Khosla Ventures

Piazza, Backed By Sequoia and Others, Looks to Next Round

You might not be familiar with the 25-person, Palo Alto, Ca.-based startup Piazza, but plenty of engineering and other STEM students are aware of it.

The online platform where students and instructors come together to learn and teach was first conceived by founder and CEO Pooja Sankar, who as a first-year student at the Stanford Graduate School of Business, felt isolated at times in her learning experience. It reminded her of her undergraduate experience at Indian Institute of Technology Kanpur, the engineering school in India, where there were 400 boys and 20 girls in the computer science department.

Says Sankar, “I felt at a disadvantage because I didn’t have a support group to master concepts, classes, career, or how you choose a company or a startup.”

Sankar felt alone in having so many unanswered questions, but it turns out she was far from it. Today, says Sankar, roughly 1 million students around the world are posting questions to their particular course pages on Piazza, to which their peers and instructors are responding. In fact, she says, 50 percent of computer science and STEM majors at the top 20 U.S. schools — as well as at elite schools in Iran; Pakistan; Israel; Ontario, Canada and elsewhere — spend between two and three hours on the platform each day. (Altogether, says Sanker, students and educators at 1,000 universities in 60 countries are now using the platform, including at such prestigious schools as Princeton, Harvard, Stanford, and the Imperial College of London.)

Now Piazza is cultivating a new fan base – company recruiters. Explains Sankar: Up until now, executives have been setting their recruiting strategies in the dark,” says Sankar. “It’s, ‘We’re going to fly our guy to [Carnegie Mellon],’ and they literally send their VP of engineering around” with the hope of connecting with the right people.

Where Piazza can help them: the troves of data it’s collecting on students, including what courses they are taking and the types of questions and answers they are contributing to the platform, all of which companies are now using to run targeted searches and to send personalized messages to students who opt in to its recruiting service.

Currently, there are nearly 250 companies using Piazza in their recruiting efforts, up from 40 when the service officially launched in February of last year.

Sankar characterizes their range as “broad – from 10-person startups to 100,000-person companies” and Piazza charges them for yearly subscriptions to the service accordingly, with prices ranging from $2,000 to “six-figures.”

Things are going so well, says Sankar, that Piazza — which has so far raised $15.5 million from investors, including Sequoia Capital, Bessemer Venture Partners, Khosla Ventures, SV Angel and Kapor Capital – will be in the market for more funding soon.

“We’re at a stage where we’re doing what we wanted to do with our last fundraising,” she says. (It closed 16 months ago.)

“Now we want to throw fuel onto the fire.”

For a new survey from Piazza about the companies where students most want to work, check out our related TechCrunch piece this morning.

Talking 1099 Workers (and More) with Redpoint’s Ryan Sarver

Last week, the California Labor Commission found that a San Francisco-based Uber driver should have been legally classified as an employee, and not a contract worker, by the company.

The ruling could be a very big deal for Uber and many other on-demand companies that argue they’re an appealing alternative to people who want to work flexible hours and to be their own bosses — even if they aren’t paying them unemployment, workers compensation or health benefits, all of which would cost such companies roughly 30 percent more per worker.

The ruling could also be a big deal for investors who’ve poured hundreds of millions of dollars into such companies, though at a dinner last week with partner Ryan Sarver of Redpoint Ventures, it was clear that Sarver isn’t concerned about Uber and its ilk losing this fight. We talked at some length about the case, as well as what types of on-demand companies Sarver wouldn’t be inclined to fund, regulatory tussles notwithstanding. Our chat has been edited for length.

You’ve invested in a number of on-demand companies, including [the peer-to-peer car buying and selling marketplace] Beepi and [home-cleaning service] Homejoy. If contract workers are reclassified as full-time workers, what happens to them?

It’s so hard to predict where things are going to go. There’s a huge new class of people who really want flexible work, and that shift is happening and it’s growing and it’s not going away. You’re then trying to match regulation to them that was written in the 1930s and hasn’t been updated since. I don’t know where we land, but we need regulation that maps to those trends.

What if we don’t get it? How big an impact would that make on, say, Luxe [an on-demand valet service that Redpoint has also backed]?

It’s hard to say until we know what the rulings are going to look like, but labor is really important and Luxe is competing for it with Uber and Beepi and other [on-demand services]; it’s competitive. And [success] will come down to who can attract and retain that labor.

Toward that end, what should these companies’ priorities be? Helping their contract workers land health care? Educating them about savings? Beyond the break room and free snacks, how do you win the labor race?

Churn on the supply side is a big problem for a lot of these on-demand companies, so many of them are focused on hiring, training, and retaining [contract workers]. I think you need more than [break rooms], I agree. What Luxe is doing is giving employees a career path. If you become a really good valet, you become a shift captain. If you become a good shift captain, you can move inside Luxe’s operations center and become a full-time employee. I think smart companies are telling these employees: maybe you want flexible schedules now, but down the road, if you want to move into a full-time position, we’re also going to offer that to you.

A new layer of companies is emerging to cater to these contract workers, providing them with shift-management software and other things. As an investor, do you think they’re interesting?

The on-demand labor market is still pretty small; even with a million or so [on-demand] drivers around the world – that’s still a small labor force. As it continues to grow, maybe it becomes more interesting over time, but I think it’s a little too early to tell [what the potential] of those services will be.

What’s the craziest business you’ve been pitched?

Well, I did see bodyguards on demand. [Laughs.]

Are you interested in telemedicine or these other on-demand startups that don’t require big city rollouts?

I’m a big Doctor on Demand user and I love it, but it’s super infrequent. You’re going to use it in the moment, not every week [because it costs $40 for a 15-minute consultation]. There’s another startup, Better, that gives users access to “personal health assistants” that you might use on a more frequent basis, like, “Hey, our little guy has a rash, what should we do?” I think eventually, there will be a blending of the two, so that you can touch a service in a lightweight way and escalate [to the doctor level] if you need to.

[Most consumer spending] goes to transportation, food, and housing, though healthcare is also an enormous one.

Housing is interesting. What do you think of OpenDoor, the on-demand online home-selling service?

We [invested in] Beepi and they’re very similar models from what I know. OpenDoor will take inventory and buy it from you and fix it up and resell it. Beepi won’t fix up your car, but they’ll send in a mechanic who has a very structured checklist and goes through the service and gives you a price to buy it that day and take it off your hands and bring it into their inventory. Then someone can buy it sight unseen because they trust that the mechanic has done the work and priced it properly.

I think OpenDoor is doing something very similar, but they’re trying to increase the value of the homes. It’s really interesting and much more complicated than what Beepi is doing. It’s a very big swing.

Another Hardware Fund Emerges: Meet Root Ventures

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.

Amid Unicorn Talk, High-Potential, Low-Glamour PayNearMe Slogs Along

PayNearMe doesn’t get a lot of attention from the press. Partly, that’s because the five-year-old, Sunnyvale, Ca., company doesn’t seek it out. But PayNearMe is also in a business that’s not nearly so relatable to many in Silicon Valley as enterprise messaging or high-end black-car services. It’s focused on the roughly 25 percent of people in the U.S. who don’t have bank accounts but buy things — like the rest of us — that would be hard to pay for in cash, like rent, healthcare, and online goods.

It’s a huge market, one that’s remarkably underserved excepting older players like MoneyGram and Western Union. It’s also a lot of work to build, making it a fairly long-term bet, one into which investors like True Ventures, August Capital, and Khosla Ventures have already sunk $71 million, including a $14 million inside round earlier this year.

How does it work? Say a person needs to pay their rent or buy a bus ticket. PayNearMe has relationships with both brick-and-mortar stores –including, crucially, 7 Eleven, Ace Cash Express and Family Dollar — as well as businesses like property management software companies. Together, the companies make it possible for anyone to walk into one of more than 17,000 locations with cash, and walk out with a receipt for payment.

This week, we talked with PayNearMe founder and CEO Danny Shader – previously a CEO of Good Technology, an EIR at both Kleiner Perkins and Benchmark, and cofounder of Accept.com, an online consumer-to-consumer payments service that sold to Amazon for $175 million in stock in 1999 – to learn more about the gritty, complex business he’s been building.

PayNearMe doesn’t give out a lot of numbers, but you say that overall payment volume has more than tripled from this time last year.

Our business is growing five to 10 percent a month, which keeps compounding, so it’s getting to be a pretty sizable business. It’s extremely hard to build up an entirely new payment network, but we’ve done it, it’s working, it’s growing, and it’s incredibly defensive. But it’s not for the faint of heart.

You could boil the ocean, trying to go after everyone who’s unbanked. What’s your process like?

We pursue things vertical by vertical. So the biggest vertical is lending, then rent and municipal government payments, and now healthcare is driving a lot of new people into the insured ranks and they need to pay their premiums. Within a vertical, there’s a handful of software companies that are systems of record, whether it be for property management companies or government agencies, and we integrate into those software systems. For rents, for example, we integrate with AppFolio and ManageAmerica, a property management system for manufactured housing, meaning mobile homes.

We try to go after very large accounts directly or go downstream.

Going downstream [to smaller players] sounds like a lot of work. How do you do it? How many employees do you have altogether?

We have more than 50, roughly half of whom are in Sunnyvale, with the rest scattered [around the U.S.]. And it does take time to get going on a new vertical. Say we want to do something in health, in medical records. We’ll go to a trade show and call on [some of the vendors] , and they’ll typically say, “Go away, my customers aren’t asking for you.” So we’ll go to end customers and invest heavily in getting them to work with us, and they do, and they talk about it, and a year later, the software providers say, “We want to integrate with you.”

Processing rent payments is one of your biggest businesses, but we understand that Family Dollar will no longer be accepting rent payments, that it grew worried about safety issues around people walking in with large sums of cash. We’ve asked the company about it but they haven’t responded.

I can’t speak for Family Dollar, but rent is a big vertical and we’re processing rent at a ton of other locations. Other folks will be joining our network, too.

PayNearMe shares its economics with stores like Family Dollar and 7 Eleven. Do you discuss that split? Is it 50/50?

I can’t comment on [the percentage of transaction fees we pay out], but it’s [a good deal for them]. Imagine: Hey, our sales force will sign up big entities like municipalities that will include your logo [so people know where to pay their bills], and we’ll pay you a commission, and by the way, we’re sending you valuable foot traffic.

PayNearMe has a lot of stuff coming. Can you give readers a curtain raiser?

I can say that we now have a complete set of money transmitting licenses in the U.S. and Puerto Rico that we spent the last three years and millions of dollars [to obtain]. The licenses allow us to act as an agent of a consumer, taking their money and delivering it to some other location. It lets us enter adjacent markets. [But that’s all I can say.]

Do you anticipate these adjacent businesses will be larger than what you’ve already built?

I think we could build a big public company doing what we’re doing. It’s a massive market hidden in plain sight. Most people in the Valley are asking if cash is going away. Actually, the cash market is increasing, and the bifurcation between the 1 percent and everyone else is contributing to that.

Opendoor Raises $20M for Its Audacious Home-Buying Business

Opendoor, a year-old, San Francisco-based company, is on a mission to make residential real estate liquid by making it simple to buy and sell it online.

Investors are buying what it’s selling. This morning, the company is announcing $20 million in fresh funding led by GGV Capital, a round that brings the company’s total outside funding to $30 million.

Consumers are also buying Opendoor’s pitch. The 20-person company is now buying one house per day – sight unseen — in its test market of Phoenix. Home owners need merely give it their address and some basic details, and using public market information about historical home sales and Opendoor’s own proprietary data about market conditions, the company arrives at an offer price that’s just one to three points below what the seller might fetch on the open market roughly three months into the future. (That’s the average time, it says, required to sell a home in the U.S.)

The big question now is whether the whole operation is sustainable. Certainly, the risk and reward associated with what it’s trying to pull off is enormous.

Consider: After Opendoor acquires each home, it must ensure the home is up to code in order to resell it. The repairs alone can likely get complicated, as any homeowner can attest. But each home is also given numerous cosmetic upgrades that will give it so-called curb appeal. Think everything from new kitchen cabinets to light landscaping.

Opendoor can (and surely intends) to sell its homes at a premium, based on those upgrades. But it’s a lot of work, the kind that involves contractors and lawn maintenance workers, in addition to Opendoor’s growing team of developers. More, hanging on to that inventory in the meantime is a huge risk. Though the company’s equity certainly helps, as does a partnership with a bank that gives it debt to use, the housing market is highly sensitive to interest rates and other macroeconomic factors. In Phoenix, for example, where Opendoor has been testing out its service for the last several months, up to a quarter of the homes that are listed for sale are eventually taken back off the market.

CEO Eric Wu — a serial entrepreneur who cofounded Opendoor last year with investor-operator Keith Rabois — acknowledges the challenges, but he seems convinced that none are insurmountable. Partly, that owes to the progress Opendoor has made as a software company, whose platform can now (Wu says) seamlessly address everything from property assessments to quickly presenting offers to potential customers to handling the payment of the house to overseeing the infrastructure involved with holding and reselling it.

Wu also knows that there’s tremendous pain associated with home buying today, and where there is pain, there is opportunity.

In fact, Wu is already envisioning the day that Opendoor both buys homes, then resells others it owns to those same customers, creating one of those virtuous cycles that the digerati like to talk about.

“Longer term,” says Wu, “we’d love to have a path where we transact 5 to 35 percent of all homes. Once that occurs, this business really starts to evolve into us solving pain points for homeowners, from [allowing them to easily sell their homes] to helping them [purchase] another with high-quality renovations. We definitely think we can touch both buyers and sellers.”

The company could even get into the financing business eventually, Wu suggests. There’s “lot of headache and stress in securing mortgages today,” he notes. Opendoor has enough work ahead of it right now, but it’s “something we’ll look at down the road,” he says.

Keith Rabois on the Tricky Business of Multi-Stage Investing

Last week, at a StrictlyVC event in San Francisco, investor-writer Semil Shah interviewed Keith Rabois of the Sand Hill Road firm Khosla Ventures. There, he asked Rabois how Khosla manages its multi-stage approach, and whether Rabois anticipates that more firms will raise different-stage funds to capitalize on today’s go-go market.

Rabois — who speaks at a rapid-fire clip that keeps listeners on their toes — made several interesting observations, most notably that investing across stages is a very tricky business that, done properly, involves different teams, different skills, different compensation, and different bets.

Perhaps unsurprisingly, he thinks Khosla Ventures has the model down.

Noting that the firm has a seed fund (“a very large seed fund, [at] $300 million plus,” he said), as well as a “main” fund that has historically been roughly $1 billion in size, he went on to explain that Khosla’s seed fund “isn’t necessarily designed to do the same things the main fund is designed to do. The seed fund is designed to take risky experiments and provide capital to entrepreneurs who want to prove things and validate that something is technically feasible . . .” Meanwhile, he said, the main fund is “not a growth fund,” but rather a “standard venture fund” that invests in standard Series A and B deals.

It’s an important distinction, he implied. It minimizes the potential for the conflicts of interest that can arise with the new breed of growth funds to be raised in recent years by Union Square Ventures, Foundry Group, Spark Capital, and Greycroft Partners, among others.

Said Rabois: “What I detect from other funds is everyone is trying to raise a growth fund. Everybody who is a good Series A or Series B investor is like, ‘Wow, we have great asymmetric information about how well these companies are doing. Wouldn’t it be great if we could invest more money and take advantage of that information and of that relationship with the entrepreneur?'”

It’s an understandable impulse, he said. Investors have long resorted to special purposes vehicles, which are time consuming and can be “painful” for the entrepreneur left managing his or her increasingly complicated cap table. But Rabois also warned of conflicts of interest, pointing to the storied firm Sequoia Capital to illustrate his point.

Sequoia “fundamentally [does] Series A and Series B [rounds], and they do Series A better than anybody else and have for a very long time,” Rabois said. But Sequoia’s growth-stage fund, which typically invests between $10 million and $100 million in companies, has “now cherry-picked a couple of those [early-stage] investments,” including, most famously, the messaging app WhatsApp.

That investment proved highly lucrative for Sequoia and its limited partners. In fact, WhatsApp’s exit last year was the largest ever for a still-private venture-backed company. (Sequoia invested $8 million in the company in 2011, then elbowed aside other investors to sink another $50 million into the company in 2013.)

Still, “if you do that too often,” Rabois continued, “no one wants to fund your companies because they see your selection bias. It’s the same signaling problem [that can plague earlier-stage companies] just applied [to maturing companies]. It’s very challenging to run a true growth fund and a Series A fund and fund some [of your startups] but not all, or fund X percent but not Y percent, without people reading into it.”

Obviously, said Rabois, “If Sequoia thinks a company is amazing, they’ll proactively offer from their growth fund to double down on it,” he continued. But “if they don’t, maybe I should be reading into that when I get an introduction from them to a Series B [deal]. Maybe I should be cynical about what’s going on at this company [laughs]. Why are you sending it to me? Why aren’t you funding it yourself?”

Before moving on to another topic, Shah asked Rabois if it were any less dangerous for larger funds to “move down the stack” and invest in younger companies than they’ve traditionally funded. The hedge fund Tiger Global Management, for example, has recently led a number of Series A deals, including, most recently, in the India-based news aggregation startup News In Shorts.

Rabois’s take: “I’m not sure it’s going to turn out that well. Early stage is just a very different skill set. Later stage is more science and early stage is more . . . I don’t think you can use metrics to assess most seed and Series A investments. The [metrics] just don’t exist, and you’re kidding yourself if you think that they do in any statistically valid way. You might be able to tease out something from some cohort, but [that’s it].”

Keith Rabois to Startups: Go Public Already

Last week, at a StrictlyVC event San Francisco, investor-writer Semil Shah interviewed Keith Rabois of Khosla Ventures in a wide-ranging chat. Among the issues raised was why companies are staying private longer, and whether founders, investors and the institutions that finance venture capitalists should be concerned.

Rabois – a former lawyer who’d earlier served as COO of Square, and was an executive at PayPal, LinkedIn, and Slide — didn’t equivocate. He said he thinks companies that delay their public offerings are making a mistake, and he traces the trend to “his PayPal friends” and specifically to PayPal cofounder Peter Thiel.

Said Rabois: “My views are a little bit more like [fellow VC] Bill Gurley’s than Marc Andreessen’s or Peter Thiel’s, [which is] that companies should go public earlier rather than later [for] a variety of reasons. One is that you actually get a lot of cash, and that cash gives you leverage to do things. Secondly, you have a currency, and you have a price on your currency and you can acquire things, which is very difficult to do as a private company.”

Continued Rabois, “Some of the reasons that people don’t want to go public are just excuses. The founder doesn’t want to have scrutiny, doesn’t want transparency.” Other oft-cited reasons that management teams give for pushing off an IPO include concerns over employee retention and flagging morale, said Rabois, who called all of them “bad reasons” not to go public.

As for the common complaint that employees begin obsessively watching their company’s ticker after a public offering, for example, Rabois noted that companies’ shares “go up and down” and that staffers can “get a little miffed and annoyed” by those gyrations. But he added that management can also respond proactively to those swings, saying that they’re ultimately among a long list of “soft things” that affect employee satisfaction.

“If you actually manage people, you know the things that are going to distract the people in your office [are things like] the food you serve,” Rabois told the gathered attendees. “I actually had a revolt [at a former company] because I took away bacon because it’s not good for you. All the engineers barfed [at the move] and I didn’t know why they were all annoyed at me until someone asked a question [about my decision] at a company meeting.”

As for retention, Rabois shared a story about the online review site Yelp, on whose board of directors Rabois served for roughly eight years. (He stepped down in January 2014.)

According to Rabois, Yelp co-founder and CEO Jeremy Stoppelman — who’d worked as an engineer at PayPal earlier in his career — “was very nervous about going public because he’d gotten all this advice from Peter [Thiel] and my PayPal friends,” who had themselves gone through a “searing experience” when PayPal staged its IPO in 2002.

“[PayPal] was one of two companies in technology that went public that year – the other being Netflix – we [filed our S-1] the day after [the terrorist attacks of] 9/11, and people had a lot of emotional reactions to all the things we went through,” said Rabois. “The state of Louisiana suspended us the week before we went public [owing to customer service complaints. We had numerous other issues]. So Peter and other friends of mine started telling everyone that it’s terrible to go public,” and the “Facebook crowd kind of bought into that,” he said.

So have a lot of other entrepreneurs, said Rabois, characterizing today’s accepted wisdom about the dangers of going public as a “derivative sort of consequence” of that “mess.”

It’s a shame, suggested Rabois, who said that once Yelp did go public, in March 2012, it became “the best thing ever for the company. Morale improved, actually, the year before we went public. Retention post going public is significantly better than the two years before going public. I’d argue that innovation [at Yelp] is better. We’ve also been able to acquire a couple of strategic assets, one in Europe, one just last week . . . one maybe could have been done as a private company but the others surely couldn’t have been.”

Said Rabois, “All the most innovative companies on the planet are public. Apple – nobody is more innovative than Apple — Amazon, Google. If you have the right founder, you can innovate. Every other answer is an excuse.”

A Custom Apparel Company with Big Ambitions Raises $35 Million

Into ironic T-shirts? You aren’t alone. In fact, the market is so robust that Teespring, a two-year-old company that helps anyone turn their idea for a T-shirt (or hoodie) into a real product, has just raised $35 million in Series B financing from Khosla Ventures. Andreessen Horowitz, which had plugged $20 million into the company earlier this year, also participated in the round.

It seems like an awful lot of money for a simple apparel business, but Providence, R.I.-based Teespring says it has big ambitions to move into numerous verticals. “T-shirts are to Teespring as books were to Amazon,” says the company’s co-founder and CEO, Walker Williams, a Brown University grad who originally started the company to help save a college bar.

Indeed, the general idea is to help anyone with the inclination become an entrepreneur with as little effort as possible.

Here’s how it works today: Users simply download a picture of their design; Teespring handles the rest, from manufacturing to fulfillment to customer service. Teespring outsources some pieces of the process but going forward, it plans to manage more of it internally. For example, it already has its own customer service department; to further support its ambitions, the company is building out a 105,000-square-foot manufacturing facility in Hebron, Kentucky that it says should significantly increase its manufacturing and logistics capabilities.

Teespring is still keeping its revenue close to the vest, but it claims that it has already shipped six million products to more than 80 countries and that 1 in 75 people in the U.S. have purchased a Teespring tee in the past year.

Williams also says that of the “thousands” of vendors and individuals using the service to make their products, “hundreds” of them are “making six figures” and that more than 10 are making in the millions of dollars a year.

On average, he adds, users pay Teespring between $8 and $10 per T-shirt, and between $14 and $18 per hoodie depending on the print design, the fabric, and the number of ink colors the unit requires. (That includes Teespring’s margin.) From there, users can sell the goods for whatever they want.

Today, Teespring employs 170 employees. Once it gets its new facility in Kentucky up and running, says Williams, it will be adding 300 more jobs to the payroll.

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Hardware Incubator Highway1 Readies for New Applicants

Creating a hardware device is hard; making it in large quantities is exponentially harder. A reminder of this hard truth appeared on Friday on the Indiegogo page of Scanadu, a medical device startup that began shipping its long-awaited Scout product to its backers last week, then stopped, saying the device isn’t working as expected.

It’s exactly the problem that Highway1, a nearly year-old incubator program in San Francisco, promises to solve. Here’s how it works: Twice a year, Highway1 invites 10 or so teams to work at its offices for four months. In exchange for 3 to 6 percent of their companies, it provides them with $20,000, access to $3 million in prototyping tools, and an education – including in Shenzhen, China — about how consumer electronics are made. Highway1 should know; it’s backed by PCH International, a 5,000-person, China-based company that handles manufacturing contracts, packaging, and shipping for major electronic brands, and which has strong relationships with Asian manufacturers as a result.

Highway1’s program isn’t for everyone. To gain entry, a team has to have at least one working prototype (however crude), and it has to have enough financial muscle to pay for its production run. (The $20,000 it receives from Highway1 won’t cut it.) Late last week, I talked with the head of the program, Brady Forrest — who is an engineer, operator, and former VC — to learn more about his requirements and when Highway1 is accepting its next batch of companies. Our chat has been edited for length.

You liken Highway1 to Amazon Web Services, which helps software companies scale.

There’s a concept called the Smiling Curve [whose points are marked by “create,” then “make,” then “sell”]. And VCs don’t want to invest in the “make” part. They don’t want to spend a lot of money on you building out a line. So our thesis is: let PCH be that AWS with hardware. We’re a supply chain company; we have 500 engineers in Shenzhen who manage factories for companies of all size. We [can] design the line and build that NRE (for non-recurring engineering, which refers to the one-time cost to research, develop, design and test a new product). We can handle credit terms and take payment…

You also help these teams pitch to investors at a demo day.

Yes, 200 attendees came to our most recent demo day and seven of 11 companies presented: three that are public and four that are in stealth. Two others opted out and two didn’t get far enough along; maybe they’ll demo one day; I’m not sure.

What types of companies are you most keen on helping? Are wearables overdone? Reportedly, people don’t wear their wearables for very long — at least, not their Galaxy smartwatches.

Wearables are totally of interest. That piece, reporting on the Galaxy, was like picking on the weak kid in the litter. If you bought a Galaxy Note [smart phone], it came free with purchase. In other words, people have been trying to sell something they received for free on eBay, so that’s not quite fair [to hold up as evidence that wearables are troubled]. Either way, if people aren’t happy with their wearables, it means there’s an opportunity to do it right.

I’m also bullish on the connected kitchen, and we’re always looking for more enterprise-type companies. I’m not afraid of teams that say, “We’re not a hardware company.” That means they’re looking beyond just hardware to the services and data set behind the hardware, and that’s really how you make hardware more useful and something that people need and love.

When do people need to apply for your next class?

We start accepting applications on April 17 and the program will start anew in September, though some companies are already coming in to talk with us. One team that has $800,000 in funding was just here and [the founder] and I were chatting and he told me they were going to go to tooling in two months. I had to run into another meeting but I had one of our engineers chat with him. [The engineer] told him, “You’re doing this out of order. If you go to tooling, you’re going to waste $50,000. You first need to do a prototype that takes these two factors into account, then do a 3D printing of this initial run.” And so on. And you could kind of see them saying, “Oh, sh_t. We just got schooled.”

Photo of Brady Forrest courtesy of Geekwire.

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