Mike Volpi

StrictlyVC: June 5, 2014

Hi, everyone, and happy Thursday morning.

StrictlyVC was on parenting duty yesterday (closed summer camp), but hopefully you’ll gain a useful insight or two from today’s rushed column!

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Top News in the A.M.

Mobile and Sprint are reportedly zeroing in on a $32 billion merger.

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The Pain and Pleasure of Cloud-Based Subscription Billing

Earlier this week, a group of CEOs, SVPs, technology strategists and the like gathered around a conference table in downtown San Francisco to discuss their companies’ respective experiences in switching to a subscription-based businesses. The move hasn’t always gone well with their customers or their sales staff, they openly admitted. But they argued that not only was the switch well worth it but that they increasingly had no choice. Below are some of their comments.

Mark Field, the chief technology officer of the life sciences company LifeTech, acquired earlier this year by Thermo Fisher Scientific on some of the challenges his business has endured in switching from a licensed to a subscription model: “It’s not something that’s easy to change. And as we’ve been acquired, I’m hitting all those roadblocks again. . . Our go-to-market is completely different now, and on the sales side, this is disruptive, big time. If [salespeople] just sold software, it would a licensed sell, and they’d get their commission, make their number; now it’s a subscription. It’s a smaller amount over a long period of time. [The employee] may not even be around before we start to get the full value of that subscription. So we have to think about how do we commission them. . . It’s no longer a technology system issue; it is an organizational issue.”

Field went on to add that while LifeTech may have lost 3 percent of its customers in switching to a subscription model, it has gained many more who couldn’t afford to license its technology but can afford to rent it. He also told those gathered that LifeTech has better insight into its customers than ever before. “It’s changing the way we do R&D, because we’re taking feedback from what we see customers do – which is very different from what they say what they do.”

David Wadhwani, an SVP and general manager at Adobe, on initially enraging part of its customer base by switching business models in the spring of 2013, and getting through it: “Since we announced [our subscription model], our market cap has more than doubled. A lot of this has to do with lifetime value; you have to believe in the retention rates of what you get, you have to believe in the quality of the revenue stream.”

It was important to bring Wall Street along, though, noted Wadhwani: “When we announced the transition, we pulled together between 100 and 150 analysts in New York and spent eight hours with them in what was maybe the most dense presentation we’ve ever put together. . . We needed Wall Street to understand a different model for valuing the company; otherwise, we would have been dealing with a significantly under-valued stock price in addition to having to deal with all that transition.”

Venture capitalist Mike Volpi of Index Ventures also talked about Wall Street’s response to subscription-based businesses, noting that it’s been uneven to date: “Generally, I think Wall Street is . . .figuring out what metrics they should be looking for. Five or seven years ago, my guess is that Wall Street wouldn’t have understood this notion of a subscription at all and didn’t have the tools to measure what a good subscription business was versus a bad subscription business. Then they came to phase where any subscription business must be great, check, check, check. Now we’re entering a time when investors are learning to discern between what’s good and not . . . Venture capitalists went through this three to four years ago . . . the broad investment community is coming to terms with it now.”

Not last, Karen Devine, technology strategist at Intuit, talked at some length about Intuit’s process of switching over its business, suggesting that, like Adobe, the worst is now, hopefully, behind it.“Three years ago, we were pressured every quarter from sales to do an on-premise version of our software — [these were] million dollar deals. Fortunately, we had the fortitude to say no, because supporting each one is difficult with a cloud-based business. And [to show how much things have changed in the last year], we probably haven’t been asked about an on-site version in three or four quarters.”

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New Fundings

Ambition, a 16-month-old, Chattanooga, Tn.-based company whose fantasy football-style app uses gamification to improve sales and productivity, has raised $2 million from SV Angel, Google Ventures and others, reports Venture Capital Dispatch. The company was seeded with $600,000 from the Chattanooga venture incubator Lamp Post Group.

Biotz Intelligent Technologies, a two-year-old, Kerala, India-based startup that has developed a 3D printer called the Makifyre, is close to closing a Series A round of funding, including from the Gurgaon-based private equity firm Ncubate, Biotz’s founder and CEO Paul Anand tells Techcircle.in. Biotz had previously raised $50,000 in seed funding from an unnamed investor.

Buzzoola, a nearly three-year-old, Moscow-based native video advertising platform, has raised $2 million in seed funding from I2BF Global Ventures. The company had previously raised $1 million in funding from BKF Bank.

Complexa, a six-year-old, Pittsburgh, Pa.-based, clinical-stage biopharmaceutical company focused on anti-inflammatory and fibrotic diseases, has raised $13 million in Series B financing led by JAFCO, with “significant” participation from earlier investors. The company has raised $18.4 million altogether, including from Pittsburgh Life Sciences Greenhouse and PLSG Accelerator Fund.

Elasticsearch, a two-year-old, Los Altos-based company that has created popular open-source enterprise search tools, has raise $70 million in Series C funding led by New Enterprise Associates, which was joined by earlier investors Benchmark and Index Ventures. “We’ve been wooing them for over a year,” NEA partner Harry Weller tells Re/code. Elasticsearch, which also has an office in Amsterdam, has now raised $104 million altogether.

Larky, two-year-old, Ann Arbor, Mi.-based online platform and app that helps consumers find discounted retail items online, has raised $1.76 million in seed funding led by North Coast Technology Investors. Also participating were the Michigan Angel Fund, the BlueWater Angels, and the Pure Michigan Venture Match and individual investors. Larky had previously raised $650,000 in a seed round last year.

Lima, a 2.5-year-old, Newark, De.-based maker of a hardware adapter and a multi-platform app that enables users to access their entire digital library from all of their devices, has raised $2.5 million in Series A financing led by Partech Ventures. A Kickstarter campaign had previously garnered $1.2 million for the company.

Night Zookeeper, a three-year-old, London-based maker of educational games for children, has raised roughly $600,000 in new funding, mostly from individual investors. Night Zookeeper, which allows users to design their own character and story lines, says it is used in more than 5,000 schools and that it’s being tested in Canada and Japan.

PackLink, a 2.5-year-old, Madrid-based online comparison, booking and management service for consumer and business shipping needs, has raised $9 million in Series B funding led by Accel Partners, with participation from previous investor Active Venture Partners. The company has now raised roughly $11 million to date.

RigUp, a months-old, Austin, Tx.-based software platform for oil rig logistics, has raised $3 million in seed funding led by Founders Fund. Other participants in the round included Great Oaks VC, BoxGroup, and individual investors. The WSJ has more on the startup here.

SAVO, a 15-year-old, Chicago Heights, Il.-based maker of collaborative sales and marketing software, has raised a $35 million round led by Goldman Sachs. Earlier investors Sterling Partners and SAP Ventures also participated. The company has raised $84 million to date.

Siftit, a two-year-old, Atlanta-based mobile restaurant supply chain ordering platform, has raised $4 million in Series A funding led by the early-stage venture firm TechOperators. The company was founded by former executives of Radiant Systems, a restaurant retail technology company that was acquired by NCR for $1.4 billion in 2011

Slainte Healthcare, an eight-year-old, Dublin, Ireland-based maker of revenue cycle management software for hospitals, has raised a “significant” investment from the AIB Start-up Accelerator Fund, managed by ACT Venture Capital.

Spinal Kinetics, an 11-year-old, Sunnyvale, Ca.-based company that sells an implantable artificial disc to treat degenerative spinal disorders, has raised a $34 million round of funding from earlier investors Scale Venture Partners, Lumira Capital, De Novo Ventures, SV Life Sciences and HLM Ventures.

SpinGo, a two-year-old, Draper, Ut.-based event search engine that scours more than 1,000 media sites and mobile apps for local event content, has raised $2 million in Series A funding from numerous individual investors. The company has raised $6 million to date.

Super Evil Megacorp, a two-year-old, San Antonio, Tx.-based stealthy gaming startup that’s building immersive games for tablets, has raised $11.6 million in new funding led by General Catalyst, with participation from Rain Ventures and earlier backers. The company had raised a $3.6 million seed funding in 2012 from Initial Capital, Signia Ventures,CrossCut Ventures and ZhenFund. The WSJ has the story here.

Toutiao, a two-year-old, Beijing-based Chinese news reader app, has raised $100 million in Series C funding led by Sequoia Capital, with the Chinese microblogging company Sina Weibo and other investors participating. The deal values Toutiao at $500 million, according to Chinese media reports.

Trevi Therapeutics, a three-year-old, Sandy Hook, Ct.-based company that develops drugs to treat uremic pruritus (chronic itching that occurs with advanced renal disease), has raised $25 million led by earlier investor TPG Biotech. The round brings the total capital raised by the company to at least $56 million, shows Crunchbase.

Zapya, a Beijing-based network-free close-range file sharing app for mobile devices, has raised $20 million in Series B funding from IDG Ventures. The company’s earlier investors reportedly include Northern Light Venture Capital and Innovation Works.

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New Funds

Shunwei Capital Partners, a three-year-old, Beijing-based venture capital firm focused on early to mid-stage start-ups in China’s Internet and technology industry, has raised $525 million for two new venture funds, according to China Money Network. The firm was created by Lei Jun, founder of Chinese smartphone maker Xiaomi, and Tuck Lye Koh, a Stanford grad and investor who’d worked previously at Deutsche Bank and Starr International. The firm’s first fund, says the report, was a $200-million-plus vehicle.

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IPOs

The financial data company Markit and eight more companies set terms this week for initial public offerings, ushering in what will likely be a busy June in the IPO market. Renaissance Capital takes a look at what’s happening here.

Vernon Davis, a tight end for the San Francisco 49ers, broke his silence yesterday over that Fantex IPO. Dealbook has the story here.

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Exits

IQM2, a nine-year-old, Ronkonkoma, Ny.-based maker of public sector meeting software, has been acquired by Accela, a 15-year-old maker of software for civic engagement. IQM2 doesn’t appear to have raised institutional funding; Accela has meanwhile raised at least $50 million from investors over the years, including Bregal Sagemount.

Namo Media, a year-old, San Francisco-based company that helps create mobile ads that sit “in-stream,” has been acquired by Twitter for undisclosed terms, Twitter announced in a blog post this morning. Techcrunch speculates that the move may signal that Twitter is looking to take its own ad network out to other sites. Namo Media had raised $1.9 million from a long line of investors, including Google Ventures, Andreessen Horowitz, Betaworks, Trinity Ventures, Susa Ventures, and numerous individuals, including Paul Buchheit.

Pryte, a one-year-old Helsinki-based company that aims to help mobile phone users in underdeveloped parts of the world to use wireless Internet apps, is being acquired by Facebook for undisclosed financial terms. Pryte’s service hadn’t publicly launched yet. Reuters has more here.

Serus, a 14-year-old, Sunnyvale, Ca.-based company whose software is designed to manage outsourced manufacturing operations, has been acquired by publicly traded E2open, which paid $18.5 million — roughly two-thirds of it in cash and the other third in stock. Another $7.5 million is available in earn-outs. According to Crunchbase, Serus had raised at least $13.8 million from investors, including OVP Venture Partners, Diamondhead Ventures, and Zap Ventures.

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People

Here are the angel investors who are, on paper at least, “Uber rich.”

Tony Bates has been named president of the pre-IPO wearable-camera maker GoPro, where he’ll report to the company’s founder and CEO, Nicholas Woodman. He was also given a board seat. Bates is a former EVP at Microsoft who was once considered a CEO candidate to replace Steve Ballmer. In March, soon after new Microsoft CEO Satya Nadella was installed, Bates left the company.

Greylock Partners gets a glowing cover story in the new Newsweek, which, among many other things, talks with Evan Williams about Medium’s funding, led by Greylock. “Before deciding on his investors, [Williams] called around to other entrepreneurs to get reference checks on VCs. One call had particular impact. Williams spoke to Kevin Rose, a co-founder of Digg. Greylock had been one of its venture firms. Williams wanted to know one thing: How had David Sze—the partner who got Greylock in to the deal—treated the foundering CEO as his company was unraveling? That is, of course, when you see a VC’s real mettle—when he’s about to lose all his money. ‘The thing I heard, time after time, was David was always trying to do the right thing for the entrepreneur,’ says Williams. ‘People don’t universally say that about all investors.'”

Some big-names in tech are backing a super PAC formed by Harvard professor Lawrence Lessig to reform the nation’s campaign finance laws. LinkedIn CEO Reid Hoffman has donated to the campaign, as have TED curator Chris Anderson, Union Square Ventures partners Brad Burnham and Fred Wilson, and — to the surprise of many — investor-entrepreneurPeter Thiel, a self-described libertarian. More here.

Robert May has been promoted to COO of Industry Ventures, the San Francisco-based investment firm. May has been the firm’s chief financial and compliance officer since 2011. (He remains its chief compliance officer.) May has also been the COO and CFO of Founders Fund in the past.

Abigail Posner, Google‘s head of strategic planning, on the general perception that people who wear Google Glass are, well, you-know-whats: “Over the course of human history, we’ve had to adapt to the negatives, fears and issues with any new tech,” says Posner. “These days, it happens quickly. It wasn’t too long ago, that people who walked around with their cell phones talking to themselves looked completely crazy. Now we all do it, and it’s a universally accepted behavior. People get used to everything.”

Leena Rao, a longtime TechCrunch reporter, is joining Google Ventures as an operating partner, she announced in a post yesterday. More here.

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Job Listings

Card.com, a two-year-old, L.A.-based company that offers prepaid debit cards as an alternative to traditional banking, is looking for a VP of business development. The company has raised $3 million from investors.

Socialyzr, a nearly three-year-old, Dallas-based company focused on social media optimization, is looking for a VP of business development. The company has raised an undisclosed amount of seed funding.

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Happenings

IBF’s Venture Capital Investing Conference is taking place in San Francisco next week. You can check out the agenda here. (StrictlyVC will be interviewing Jeff Clavier of SoftTech VC and Arvind Sodhani of Intel Capital on Wednesday.)

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Data

Pitchbook takes a look at 2006 vintage U.S. VC funds to see which are performing the best, concluding that of the 42 funds that raised between $100 million and $250 million dollars, the top performers based on IRR are currently 5AM Ventures II, Azure Capital Partners II, PTV Sciences II, and Sterling Venture Partners II. The median IRR is 5.1 percent; the top-quartile IRR hurdle rate is 9.3 percent, says Pitchbook.

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Essential Reads

Even credit card companies think plastic’s days are numbered.

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Detours

The people who can’t not run.

An S.O.S. in a Saks bag.

Fifty-four old films that are not to be missed.

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Retail Therapy

The Killerspin Throw II Robot, when you’re deadly serious about your tennis game.

Mike Volpi: If You Don’t Own Bitcoin Yet, Buy It

Last Thursday, I sat down with Mike Volpi, a general partner at Index Ventures in San Francisco, and later mentioned to you that I’d feature his thoughts on Bitcoin. Here, now, is that part of our conversation, lightly edited for length.

If you were to start your own company in 2014, what would it be?

If I were to do something [on my own], I’d definitely do something with Bitcoin.

Has Index made any bets on the currency yet, directly or through a startup?

I’ve heard a number of VC firms have bought Bitcoin as part of their portfolio. But we don’t have an investment in Bitcoin yet. We’re looking at a lot of different things and trying to break it down a little. It’s very early so it’s kind of hard to tell, but we do love the international component of it, so one of the angles we’re exploring is what does it mean from an international perspective, rather than merely a domestic speculation perspective.

Do you think we talk too much about Bitcoin in the context of the U.S.?

Much of the coverage here tries to think of it in the context of an American phenomenon, and where I think it [has received too little coverage] is its global importance. We all have bank accounts and credit cards and all that good stuff, but if you think of some person in South Africa or Ecuador or Argentina or Malaysia, it has a whole different meaning to that world, where currencies are volatile and you don’t have access to dollars and just 10 percent of people have credit.

I often hear that, but how or when will it become useful to people in developing countries, given its volatility and soaring value?

Currency is a multidimensional thing. First, it has stored value, like gold. You don’t really use it every day, but you have it there for safekeeping and it increases in value over time. Another aspect of currency is what we use for transactions: You buy a product from me and I give you money. The last aspect is the transactional plumbing – not that we exchanged value but that there’s a pipe underneath it all that allowed us to do that. Bitcoin is all of that smashed into one.

Because it’s so volatile, people treat it like stored value. You’d be crazy to use it right now – or, at least, it would be very unusual –particularly if you can use other currencies to buy stuff. But you have to think past the point of all that volatility. No one knows what it’s worth, but at some point, people will figure it out, more or less.

What then?

Then, if you’re using your favorite Argentine currency and yesterday it was worth this and today it’s worth half that because your government had a coup d’état or something crazy like that, would you rather be transacting in a Bitcoin currency, which will eventually get more stable because of its global nature, or your currency, which is far less [stable]? Or, if you want to buy products and you don’t have access to dollars because your government decided that it needed to keep all the dollars — that’s where it starts mattering more.

How long until we get there?

I think it will take five years – maybe even 10 years — to stabilize.

In the meantime, are you personally buying Bitcoin?

I have a few personally. I think the best strategy is to own them right now, and if you don’t, I would recommend it!

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Why It’s “Eyes on the Enterprise” at Index Ventures

In a sit-down with general partner Mike Volpi of Index Ventures late last week, Volpi shared how 18-year-old Index approaches venture marketing — and why it worries about competing with its founders for attention.

Volpi – long a top Cisco executive before joining Index – also explained why he’s confident that investors, who largely shifted their focus to enterprise deals in 2013, will keep it there this year. Our conversation has been lightly edited for length.

You’ve been investing more in enterprise deals as a percentage of your overall fund than you have historically. Why?

In part because we opened this U.S. office, and there’s more [related dealflow] in the U.S, and I think that’s an effect of more entrepreneurs getting into the space.

Getting into the space from where, the consumer side of things?

At the margin, there is some switching going on, like David Sacks, who [created] an enterprise company like Yammer. Or you might look at Dropbox [Index led its $250 million Series B round], which really started as a consumer company but is seeing bigger portions of its business in the enterprise. So you see a crossover effect.

You’re also seeing people who’ve been on the sidelines in recent years getting back in the game. We have an investment in Pure Storage, and if you look at that team, it’s a lot of the folks who were at [the data storage company] Veritas [acquired by security software giant Symantec for $13.5 billion in 2004]. There are people who’ve been going to work every day at these larger corporations, but now they’re coming out of them and restarting things.

How steep is the learning curve for those crossing over from consumer startups?

There is a learning curve. Like it or not, enterprises require sales, whereas with consumers, you can find a great service and, through virality, consumers discover it. So the business processes of selling — find the lead, nurture the lead, educate the customer on the value proposition of what you do, then close them – that along with the tools required and the people you hire are different. When Dropbox decided to launch its “Dropbox For Business” products, it had to learn about things like compliance and corporate directories, which aren’t natural vocabulary words for consumer entrepreneurs.

You say three trends will make 2014 another big year for enterprise. What are they?

First, enterprise budgets tend to be economic-cycle driven; when the economy is doing well [as now], they’re spending money.

A much newer theme is that the pocket of money that startups went after is distributed now, which is a really good thing. Historically, the one customer in the enterprise was the CIO, and he or she was a technical user who decided, “I’m going to use Microsoft for this, and Oracle for that and Cisco for this.” Now, because you don’t need to buy the hardware anymore – you can go to Saleforce or Workday or Zuora – the decision-maker for that technology is no longer the CIO. It’s the VP of sales, it’s the CMO, it’s the CFO; it’s 10 different people at the company. Imagine that you’re the head of public relations at Twitter and want to do sentiment analysis. You don’t call the CIO. You look up “sentiment analysis technology” on Google. Something comes up and you call the sale rep of the company and they say, “Just send us your link and we’ll have some analyses for you.” Well, you just spent money on technology. You’re an enterprise customer.

Last, enterprises have consumer envy. Consumers have cool devices. They have Evernote, with beautiful graphics. Meanwhile, [the enterprise folks] are sitting there looking at [Microsoft] SharePoint or Word. They want some of that cool stuff – including more storage and networking stuff and cooler middleware — so that’s where the money is being, and will continue to be, spent.

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Index Ventures’ Mike Volpi on the Pitfalls of VC Marketing

Index Ventures is widely perceived by other VCs to be a top-tier firm. Among its active investments are Sonos, the wireless music system company; Dropbox, the popular online storage service; and Hortonworks, a commercial vendor of Apache Hadoop.

The goal for Index now is to raise its profile with U.S. entrepreneurs, many of whom still consider the firm — which launched in Geneva in 1996 and opened a London office in 2001 — to be a European venture fund.

Step one involved opening an office in San Francisco in late 2011, where general partners Danny Rimer and Mike Volpi have been sewing up deals left and right. The second part of Index’s evolution involves giving the press a (slightly) better look into its thought processes. Indeed, I sat down with Volpi at Index’s sunny offices yesterday morning, where we talked about how the historically quiet firm plans to more visibly plant its flag in the U.S. and the Bay Area in particular.

We’ve been sitting here, talking about the professionalization of venture marketing. What is Index’s philosophy when it comes to selling itself?

Venture capital is changing. It’s different. And being good at marketing is an important asset today, when it just wasn’t 10 years ago.

Index certainly isn’t as “out there” as some firms. Will that change?

There’s an inherent conflict that exists in doing a lot of marketing for one’s own firm, because in one dimension, being out there helps attract people to you. In theory, saying, “So and so is backed by X Venture Capital” helps the company.

But one of our key cultural tenets is that we’re supporting the entrepreneur and we want the entrepreneur to be the story, not us. So we’re not trying to take the light away from the entrepreneur. Inherently, we see a little bit of a cultural conflict. Who is in front of the parade? Is it the VC or the entrepreneur? I think if the VC firm gets too far ahead of the parade, the smart entrepreneurs might get uncomfortable with that, so we try to strike a balance.

How exactly?

Presumably, over time, [things will take their] natural course if we do our job properly. But we don’t want to put steroids on [our marketing strategy]; we don’t want to bang on every journalist’s door, saying, “Pay attention to us.”

If you’re an entrepreneur, you want your own signature on the project you’re working on and you don’t want to be overshadowed. If you don’t have a signature to speak of, then you rely on somebody else’s. It’s a gray zone for sure, but I think it’s an important line to draw.

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Mike Volpi

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