StrictlyVC, LLC

Six months ahead.

Industry Ventures

StrictlyVC: September 30, 2014

Good morning, everyone! Hope your Tuesday is off to a good start. (Web visitors, here’s an easier-to-read version of today’s email.)

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Top News in the A.M.

Activist hedge fund manager Carl Icahn must be doing cartwheels this morning. Eight months after he began calling for eBay to separate the company’s eBay and PayPal businesses into independent publicly traded companies, eBay‘s Board has approved a plan to do just that in 2015. John Donahoe, eBay’s current chief executive, will step down from his role once the separation is complete. Meanwhile, Daniel Schulman, a senior American Express executive, is joining PayPal as president and will become its CEO when the company is spun out on its own.

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Industry Ventures on Its New Fund, Cheap Stakes, and the State of the Market

Hans Swildens is taking a break at his offices in San Francisco. “This is the first Monday in a long time that I haven’t been fundraising,” he says.

It’s easy to understand why he’s exhausted. Swildens’s 15-year-old investment firm, Industry Ventures, has raised one fund after another in recent years, closing on a $425 million secondary fund 10 months ago and its newest vehicle — a $170 million venture capital fund of funds – late last week. At least in today’s market, the fundraising has come easier. In fact, the newest fund’s predecessor was $70 million, and the predecessor to that fund was $30 million.

In conversation with StrictlyVC, Swildens talks about those funds, as well as what he’s seeing more broadly at Industry Ventures, which has assembled stakes in roughly 140 venture firms over the years (including True Ventures and Foundry Group) and developed one of the most intricate views into the startup ecosystem in the process.

Your newest fund will make direct investments in sub-$250 million venture funds. But you’ll also use it to acquire secondary stakes in small venture funds and to co-invest directly with your fund managers. How much of the fund do you think you’ll allocate to each?

We don’t have a hard rule, but in [our previous fund], it was about 40 percent in primary commitments, 40 percent in LP commitments, and 20 percent in co-investments.

It’s such a go-go market. When it comes to snapping up those secondary stakes, where are you finding LPs who want to sell their venture fund shares?

There are always investors who have to sell, though typically, it’s not the endowments or pension funds – it’s everyone else. We just bought two different corporations’ fund interests in two different venture funds. A lot of [sellers] today are individuals and family offices. Sometimes, [micro VC managers will] raise quickly between funds because they’re small and we’ll take half the [individual investors’] old commitment so they [have liquidity] to invest in the manager’s new fund, too. Compared with five years ago, there aren’t as many sellers, though.

Are you chasing after funds? Are they coming to you?

Eighty to ninety percent of what we do is proactive.

How do you decide what to pursue?

We have a relational database and we model the funds; we have a group of associates and partners here – almost 20 now. And we’re an LP in about 20 percent of the managers in the U.S. We have 140 venture firm stakes. And we get reporting on all of them every quarter, so we’re constantly looking at [that information].

What’s performing what’s not performing, in your view?

Some say there are too many people doing seed and Series A deals – that things have grown crowded. But valuations haven’t moved that much in the last three to five years; they’re still in somewhat normal ranges. Late-stage valuations have become more inflated, of course. There are 45 $1-billion-plus companies [in terms of valuation] compared with four [in 2009]. So it’s a little trickier to buy into that market. If you’re buying into those deals, you have to have more conviction around what you’re buying. Our thesis is that it’s better to be in smaller funds that are shopping earlier.

What about your secondary funds, like your 10-month-old, $425 million fund – are you buying into more mature companies and funds with that capital?

We are, but our investment pace is about 25 percent slower than last year owing to us being more conservative about valuations. We’d started to bump into mutual funds and hedge funds that have come into the market with later-stage tender offers and secondary offers, and we decided not to compete head-to-head with them but maybe go a bit earlier in the cycle, writing smaller checks.

Your secondaries business involves buying employee shares. What’s that like these days?

The market has gotten much more complicated as it has evolved, with funds now exclusively doing loan deals for stock, companies that are doing tender offers, companies telling their CFOs to “work with these four parties” and if you aren’t on the list, you can’t get any information. That’s the bad. The good is that we’ve been in the market for more than a decade and everyone knows us, so we’ve been slotted into a lot of these [employee sale] processes.

What do you make of some newer funds that lend money to shareholders and employees rather than acquire their shares outright? Would you ever get into the business of loaning employees money against their shares?

We’d consider it, but our preference is to buy the stock. We’ve been doing this long enough to know that in good markets, loan structures work for both parties, but in bad markets, that’s not true, and three or four years from now, we don’t want regrets on either side.

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New Fundings

AnyPresence, a 3.5-year-old, Reston, Va.-based mobile development platform, has raised $6 million in Series B funding led by CNF Investments, with participation from earlier backers Kinetic Ventures and Grotech Ventures. AnyPresence customer Citrix Systems also joined the round, which brings the company’s total funding to roughly $13.5 million. GigaOm has more here.

AvidBiologics, a three-year-old, Toronto-based oncology drug development company, has raised an undisclosed amount of financing led by Lumira Capital, with participation from MaRS Investment Accelerator Fund, MaRS Innovation, and Rosseau Asset Management.

Comprimato, a 1.5-year-old, Brno, Czech Republic-based provider of compression solutions, has raised $1.27 million in new funding from existing backers Credo Ventures and Y Soft Venture Capital. The company has now raised roughly $1.5 million altogether.

Credivalores-Crediservicios, an 11-year-old, Bogota, Columbia-based consumer finance company that’s among the country’s fastest growing non-banking financial institutions, has raised $34 million from Gramercy Funds Management, an emerging markets investment manager.

Datorama, a two-year-old, New York-based company whose marketing analytics platform is used by advertisers and ad agencies, has raised $15 million in Series B funding led by Marker and earlier investor Innovation Endeavors. Cedar Fund, also an earlier investor, joined the round, which brings the company’s total funding to $18 million, shows Crunchbase.

Ender Labs, a two-year-old, Salt Lake City-based company whose cloud-based EventBoard service allows companies to manage conference room scheduling and meeting space, has raised $1.5 million in seed funding from Google Ventures, Zetta Venture Partners and numerous individual investors, including Salesforce founder Marc Benioff.

Game Play Network, a two-year-old, L.A.-based company that operates as Oddz and operates a real money gaming platform, has raised $7.5 million convertible note, shows an SEC filing. The company has previously raised at least $7 million in equity, show previous filings.

LifeBond, a seven-year-old, Caesarea, Israel-based company in clinical trials with biocompatible devices for tissue repair, has raised roughly half of a $25 million Series D round, reports VentureWire. Earlier investors Pitango Venture Capital, Giza Venture Capital, Aurum Ventures MKI, GlenRock Israel and former Omrix Biopharmaceuticals CEO Robert Taub participated.

MediaRadar, a nearly eight-year-old, New York-based ad sales intelligence service for publishers, has raised $6.7 million from investors, including Bain Capital Ventures, shows an SEC filing. The company was founded by Todd Krizelman, who famously cofounded TheGlobe.com in 1999 with his Cornell University classmate Stephen Paternot.

MoviePass, a 3.5-year-old, New York-based subscription-based business that sells monthly passes to movie theaters, has raised $2.2 million in Series A funding led by former Facebook executive Chris Kelly and Structure Capital, with participation from previous investors AOL Ventures, True Ventures, Lambert Media, Moxie Pictures, and numerous angel investors. The company has raised nearly $3 million to date. TechCrunch has more here.

Pomelo Fashion, a 10-month-old, Thailand-based “fast fashion” online fashion brand and e-tailer, has raised $1.6 million seed funding to begin scaling its apparel concept throughout Asia. The round was led by Jungle Ventures, with participation from Skype’s former head of engineering Toivo Annus, 500 Startups, Fenox Ventures, and Queensbridge Venture Partners, among others. The company has now raised $2 million altogether.

Pristine, a 17-month-old, Austin, Tx.-based company whose Google Glass-based app allows medical professionals to get remote help from experts via a live streaming video feed, has raised $5.4 million in funding led by S3 Ventures, with participation from Capital Factory, HealthFundr, and other unnamed investors. VentureBeat has more here.

Privcap Media, a three-year-old, New York-based digital communications company serving the private capital markets, has raised $1.3 million in second-round funding from the private equity firm Noson Lawen Partners among other undisclosed investors. The company has raised $1.8 million since its founding.

Remind, a three-year-old, San Francisco-based secure mobile communication product for teachers, students and parents, has raised $40 million in Series C funding led by previous investors Kleiner Perkins Caufield & Byers, The Social+Capital Partnership and First Round Capital. The company’s latest round of funding brings its total capital raised to $59 million.

Sendwithus, a year-old, San Francisco-based email content management platform, has raised $2.3 million in funding led by Baseline Ventures, with participation from Initialized Capital, SV Angel, Maiden Lane Ventures, Acequia Capital and numerous individuals, including Paul Buchheit.

TriggerMail, a 1.5-year-old, New York-based personalized triggered email service for marketing managers, has raised $6 million in Series A funding led by FirstMark Capital, shows a new SEC filing that says seven investors participated in the round. The company had previously raised $1.2 million, including from TechStars.

Yuemei, a 2.5-year-old, Beijing, China-based online marketplace for cosmetic surgery procedures, has raised an unspecified amount of Series A funding, reports Tech In Asia. More here on the opportunity it’s chasing.

Ziffi.com, a five-year-old, Mumbai, India-based online appointment booking engine, has raised Rs 15 crore in Series A funding from Orios Venture Partners. The company was known until recently as DocSuggest but recently expanded beyond its focus on doctor and clinic appointments into salons and spas. The Economic Times has more here.

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New Funds

General Catalyst Partners, an early investor in the payment technology company Stripe, is setting aside $10 million to invest exclusively in seed-stage startups that are building their technology atop Stripe’s application programming interfaces. The initiative is called GC Stripe Platform and it’s being run by Hemant Taneja, a managing director at the firm. Venture Capital Dispatch has much more here.

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IPOs

Zalando, Europe’s largest online-only fashion retailer, priced shares yesterday at $27.28 for its upcoming IPO, valuing itself at $6.8 billion, which would make it the largest Germany tech public offering since the 2000 listing of Deutsche Telekom, notes Forbes. According to its prospectus, the five-year-old, Berlin-based company expects to start trading on the Frankfurt stock exchange tomorrow.

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Exits

Bluestem Brands, a 12-year-old, Eden Prairie, Mn.-based consumer products company that owns Fingerhut, among other things, is being acquired by commercial real-estate lender Capmark Financial Group for about $565 million in cash. Bain Capital Ventures, Battery Ventures,Brookside Capital, Fortress Investment Group, Goldman Sachs, Petters Group and Prudential Capital are Bluestem investors.

News Corp. is buying publicly traded Move, the owner of property websites such as realtor.com, for about $950 million, reports Reuters. More here.

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People

The richest people in America, 2014 edition.

Hammad Akbar, the 31-year-old, chief executive of four-year-old, Pakistan-based mobile spyware maker InvoCode, was arrested over the weekend, charged with illegally marketing an app that monitors calls, texts, videos, and other communications on mobile phones “without detection,” reports Ars Technica. The app, called StealthGenie, was sold and advertised using a computer located at an Amazon Web Services center in Ashburn, Va., according to government officials.

On Friday, Beats Electronics filed a false advertising and unfair competition lawsuit against entrepreneur Steve Lamar, who claims he’s a cofounder and who is using his history at Beats to promote a new headphones company he has launched. Lamar has battled with Beats cofounder Jimmy Iovine numerous times since the company’s 2006 founding. The Hollywood Reporter has the story here.

Three years ago, Twitter received a tax break to stay in San Francisco. Cofounder Biz Stone has been trying to return the favor since, including by helping pair one tech company with each of San Francisco’s 116 public schools.

Kevin Systrom, the cofounder of Instagram, joined Wal-Mart’s board of directors as its 15th member yesterday. Fortune has more here.

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Job Listings

Atlassian, a well-funded software company, is looking for a corporate development manager in San Francisco to help identify acquisition targets, among other things.

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Essential Reads

Entrepreneur Elon Musk isn’t kidding about this whole Mars thing. We need a million people to move from here to there to ensure the future of humanity, he argues in a new interview with Aeon.

Basis, the Intel-owned maker of a health-tracking watch called the B1 Band, is introducing a new high-quality wristwatch that Recode calls “pretty compelling.”

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Detours

Potato Salad Guy delivers on his promises.

How false rumors get spread.

At the Starbucks inside the CIA’s Langley, Va., compound, they don’t take names, there are no frequent-customer award cards, and baristas are escorted from work each day by agency “minders.” It’s also reportedly one of the busiest Starbucks locations in the country. “Obviously,” one officer tells the Washington Post, “we are caffeine-addicted personality types. ” (H/T: John Paczkowski)

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Retail Therapy

Twenty-one “awesomely designed products” that Wired’s editors are dying to own.

Industry Ventures on Its New Fund, Cheap Stakes, and the State of the Market

Hans SwildensHans Swildens is taking a break at his offices in San Francisco. “This is the first Monday in a long time that I haven’t been fundraising,” he says.

It’s easy to understand why he’s exhausted. Swildens’s 15-year-old investment firm, Industry Ventures, has raised one fund after another in recent years, closing on a $425 million secondary fund 10 months ago and its newest vehicle — a $170 million venture capital fund of funds – late last week. At least in today’s market, the fundraising has come easier. In fact, the newest fund’s predecessor was $70 million, and the predecessor to that fund was $30 million.

In conversation with StrictlyVC, Swildens talks about those funds, as well as what he’s seeing more broadly at Industry Ventures, which has assembled stakes in roughly 140 venture firms over the years (including True Ventures and Foundry Group) and developed one of the most intricate views into the startup ecosystem in the process.

Your newest fund will make direct investments in sub-$250 million venture funds. But you’ll also use it to acquire secondary stakes in small venture funds and to co-invest directly with your fund managers. How much of the fund do you think you’ll allocate to each?

We don’t have a hard rule, but in [our previous fund], it was about 40 percent in primary commitments, 40 percent in LP commitments, and 20 percent in co-investments.

It’s such a go-go market. When it comes to snapping up those secondary stakes, where are you finding LPs who want to sell their venture fund shares?

There are always investors who have to sell, though typically, it’s not the endowments or pension funds – it’s everyone else. We just bought two different corporations’ fund interests in two different venture funds. A lot of [sellers] today are individuals and family offices. Sometimes, [micro VC managers will] raise quickly between funds because they’re small and we’ll take half the [individual investors’] old commitment so they [have liquidity] to invest in the manager’s new fund, too. Compared with five years ago, there aren’t as many sellers, though.

Are you chasing after funds? Are they coming to you?

Eighty to ninety percent of what we do is proactive.

How do you decide what to pursue?

We have a relational database and we model the funds; we have a group of associates and partners here – almost 20 now. And we’re an LP in about 20 percent of the managers in the U.S. We have 140 venture firm stakes. And we get reporting on all of them every quarter, so we’re constantly looking at [that information].

What’s performing and what’s not performing, in your view?

Some say there are too many people doing seed and Series A deals – that things have grown crowded. But valuations haven’t moved that much in the last three to five years; they’re still in somewhat normal ranges. Late-stage valuations have become more inflated, of course. There are 45 $1-billion-plus companies [in terms of valuation] compared with four [in 2009]. So it’s a little trickier to buy into that market. If you’re buying into those deals, you have to have more conviction around what you’re buying. Our thesis is that it’s better to be in smaller funds that are shopping earlier.

What about your secondary funds, like your 10-month-old, $425 million fund – are you buying into more mature companies and funds with that capital?

We are, but our investment pace is about 25 percent slower than last year owing to us being more conservative about valuations. We’d started to bump into mutual funds and hedge funds that have come into the market with later-stage tender offers and secondary offers, and we decided not to compete head-to-head with them but maybe go a bit earlier in the cycle, writing smaller checks.

Your secondaries business involves buying employee shares. What’s that like these days?

The market has gotten much more complicated as it has evolved, with funds now exclusively doing loan deals for stock, companies that are doing tender offers, companies telling their CFOs to “work with these four parties” and if you aren’t on the list, you can’t get any information. That’s the bad. The good is that we’ve been in the market for more than a decade and everyone knows us, so we’ve been slotted into a lot of these [employee sale] processes.

What do you make of some newer funds that lend money to shareholders and employees rather than acquire their shares outright? Would you ever get into the business of loaning employees money against their shares?

We’d consider it, but our preference is to buy the stock. We’ve been doing this long enough to know that in good markets, loan structures work for both parties, but in bad markets, that’s not true, and three or four years from now, we don’t want regrets on either side.

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This Four-Year-Old Internet Startup Just Landed $63 Million in Series A Funding

Ian_Siegel_CEO_ZipRecruiterYou probably haven’t heard yet of four-year-old ZipRecruiter, a profitable, L.A.-based online hiring platform for small and medium-size businesses. In recent months, though, plenty of growth-stage equity firms were kicking its tires and hoping the company might bring them aboard as investors. In the end, its four cofounders agreed to a $63 million round led by Institutional Venture Partners, with participation from Industry Ventures and the brand-new L.A. firm Basepoint. I talked with one of those cofounders, ZipRecruiter CEO Ian Siegel, last week about the company’s low-flying trajectory so far.

You spent 20 years working for L.A.-based startups. Why start ZipRecruiter when you did?

My experience and my cofounders’ experience was the same. Because the companies were so small where we were working, there was no HR department, no one to do hiring for you but you. So I was the only one posting jobs. I was the one vetting candidates and making decisions about who and when to hire. Part of the reason those companies stayed small was it was so painful to bring another person on board. We weren’t HR professionals. We just thought, Let’s build something that would be useful for us. And it took off. We’ve been profitable since our first month.

What’s so special about your technology?

What ZipRecruiter does is take a set of services that have been used by Fortune 500 companies, from an applicant job tracking system to easy-to-search databases, and [offers these technologies] to small and medium-size businesses. The value for our customers is they can post a job to many job boards at once — Monster, Twitter, Glassdoor; more than 50 at once — then we present them with candidates from all of those places in one, easy-to-review [interface] so they can screen and track candidates.

This is a SaaS business. How much do you charge users?

We charge $129 [per month] and scale up depending on how many jobs a company has to post. Some customers post [a lot of] jobs, and it’s more than $1,000 per month.

You say you’ve been growing like a weed. Give us some metrics.

At the beginning, it was pretty much four founders who were rotating between each other’s kitchens. I took every customer support email and phone call. A dog would be going crazy in the background, and I’d say, “I don’t hear a dog, do you hear a dog?” Now, we’re moving into a 40,000-square-foot space in Santa Monica. We have 150 employees, tens of millions of dollars in annual revenue and we’ll have more new subscribers this year than in all previous years combined. We’ll have 100,000 customers in the relatively new future.

You’re already very profitable, by your own account. How will you use the money you’ve just raised?

More than 7,000 new businesses create an account on ZipRecruiter each month and the primary person [who signs up] is the person who manages HR. And that person is responsible for hiring, but also, potentially, for payroll, insurance, vacation tracking, and for on-boarding. So we’ll do a bit of development into new areas and see what the reaction is. When you’re bootstrapping, everything has to come back to bottom line. Taking investment really frees us as to how much more can we do to make the job of HR managers easier.

How are you reaching all of these far-flung customers?

It was all driven through [search engine marketing] initially. As we grew, we began to benefit from word of mouth — a substantial double digit percentage of our new users come without a marketing source attached to them. But because the product sells so well, we’ve been able to branch into direct mail, TV commercials, and radio. The challenge of going after a disaggregated market is finding [all your customers]. You can’t just buy ads on Google.

Photo of Ian Siegel courtesy of ZipRecruiter