve industry with powerful and durable relationships.”

Domain expertise matters, Salehizadeh had argued.

Maybe so. Then again, the right health care investment could reframe the way that FirstMark is viewed by entrepreneurs and investors alike. As Pinterest illustrates, sometimes it takes just one savvy bet to change everything.

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