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Maveron’s Dan Levitan: This Time Is Not “Different”

Dan Levitan, the former investment banker who founded Maveron with Starbucks founder Howard Schultz, is having a pretty good run as a venture capitalist. His 16-year-old firm has backed a long line of consumer-facing startups that have become household brands, including eBay, Groupon, Cranium, Shutterfly and Zulily, the daily deals website for moms whose late 2013 IPO transformed an early, $5 million check from Maveron into a windfall for the firm and its investors (though Zulily’s stock has more recently been sinking).

That long string of winners has convinced Maveron’s institutional backers to provide it with nearly $1 billion over the years, including a $140 million fifth fund that the firm closed last year. Still, Levitan — who has a big personality and tells the sorts of unguarded personal anecdotes that readers love and public relations pros abhor – readily admits that Maveron has lost its way a couple of times before getting back on track.

StrictlyVC talked with him last week in a fun chat, shortened here for length (and per the request of his watchful communications advisor).

You’re in Seattle, but you’ve had a team in San Francisco for a few years. Do you spend time down here, too?

I’m down at least every two weeks. Increasingly, we’ll be down there more. We’ve had some successes up here in Seattle, but as we’ve moved to a more-focused consumer-only strategy, we realize we have to be more successful in San Francisco.

A “more-focused” consumer strategy? Maveron has always been focused on consumer startups, hasn’t it?

We’ve always been consumer only, but we kind of justified [a] business-to-business-to-consumer [strategy] for the first 10 years, [meaning we’d back] products and services that sell into consumer businesses. We called it “powering consumer services,” and it was a mockery of a parody of a tragedy of a sham, so we decided to focus on consumer very narrowly and invest only in end-user consumer brands. It’s worked much better, including because we’re presented with more [of these types of startups]; we have a greater pool of companies facing similar problems, which helps our entrepreneurs; and our LPs are getting more consistent returns.

Many people think of Maveron as a Series A investor, but it also makes seed-stage bets. How do you approach both types of investments, and what size investments are you making at these very different stages?

Our seed bets are small — $100,000 to $250,000 – and we make one to two a month. Our [San Francisco-based partner] Rebecca Kaden leads the seed effort, but it’s a completely different process than our core investment effort. There are six of us on the investment team and if any two of us wants to do a seed deal, we will. It’s designed to get to know entrepreneurs and spaces we might not be familiar with, so sometimes after a day or two, we’ll say, “Fine, we’re in for $100,000.”

If we make a core investment, it’s a more focused effort. We typically write checks of $2 million to $8 million for between 15 and 25 percent of the company. [Before we invest], basically one partner has to decide that they like it and want to champion it and they get the colleague who is most appropriate to work with them on it. Then everyone on our team meets every entrepreneur we’re going to back in a Series A deal.

Does majority rule?

[Not necessarily.] Someone might like [a deal] and, after issues are pointed out, says, “I can handle it.” Ultimately, I think something that’s obvious doesn’t particularly relate to great VC returns. There have been a few times in the last 16 years when we’ve funded something that was a no-brainer and it worked well for us. But most of the time, it’s not a no-brainer. Our goal is to give people the latitude to make some non-consensus bets.

A few of Maveron’s portfolio companies have gone public in the last 18 months or so, including the sandwich chain Potbelly, Zulily, and the pet health insurance company Trupanion. What do you think of the broader trend of entrepreneurs pushing out their IPOs and staying private longer?

I think entrepreneurs are being thoughtful that as long as late-stage [investors] value their companies at or above public market prices, why not take advantage of it? I don’t think the dichotomy between late-stage and public valuations is sustainable, though. Over some period of time, that [gap], which is so stark today, will close, either because public companies become more expensive or late-stage companies [grow less so].

What are you seeing in terms of valuations?

In general, it’s a good time to be an entrepreneur. We’ve seeing valuations based much more on greed than fear, which we’ve seen before.

I’m humbled by how much we all benefit by the up cycles, but I promise that everyone who says this time is different is wrong.

Photo by Gabriela Hasbun

A Quick Reminder that Big Rounds Don’t Mean Big Exits

The startup industry is endlessly fascinated with big financing rounds, but they do not always translate into the biggest returns, as illustrated by data assembled for StrictlyVC today by CB Insights.

The list below features the largest financings of 2010, 2011, 2012, 2013 and, to date, of 2014, though you could easily mistake it for a list of companies that have suffered the highest-profile implosions in recent years.

Better Place, a start-up that hoped to create vast networks of charge spots to power electric cars, raised $350 million in 2010. In 2013, it filed for bankruptcy.

LivingSocial, the daily deals site, raised $183 million in 2010 and another $400 million in 2011. The troubled company has yet to reach profitability.

Fisker Automotive, the electric car company, raised $392.1 million in 2012. It declared bankruptcy in 2013.

The solar power company BrightSource, which raised $176 million in 2010, also appears to be struggling financially. As the WSJ reported in September, its Ivanpah solar thermal electricity project, which is the world’s largest of its kind, had to apply for a federal grant in September — to pay off its federal loan.

Whether or not you consider the deals service Groupon (which raised $950 million in 2012) or game maker Zynga ($480 million in 2012) a success or failure likely depends on when you happened to invest in them. But both companies have also failed to live up to expectations.

(Click chart to enlarge.)

NEA’s Ravi Viswanathan on the Firm’s Concerns, Its Processes, and Its Next Big Fund

New Enterprise Associates may be big, but it isn’t unwieldy. Not according to the picture painted by Ravi Viswanathan, who joined NEA nine years ago from Goldman Sachs to co-head the firm’s growth equity effort. I sat down with Viswanathan last week at the expansive Sand Hill Road offices of the 35-year-old firm, which has raised $13.3 billion over its history, including $2.6 million it raised for its 14th fund last year. (It’s one of the largest funds in venture capital history.)

We chatted about where the firm has seen some of its biggest hits in recent years (think Workday, Tableau Software, Cvent); why it hasn’t made a single late-stage investment in 2013; and how the organization — which employs more than 100 people, including 12 general partners — decides on a deal. Our conversation has been edited for length.

NEA does deals of all sizes out of a single global fund. What’s its investing range?

We’ll do a $200,000 seed deal, [involving] two guys out of a Stanford class, all the way to a $50 million to $75 million check. We’ve written $100 million checks a couple of times – probably about 10 years ago, including for a semiconductor investment. But if I look at the last 10 growth deals, I’d say our sweet spot is in the neighborhood of $25 million to $50 million.

You have offices in Silicon Valley, Washington, D.C., China and India. How much of your fund are you investing abroad?

We invest up to 25 percent [abroad], though in the last five years, the number is less than 20 percent, because there’s been so much going on in the U.S. and, at the same time, there have been political and economic headwinds in China and India.

How much consensus do you need to make an investment? Can you ever act autonomously?

No, ultimately everything goes to the full partnership. Some of the smaller deals may occasionally get delegated [to a smaller group] but for growth deals, because it’s bigger checks, they always go up [to the general partnership for approval].

How many votes do you need to get a deal done?

You need a quorum; you need seven or eight partners to vote on it. But usually, if there’s more than one or two no’s, the deal almost never gets done. We don’t have a hard and fast blackball rule, but if there are serious reservations, we just [back off].

As a firm, we have off-sites four times a year to spend time together, so the East Coast and West Coast knows each other really well; we’re very integrated. So if a partner calls me and says, “Here are three things that really bother me about the deal you presented,” it helps you arrive at the right decision. Of course, sometimes you have to say, “This is a great investment; we should go for it.” And we’re trusting enough of each other that if someone has that much conviction, [the others can be convinced to go along].

You’ve made 24 growth investments in recent years, but none this year because of soaring valuations. Do valuations look more reasonable at the earlier financing stages? Do you have your pick of B stage companies to fund?

Series B deals concern us. The quality deals — those that have the great syndicate, the great team — you have to pay up for them. On the flip side , people have paid up and been validated, because the Series C round has been that much higher. But broadly speaking, I think valuations are pretty rich here and in New York. In Chicago, meanwhile, we’re seeing full valuations, but they aren’t astronomical.

Among the biggest venture capital firms, more seem to be adopting an agency type model. Would we see NEA embrace the same?

We have a quasi-agency model. When we invest, rarely if ever do you get one person; you get two, three, or four people: A GP, an associate, a principal. And those folks spend a lot of time with the company. Do we have an army of biz dev people and marketing people and recruiters? No. We’ve thought about it; we know some firms are having great success with it. But we haven’t made any decisions. What’s important to us is making sure that we’re convincing [founders] with data that we’re adding value above and beyond our peers.

You raised $2.6 billion last year. When will you be back in the market, and might NEA raise an ever bigger fund the next time around?

We’ll be back in the market in 2015, plus or minus a couple of quarters. As for size, we go in with a pretty open mind, but [$2.5 billion] is the default. The question we have is: what’s the right thing for the companies and the LPs? We’ve spent a lot of years figuring out this model. But every fund is a new discussion.

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A Global VC on Outsiders’ View of the U.S. Right Now: “Speechless”

Mathias Schilling is the cofounder and managing partner of e.ventures, an early-stage venture firm that invests out of dedicated funds in five geographies: the U.S., Russia, Germany, Asia, and Brazil. The vantage point gives Schilling a unique perspective on how the world sees the U.S. debt crisis. During a quick chat yesterday, he told me his partners are, in a word, “confused.” We also talked about what he’s seeing around the globe.

You have these dedicated funds where you share carry. Do you sign off on deals as individual firms?

We look at every region very locally, but we [employ] different structures for different deals. Sometimes, we’ll have an investment committee where I’ll participate in the decision-making. Sometimes, we don’t get involved at all. Our mantra is to keep local teams to two to three partners so we can make decisions quickly.

Last year, you and Redpoint Ventures joined forces for your Brazil-focused venture fund, raising $130 million. What are you seeing there in late 2013?

Brazil has had many lost decades, including after 2000. So many basic [online] categories still haven’t been created and funded. There’s also a lack of capital, and entrepreneurship culture, and there’s a difficult regulatory environment. But I’m very positive on Brazil. We’re not only seeing copycats, which obviously makes sense, as large categories need to be created; we’re also seeing a lot of very high quality entrepreneurs. We’ve [backed]10 companies in the last 18 months or so, in e-commerce, financial services, advertising, travel.

Right now, it’s cooled off on a macro level, in terms of investors going there, because if you aren’t local and make a commitment to stay, it’s very difficult. It puts us in a good position there.

What can you share about the other markets you’ve entered?

Japan is an interesting market. It’s traditionally been a tough venture market – people are very hierarchical and risk averse, which is also true of Brazil and, to some extent, Germany. But on the mobile side, we’re seeing a lot of advanced things happening. Half of Android’s revenue is coming from apps being made in Japan and South Korea.

Berlin is building great critical mass; it’s cheap, exciting, and innovative. Russia is more technology driven, with a lot of very strong engineering. But it lacks general management skills.

Each is distinct, but I believe you have to go into these markets and build a commitment there and stay for the long run, because I don’t think you can stop the trend. We are globalizing.

Is entrepreneurship as widely celebrated in other parts of the world?

I think it’s cool to be an entrepreneur in most countries at this point. Everyone knows some fantastic success story of some guy who really did it. And some of these people really had to pull through to be the first [success story], so they’re great role models.

Culturally and psychologically, people don’t want to work for big companies anymore.

I gather the rest of the world is very concerned by the U.S. government right now. What are you hearing from your far-flung partners about this mess?

I think people are speechless. Honestly, they’re shrugging their shoulders. They don’t get what’s happening and why. And to some extent, it is a bigger deal elsewhere than it is here. They think it will be resolved. It has to be resolved.

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