You may have noticed: Hardware investing is in vogue. Andy Rubin, creator the mobile operating system Android, recently launched Playground Global to advise device makers in exchange for equity. Formation 8 is raising a $100 million hardware-focused venture fund. That’s saying nothing of the seed-stage fund Bolt, which raised $25 million a few months ago, and the numerous accelerators now focused on backing hardware startups, including Haxlr8r, Lemnos Labs, and Highway1, which is an offshoot of the custom design manufacturing company PCH International.
Now, the Bay Area has yet another entrant on the scene: San Francisco-based Root Ventures, which just closed its debut, hardware-focused fund with $31,415,927 (the first 10 digits of Pi), capital that it raised from a gaggle of high-net-worth investors along with the fund of funds manager Cendana Capital.
Root Ventures is a single-GP fund founded by Avidan Ross, a trained engineer who was previously CTO of the private equity firm CIM Group. Ross isn’t widely known (yet) in press circles, but a growing number of venture capitalists and entrepreneurs have grown acquainted with him through the roughly 10 bets he has placed in recent years with the help of his friends’ capital.
Some of Ross’s older bets include Wallaby Financial, a mobile finance company that was acquired by Bankrate in December for an undisclosed amount. Another is Skycatch, an aerial robotics platform that received its first check from Ross and which has gone on to raise $24.7 million altogether, including from Google Ventures. Ross also wrote the first check for Momentum Machines, a company whose robots turn raw ingredients into packaged hamburgers without human intervention. It just raised an undisclosed amount of follow-on financing from Founders Fund.
“I don’t think people were investing in me based on my individual track record as an angel,” says Ross. “Those investing in me know me from a previous life [as CTO] of a pretty large investment firm where I built a lot of great relationships with people who trust my ability to invest in great technology.”
Ross, who raised much of his new fund late last year, has made three newer investments on behalf of Root Ventures, where he plans to make concentrated bets, and to write first checks in the range of $500,000.
The most recent of its portfolio companies is operating in stealth mode, but it’s easy to see the appeal of the others. Mashgin — company Ross met through entrepreneur friends — has developed an automated checkout kiosk machine that employs computer vision to identify any object on a surface (down to the different-flavored Snapples, says Ross). The big idea: to create a far more seamless experience for shoppers.
The company graduated late last year from Y Combinator and is about to announce a “significant” amount of follow-on funding, says Ross, who wrote its first check.
Ross also invested in Prynt, which makes a smartphone case that prints out photos. He met the company during his honeymoon in China. The young company was operating out of the Haxlr8r accelerator in Shenzhen, “and I asked if I could take a three-hour break and visit with the companies. I immediately thought: ‘This is amazing.’”
If you don’t understand why a printing up a digital photo might be interesting, Ross says Prynt’s opportunity goes “above and beyond printing out a polaroid. When you print a photo, you’re basically printing up the last frame of a 10 second video. With Prynt photos, you hand them to someone else, they point their phone at the photo, and the photo becomes alive [by featuring those full 10 seconds]. It’s like a Vine that only that person can watch. It creates privileged access.”
Others must like it, too. Prynt recently raised $1.5 million in a Kickstarter campaign earlier this year.
Ross says the company also just raised a “sizable seed round that’s unannounced. An earlier SEC filing suggests the amount is $2 million.
AltSchool Looks to Next Round, as Demand from Parents Balloons
If you don’t live in the Bay Area, you might not be familiar with two-year-old AltSchool, a budding network of schools founded by Max Ventilla. But the former Googler — who worked at the company both before and after it paid $50 million his startup, Aardvark — has huge ambitions to change the way we educate children. VCs like his vision, too. Andreessen Horowitz and Founders Fund led a $33 million investment in the school last year, and they’ll likely commit more, says Ventilla. (AltSchool, which is also operating on $11 million in debt from Silicon Valley Bank, will raise another round in coming months that’s likely to come “more or entirely” from insiders, Ventilla says.)
No doubt investors are drawn to AltSchool’s “full-stack approach,” as Ventilla characterizes it. Among other ways the company is trying to reconstruct education via its tech-heavy, personalized-learning approach: students follow tailored curriculum based on their individual skills and needs. Children are spread across numerous, smaller locations than many schools, and with higher teacher-to-student ratios. Not last, AltSchool – which has three schools in San Francisco and four more in the works, including in Brooklyn — groups kids by age brackets, rather than grade levels.
The results of this grand experiment will take some time. An outstanding question in the meantime is how the school provides investors with a venture-like return. While demand for AltSchool is high and growing — it received 1,000 applications for just 150 slots this past year — there aren’t many acquirers for a business like AltSchool. Meanwhile, Wall Street has a love-hate relationship with ed tech companies. Perhaps unsurprisingly, Ventilla says he’s already thinking about alternatives to going public. We talked last week. Here’s part of that conversation, edited for length:
Why start a new school system from scratch?
I’d had some amazing work experiences at Google, most recently [as the head of personalization] at Google, running a high-caliber team of about 100 engineers. I’m a startup guy, though, and so the team and I started to talk about what kind of thing we’d want to do next. I felt like I had one more startup in me – likely the last one – so we were looking for things that would be big and important and meaningful in terms of impact and relevance to our skills and experiences. And few industries are as large and in need of improvement as education.
How did you settle on AltSchool’s very specific and different approach?
We were fortunate as a founding team to include four educators — two with longstanding experience. We’re also operating in a wonderful space in terms of how transparent people are willing to be. I can go into any ed tech company and say, “What’s working? What’s not?” It’s a very different atmosphere in terms of openness and collaboration than anything I’ve experienced before.
You start with first principals in an environment that you can control. We operate the schools from the real estate to the IT to the lunches that get delivered. Based on that proximity to students and parents and teachers, from whom we’re getting monthly satisfaction data on a granular level, we iterate. We’re a constant work in progress. But we think that as we scale, we’ll accelerate our rate of improvement.
Your vision includes an expanding network of classrooms and schools, so students can move from one location to another seamlessly. Why is that important to you?
Because how long people tend to live in one place is plummeting. Our kids will likely live in 20 different places when they’re grown.
And AltSchool is interested in smaller spaces — so you can establish far more schools?
Yes, onerous and justified building code restrictions are one reason. But there’s also a much more efficient real estate market for 8,000-square-foot spaces versus 100,000 square feet [the size of traditional schools], where 95 percent of the space includes shared halls, an underused gym [and so forth]. On average, we offer children 95 square feet of facility space and 70 to 75 percent of square feet of classroom. Traditional schools offer 175 square feet of facility space and just 45 square feet of classroom.
You have several locations that right now charge families roughly $20,000 per student, a cost you plan to lower over time. But you also expect to license what you’re developing. Which will be the bigger business ultimately?
In the long term [licensees] is what we’re charting toward. It’s hard to imagine that you wouldn’t have an order of magnitude more impact [through licensing aspects of the business]. That said, I think it’s extraordinarily important to have an expanding number of schools; it’s how we iterate and refine what we’re doing and how we’ll stay closest to the school experience.
AltSchool has 75 employees currently, including 25 teachers, most from traditional backgrounds. Does their compensation differ much at AltSchool?
We take their base salary and give them a meaningful but small percentage raise. They also receive a performance-based bonus and their benefits are significantly better than the schools from which they’re coming. Everyone has equity in company, too, which represents a small fraction of their compensation but is expected to become significant as they stay with the company and level up in terms of their responsibility. It could represent a life-changing financial outcome . . . which is a big a deal in these professions where nothing great could happen to you financially, [where you] pretty much have to reconcile yourself with multi-decade grind.
That’s out of sync with the kind of 21st century entrepreneurial ideal, and there’s something odd [in thinking] that kids will learn 21st century skills from educators who aren’t given a 21st century work environment.
What is the exit for AltSchool? Do you plan to take it public eventually?
I’d hope that the scale and impact [we anticipate having] would justify going public, but there are alternatives to going public that the mission and business would benefit from and that would satisfy [investors’] desire for liquidity.
Such as?
Entirely new markets are opening up that are predicated on different mechanics and incentives. I have friends working on things that, if they were successful, would represent appealing alternatives. Also, you have this funny situation where if you go public, your investors are predictably mutual funds, pension funds, and large family offices, and you see companies just going directly to those investors. With Uber’s newest round, it’s essentially public; it raised capital from all those same people.
A third option would be around social impact investing and social impact bonds. We’re far from being the size that could turn to those — they’re growth capital — but we’re in a space where you could tie the capital you raise to the social benefit that you’re engendering. We’re a B Corp and the whole idea is that you can have a great business and operate as a good corporate citizen, and I think that idea is very in line with nascent capital avenues and new exchanges. Some of what’s happening is in stealth, but there’s lots of it going on.
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Trusted Insight, the Social Network For LPs, Looks to Next Round
Trusted Insight is a four-year-old, New York-based platform that has made itself valuable to institutional investors – 100,000 of them and counting – by giving them a place to research one another, scout out new deals and trends, and connect on due diligence — all with the help of advanced algorithms and semantic analysis.
Now the 16-person company is gearing up for its next phase, suggests cofounder Alex Bangash, who previously founded Rumson Group, an advisory firm that specialized in private equity and venture investments.
Most notably, the company will be unleashing some financial products of its own, though Bangash won’t be more specific than that today, citing competitors that are copying Trusted Insight down to “features we want to throw away.” He merely says to “think of us as the Netflix of investment management. Netflix can create ‘House of Cards.’ We can [create our own offerings] in this business, too.”
Trusted Insight is also preparing to open its doors a bit wider to “different tribes,” says Bangash, who cites fund managers, companies, and “high net worths” who are accredited but don’t necessarily have a billion dollars behind them. (The platform will “still retain its exclusivity,” he insists.)
Trusted Insight also has numerous new features up its sleeve, including “certifications” that help to highlight who is truly expert in what, regardless of their academic credentials.
As for how it achieves what’s on its road map, Bangash says the company has three options, including organic growth. To wit, Bangash says Trusted Insight is poised to double or even triple its user base in the next year, as well as to increase the data it’s managing by five times. Considering that a “small but meaningful portion” of its 100,000 members already pay for one of Trusted Insight’s varying tiers of service, which range in price from $99 to $499 per month, the platform could “be a very large business on [its software-as-a-service fees] alone,” he says.
A second option includes partnering with another outfit (Bangash says Trusted Insight is “talking with two or three players”) or raising a big fat round of funding, which seems like the most likely scenario. Already, Data Collective, Founders Fund, RRE Ventures, Morado Ventures, Real Ventures, and 500 Startups are among those that have invested an undisclosed amount of money in Trusted Insight. And Bangash says he’s been receiving “inbound interest from prestigious investors” anew.
Either way, Bangash sounds confident in the network effects that Trusted Insight now enjoys, noting that “someone could develop a nicer LinkedIn, too, but people probably wouldn’t use it.” The trick going forward is turning Trusted Insight from a “transformational company,” as he calls it, into a transactional one.
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