Snapchat

Jeremy Liew on Snapchat, Anonymous Apps, and the Fallibility of Intuition

Last week, we published several interviews from our most recent StrictlyVC event in San Francisco. Today we’re running the last of those interviews, with venture capitalist Jeremy Liew.

Liew joined Lightspeed Venture Partners in 2006 from AOL, where he’d worked in corporate development, and as many readers will know, his star has risen quickly in the last nine years, thanks to investments like Snapchat, Bonobos, and The Honest Company. (Snapchat is reportedly valued at upwards of $20 billion and Liew wrote its first check, for $500,000. Meanwhile, both Bonobos and The Honest Company are expected to go public in the not-too-distant future.)

Liew — who primarily focuses on social media, commerce, gaming and financial services — doesn’t seem to be taking anything for granted. Parts of our chat, edited for length, follow.

What’s your day like? Are there certain things you pore over every morning like App Annie?

Probably three-ish years ago, taking more of a quantitative approach and looking at data sources was a more of an advantage; you could spot things before other people did. I still think that it’s good to see what everybody’s seeing, and we want to do that, but oftentimes, there’s an awful lot of interesting stuff that’s not as well-known, and you have to go looking for that. Bitcoin is a good example. Now there’s a lot of coverage about it, but two or three years ago, that wasn’t the case, and you could meet every interesting Bitcoin company in the world, which then was 15 or 20 companies.

So you develop a thematic approach, then dig in?

First, just being able to observe the present without judgment [is important]. It’s easy to rush to judgment based on your intuition, but you have to recognize that your intuition can be pretty fallible before you write something off.

You also have to have a point of view that’s differentiated. Some people did around [virtual reality]; we didn’t. we missed that whole thing. But when you pick a sector early, you really can be as well-versed in that sector as anybody else.

You think you’ve already missed the virtual-reality wave?

There are some sectors, where you really have to spend time to develop a point of view. I haven’t [when it comes to VR] not because I don’t think it’s interesting but because I’ve been focused on other stuff. And I think VC is becoming more of a specialist business. If you don’t know enough about a category, entrepreneurs probably figure that out pretty quickly.

You’ve said that you think L.A. is more in touch with what the rest of the country wants than Silicon Valley. How much time do you spend there?

I have one board seat in the Bay Area, five in L.A and five in New York. It’s not that I don’t want to invest in the Bay Area, but [I no longer believe there’s a] path that starts [here] with the digerati and that spreads to everyone else as they slowly grow to understand what we’ve always known. Instead, it’s actually young women who are the carriers of cultural viruses; it’s young women who are early adopters who will evangelize technologies and help spread them. And you ask yourself: who understands what young women in middle America will be doing, people in Silicon Valley or people in L.A. and New York?

One of your biggest L.A.-based bets is on Snapchat. For those who don’t know, how did that deal come together?

It was in 2012. It’s a lucky thing. One of my partners has a daughter who, at the time, was in high school. He’s an engaged dad and he noticed she was using this new app all the time, and [asked about it]. She said everybody in school has three apps: Instagram, Angry Birds, and Snapchat. (Remember, it was 2012, so people were still playing Angry Birds.)

He mentioned it to me since I focus on consumer stuff, so I downloaded the app, and I really didn’t understand what the big deal was [but figured if a] subset of people are using something intensively, it’s worth understanding why. So I saw [an email address] on Snapchat’s site and I emailed it and never heard back. I [turned to] LinkedIn and no one was listed as an employee at Snapchat. [Eventually] I turned to a WhoIs [domain] lookup [and it listed] Evan Spiegel, who was a sophomore at Stanford, so I emailed him through LinkedIn and never heard back. Then I started randomly emailing [different possible gmail addresses for him] and didn’t hear back. I was about to give up but tried one last thing. Since Evan was a Stanford student and I was a Stanford grad from business school, we were in the same Facebook [group], so I direct messaged him. And I heard back from him one second later, and he said, “Oh, I’d love to talk with you.” [Laughs.]

He wandered over the next day, cracked open his Mixpanel [mobile analytics] account and I was shocked by the engagement, retention and growth . . . It was growing so fast that he said, “We can’t pay our server bills,” and we said, “We can help you with that!”

Reports say Snapchat is now worth $10 billion to $20 billion. What do you think it’s worth right now?

I agree that’s what reports say. [Laughs.]

Have you taken some of your money off the table?

We haven’t. Venture is a game of extremes. You aren’t successful because you have a high hit rate; you’re successful because of your best deals. So you have to ride out your winners. If Evan and the team think there’s opportunity here, then we do, too.

You’ve also backed the anonymous app Whisper, whose most direct competitor, Secret, just went out of business, while another, Yik Yak, seems to chugging along. Has your view on anonymous apps evolved in any way?

With Whisper or Yik Yak, you actually get very different things. Yik Yak is very geographically focused. Whisper is much more about topic. You can connect with and emphasize with others about being gay in high school, or around loving your kids but sometimes just needing to be by yourself a little bit. Whatever it is, you’re not sure who you talk with about some of that stuff, and this gives you a forum to do that.

That’s the upside of anonymity. The downside is bullying or just mean-spiritedness. One of the few tools you have with these social sites is the culture within the community. If you go to an app where everybody else is ragging on other people, then it’s you think it’s okay to do that. If you go to an app where everyone is empathetic and supportive, then you say, okay, that’s kind of what we do here. Think of Pinterest, which essentially started as a photo sharing site. Users could have posted [lewd] pictures but they didn’t because they could see no one else did. You’d have to be a real jackass to think [behaving badly] is a cool thing to do when other people aren’t doing that, and most people aren’t real jackasses.

What did you make of Secret’s end? People seemed upset that the founders had taken $6 million off the table in the Series B, but no one was holding a gun to investors’ heads when they struck that deal with them.

I think in every transaction, a willing buyer meets a willing seller, and they agree on terms. The outcome there was probably what nobody was planning for but that happens in entrepreneurship and startups.

When is the right time for founder liquidity?

There’s no universal answer. Sometimes, investors want to own more than they’re able to. That’s probably not a great reason, but that’s actually one key reason, and it’s what I suspect happened in Secret’s case. Other times, it’s about alignment. Maybe you have founders who were in college two years ago and there’s an opportunity for the company to sell for $100 million. It must be pretty tempting to have a life-changing moment, and having the founders aligned with investors in wanting to go for a bigger opportunity is a good reason for founders to take money off the table. In any event, it’s a rare thing. It shouldn’t be a standard thing.

StrictlyVC: March 12, 2015

Hi, happy Thursday, everyone! (If you aren’t a subscriber yet, here’s an easier-to-read version of this emailed newsletter.)

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Top News in the A.M.

The Guardian has effectively retracted much of its widely circulated reporting about the anonymous messaging app Whisper. More here.

Twitter just changed its rules to prohibit users from publicly posting intimate, and possibly explicit, images or video without consent.

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Highfive Raises $32 Million to Take on Google (and Others)

In 2012, Shan Sinha and Jeremy Roy were working at Google, admiring the fact that each conference room at its Mountain View headquarters is wired for video conferencing. The technology makes it dead simple for employees to communicate with colleagues who aren’t in the office, and the two – who’d sold their software company, DocVerse, to Google in 2010 – realized there might be a larger opportunity to provide similar, but more affordable, technology to a whole host of companies.

They got to work on their newest company, Highfive, and so far, so good. The company, whose video conferencing products include $799 high-definition cameras and mobile and desktop applications that make face-to-face connections a cinch, is beginning to pick up market share. According to Sinha, the company has landed more than 500 customers – including Zenefits, Slack, and Warby Parker — since it began shipping its devices in December.

It also just attracted $32 million in Series B funding from Lightspeed Venture Partners, along with earlier backers like Andreessen Horowitz and General Catalyst that had provided the company with $13.5 million in 2013.

Investors are encouraged by the company’s traction, but it’s apparently what coming that gets them most excited, including premium features that will cost $10 per user per month and a roadmap that includes much more than videoconferencing — though Sinha is reluctant to share more right now.

“Our identity will be tied to helping people communicate much better,” he tells StrictlyVC. “But our task right now is to [sell our current technology to many more customers]. There are 25 million conference rooms in the world today and only 1 million have video conferencing. Our bet is that all will have video in them.”

As it happens, Google thinks there’s an opportunity to take its video conferencing technology to the masses, too.

In fact, shortly after Sinha and Roy began work on Highfive, Google started selling $999 Chromeboxes to businesses, saying it wants to bring video-conferencing “to any room.”

That doesn’t seem to bother Sinha, who calls Chromebox, “Google’s approach to solving enterprise problems, which is kind of halfway there.”

When customers compare the two, he adds, “we tend to win.”

New Fundings

Agilence, an 8.5-year-old, Mount Laurel, N.J.-based company whose software helps retailers monitor their stores and prevent theft, has raised $4.3 million in funding led by earlier backer Laurel Capital Partners, with participation from new investor Drayton Park Capital and previous backers Aster Capital, Granite Ventures, and NextStage Capital. The company has raised $18.5 million to date, shows Crunchbase.

Bento Labs, a 10-month-old, San Francisco-based startup that’s developing a customizable home screen for Android devices, has raised $2 million in seed funding from investors, including First Round Capital, Google Ventures, and the Social+Capital Partnership. Venture Capital Dispatch has more here.

Cardiac Dimensions, a 14-year-old, Kirkland, Wa.-based heart-valve repair technology startup, has closed its newest round with $43 million, following a recent $15.2 million tranche, the company said. The newest funding was provided by Life Science Partners and Aperture Venture Partners. Earlier investors Arboretum Ventures, Lumira Capital, and M.H. Carnegie & Co. also participated in the round. The company has raised $44.9 million altogether, shows Crunchbase.

ChargeBee, a four-year-old, Chennai, India-based startup that helps companies manage their subscription billings, has raised $5 million in Series B funding led by Tiger Global Management, with participation from previous backer Accel Partners, which provided the company with $800,000 in Series A funding early last year. The company has now raised roughly $6.2 million altogether.

Classkick, a 1.5-year-old, Chicago-based online learning platform that enables teachers to give students immediate feedback, has raised $1.7 million in funding from investors, including Great Oaks Venture Capital, Kapor Capital, Lightbank and individual investors.

DJI, a nine-year-old, Shenzhen, China-based company that makes a popular consumer drone called the Phantom, is in talks with Silicon Valley investors about a new round of funding at a multibillion-dollar valuation, reports The Verge. The company reported $500 million in revenue last year, four times its revenue in 2013, say the outlet’s sources; they add that the company is on pace to see $1 billion in revenue this year.

Kira Talent, a three-year-old, Toronto-based online talent assessment platform, has raised $1.2 million in seed financing led by Relay Ventures, with participation from the Business Development Bank of Canada and numerous angel investors. The company has now raised $3.2 million altogether, shows Crunchbase.

Lyft, the three-year-old, San Francisco-based ride-hailing service, has raised $530 million in new funding, led by the Japanese e-commerce giant Rakuten, reports TechCrunch. The new round brings Lyft’s total funding to $850 million and establishes its value at about $3 billion. Others of its backers include Andreessen Horowitz, K9 Ventures, GSV Capital,QueensBridge Venture Partners, Coatue Management, Mayfield Fund, and Founders Fund.

Memebox, a three-year-old, San Francisco-based online and mobile beauty brand company, has raised $17.5 million in Series B funding, bringing its total funding to $29.4 million. Its investors include Formation 8, Goodwater Capital, AME Cloud Ventures, Pejman Mar Ventures, Y Combinator, Winklevoss Capital, FundersClub, Cowboy Ventures, and Altos Ventures. TechCrunch has more here.

Moonfrog Labs, a two-year-old Bangalore-based startup that makes mobile games for players in India, has raised $15 million in Series A funding from Tiger Global Management and earlier investor Sequoia Capital, which had previously provided the company with $1 million in funding. TechCrunch has the story here.

Ola, a four-year-old, Mumbai, India-based cab-hailing service, is reportedly close to raising about $400 million in a round that will be led by DST Global and could value the startup at about $3 billion. Ola’s earlier investors, including SoftBank Corp. and Tiger Global Management, are also expected to participate in the funding. Earlier this month, Ola acquired TaxiForSure, a nearly four-year-old, Bangalore-based aggregator of car rentals and taxis in India, for $200 in cash and stock.

Ravelin, a three-month-old, London-based online fraud prevention startup, has raised an undisclosed amount of seed funding from Passion Capital. TechCrunch has more here.

Snapchat, the nearly four-year-old, Venice, Ca.-based messaging company, has raised $200 million in new funding from Alibaba Group at a valuation of $15 billion. Bloomberg has the story here.

Spaceflight Industries, a four-year-old, Tukwila, Wa.-based company that helps that U.S. government and other customers launch small satellites on larger space transportation vehicles, has raised $19.2 million in new funding, including from RRE Ventures, Vulcan Ventures, and Razor’s Edge Ventures. The company has now raised $27.5 million altogether. Geekwire has more here.

StarMaker Interactive, a four-year-old, San Francisco-based online platform that invites users to record and share music videos of themselves, has raised $6.5 million in new funding led by Raine Ventures, with participation from Crosscut Ventures, GREE International, iGlobe Partners, Qualcomm Ventures, Three Bridges Ventures, and individual investors.

Steelwedge, a 15-year-old, Pleasanton, Ca.-based supply-chain planning company, has raised $22.5 million in new funding led Camden Partners, with participation from Mainsail Partners, Shea Ventures and the company’s chief executive, Pervinder Johar.

VaporChat, a 1.5-year-old, New York-based company whose newly launched mobile application offers users more control over their messages’ content, has raised $1.5 million led by Social Starts, with participation from numerous angel investors. TechCrunch has more here.

Webgility, an eight-year-old, San Francisco-based maker of e-commerce accounting automation software for small- and mid-size businesses, has raised $2.5 million in growth funding from SaaS Capital.

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New Funds

The Hive, a three-year-old, Palo Alto, Ca.-based incubator and accelerator, has closed its second fund with $22 million in commitments — money it says will be used to build and launch up to 10 new companies that are leveraging data and innovations in data science. The outfit has already funded and launched 11 companies in its short history. In January, it exited from one of them, the machine learning commerce startup Kosei, which Pinterest acquired for undisclosed terms. The Hive is backed by numerous Silicon Valley luminaries, including Pivotal CEO Paul Maritz and Yahoo cofounder Jerry Yang.

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Exits

Kitematic, a two-year-old startup whose tool helps speed up the ability of Docker‘s software containers to ship applications across different cloud computing systems, has been acquired by Docker for an undisclosed price. More here.

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People

Marc Andreessen and his wife, Laura Arrillaga-Andreessen, are very happy new parents today. Said a spokesperson, “Marc and Laura are elated at the birth of their biological baby via gestational carrier. Baby Andreessen is in perfect health and already drafting his first business plan.” Recode has the news here.

Michael Carney, a reporter for PandoDaily for the past three years, has joined the L.A.-based venture firm Upfront Ventures as an associate. Carney was previously an early employee and managing director at WorldVest, a boutique merchant bank.

Ellen Pao, the former Kleiner Perkins Caufield & Byers partner who is suing the firm, watched her case take a turn for the worse yesterday under cross-examination by Kleiner attorney Lynn Hermle, who spent much of the day calling into question Pao’s stated motivation for seeking up to $16 million in damages.

Facebook CEO Mark Zuckerberg likes his privacy, but as the New York Times reports, he’s in an increasingly public battle with a would-be neighbor that threatens to expose details of his personal life and conduct.

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Jobs

Blippar is hiring a corporate development manager in New York.

Evernote is looking for a senior product marketing manager. The job is in Redwood City, Ca.

Reputation.com is looking to hire a VP of product management. The job is also in Redwood City.

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Essential Reads

Chamath Palihapitiya, the former Facebook VP and a renowned investor, is being sued, along with two partners, for allegedly scheming to acquire the stakes of a Canadian venture firm in the dating app Tinder and other startups — and at a bargain-basement price. Much more here.

Breaking up is not hard to do when you’ve got Apple Watches to move.

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Detours

Finland, home of the $103,000 speeding ticket.

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Retail Therapy

Aww. A tiny little keg, just for you.

StrictlyVC: January 12, 2015

Good Monday morning, readers! Welcome back.

A quick update: Tickets to our February event are now sold out.
(We’re hoping we can get some of you off the wait list; stay tuned.) Thanks to everyone who’s coming. Thanks, too, to our sponsors, including Ballou PR. We’re really looking forward to seeing all of you.

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Top News in the A.M.

Today, President Obama is expected to call for federal legislation that forces U.S. companies to be more forthcoming when credit card data and other consumer information is lost in online breaches, reports the New York Times.

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The Rolling Close: Here to Stay or Gone Tomorrow?

Venture capital was long a clubby, opaque industry, but AngelList and crowdfunding are two intertwined innovations that have since knocked that model onto its side. Now, another related twist looks poised to roil it again: the rolling close.

You’ve probably heard the term in recent years. A rolling close is what happens when a management team raises money within a certain window of time with no predetermined size for the “round.” Every amount invested is closed immediately at a set valuation, versus a traditional funding where a round isn’t closed until a predetermined minimum is raised.

The messaging service Snapchat is the highest-profile company to employ the model, closing $485 million from 23 investors over the course of nine months last year.

Last week, as TechCrunch reported, an eight-year-old, London-based film streaming service called MUBI closed on $15 million in similar fashion, raising the money from 49 investors over many months.

StrictlyVC is aware of two startups in San Francisco that are currently employing the same tactic.

You might think of it like crowdsourcing, without the middleman. “Whoever wires the money is in, and when you reach your target, you ‘close’ the round,” MUBI founder Efe Cakarel told TechCrunch.

Ramana Nanda, an associate professor at Harvard Business School, characterizes rolling closes as a product of a frothy market – full stop. It’s an “effective strategy for entrepreneurs in industries and at times when capital for startups is abundant and financing risk is low.”

As long as firms and investors can reasonably expect to continue raising money on good terms, Nanda says, they’re “less concerned about having a cash cushion in the event that things don’t go as well as expected, or because investors will not show up when the cash reserve runs low.”

Rolling closes are also tactical, argues Todd Chaffee, a managing director at Institutional Venture Partners, a Snapchat investor that wrote its first check to the company in 2013. “The formality of, ‘Let’s close this round, get back to business, and then raise another round'” isn’t always ideal for a fast-moving company, Chaffee says, calling rolling closes a “more fluid and dynamic approach.”

Still, there are downsides, including — presumably — managing investor relations. According to TechCrunch sources, Snapchat CEO Evan Spiegel has been known to invite different parties to invest in Snapchat at different pre-money valuations. (TechCrunch says some investors funded Snapchat last year at a $10 billion valuation while others participated at a pre-money valuation that was closer to $20 billion.)

MUBI’s backers invested at the same pre-money valuation, but all while the company’s post-money valuation was rising, meaning that every subsequent investor in MUBI’s newest fundraise was getting less of the company for his or her money.

It was a “very transparent and fair process,” says Cakarel, who tells StrictlyVC that “new investors weighed [MUBI’s] increased ‘pre-money’ valuation against a company that was becoming being better capitalized [and] that continued to grow its subscriber base significantly throughout the funding period.”

Little wonder that investors who are accustomed to traditional rounds — where everyone receives the same terms — aren’t sure what to make of the trend. “We haven’t seen this sort of financing/closing structure in the late stage,” says Paul Madera of the late-stage investment firm Meritech Capital, but we “generally wouldn’t be very comfortable with it,” he adds.

Hunter Walk, cofounder of the seed-stage firm Homebrew, says his firm has “occasionally participated” in rolling closes — in cases where the entrepreneurs are “herding cats a bit and want to put money to work right away from committed investors.” At the same time, he says, “It would give me pause at the seed stage to see a founder who tried to mark up the company several times during a round.”

The big question, of course, is whether rolling closes are here to stay. Only time will tell, but our guess is that they are — that they’re indicative of how private financings are moving toward a more market-based approach. After all, if there’s more demand for an issue, doesn’t it make sense to raise the price? Why should founders be forever bound to the artificial constraints of “rounds”?

As Cakarel puts it, “It was unimaginable, even eight years ago when I started MUBI, to do a round of $15 million from a bunch of individuals, each coming in with somewhere between $50,000 and $1 million in Silicon Valley.”

Cakarel isn’t saying he’s closing the door on VCs. “Raising institutional capital is also very attractive, and VCs can add a lot of value.” But he notes that “VCs are no longer the only option you have for this kind of capital. And this is good for entrepreneurs. Out of options, come good decisions.”

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New Fundings

Augmedix, a 2.5-year-old, San Francisco-based company that uses Google Glass to beam electronic health record information to doctors while they’re meeting with patients, has raised $16 million in Series A funding from earlier backers Emergence Capital and DCM. The company has now raised $23 million altogether. StrictlyVC talked with Augmedix last year about patient privacy concerns and the uncertain future of Google Glass.

DiaCarta, a four-year-old, Hayward, Ca.-based biotechnology company that produces precise cancer molecular tests, has raised $8 million in Series A funding from BioVeda China Fund.

Ingenious Med, a 15-year-old, Atlanta, Ga.-based maker of inpatient practice management information systems, has raised an undisclosed amount of funding from North Bridge Growth Equity, along with health care investors Ascension Ventures, Heritage Group and Kaiser Permanente Ventures. The company had previously raised $6.5 million, shows Crunchbase.

Kit Check, a 2.5-year-old, Washington, D.C.-based company that uses radio-frequency tags to help hospitals track medications and other supplies, has raised $12 million in Series B funding led by Kaiser Permanente Ventures, with participation from Rex Healthcare Ventures. Earlier backers New Leaf Venture Partners, Sands Capital Ventures, Easton Capital Investment Group and LionBird also joined the round. The company has now raised $22.5 million altogether, shows Crunchbase.

MongoDB, the seven-year-old, New York-based database company, has raised $80 million in Series G funding from public market investors including T. Rowe Price and Fidelity Investments, with participation from earlier backers Altimeter Capital, New Enterprise Associates and Sequoia Capital. The company has now raised $311 million altogether,reports Venture Capital Dispatch.

Okanjo, a four-year-old, Milwaukee, Wi.-based cloud commerce platform that helps brands sell products and present offers on third-party sites, has raised $1.7 million in new funding from local angel investors, bringing the company’s total funding to $3.2 million.

Percolata, a 2.5-year-old, Palo Alto, Ca.-based store whose in-store sensors and analytics are designed to help retailers better staff their stores, has raised $5 million in seed funding, including from Google Ventures and Andreessen Horowitz. Venture Capital Dispatch has more here.

PureTech, a 14-year-old, Boston-based operating company that takes successful research out of academic labs and assembles teams that can move it toward commercialization, has raised a $50 million round that follows a $57 million financing closed in October. The capital comes from the investment management company Invesco, several CEOs of pharmaceutical and biotech companies, and individual venture capitalists investing personal money, says the company. The Boston Globe has more here.

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New Funds

Arboretum Ventures, a 13-year-old, Ann Arbor, Mi.-based venture capital firm that specializes in life sciences companies, plans to begin raising a fourth fund this year that could be larger than its current, $138 million partnership, says VentureWire.

A new venture capital fund has been established for Kentucky companies called VenCap Kentucky that will provide up to $500,000 in matching funds to companies that already have a lead investor but need additional funds. The program will use funds from the U.S. Treasury. Qualifying companies must have developed a prototype, filed for a patent and/or have copyright rights, and they must have fewer than 500 employees, half of whom must be Kentucky residents. Louisville Business First has the story here.

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IPOs

Invitae, a 4.5-year-old, San Francisco-based genetic diagnostics company, has filed plans to raise up to $86.3 million in a public offering. Invitae has raised roughly $200 million from private investors. According to its S-1, its biggest institutional shareholders include Baker Brothers Life Sciences, which owns 20.6 percent of the company; BlackRock, which 17 percent; Thomas, McNerney & Partners, which owns 15.2 percent; and Genomic Health, which owns 9 percent.

Shopify, an 8.5-year-old, Ottawa, Canada-based software company whose commerce platform helps retailers sell their good online, is working on a plan to raise roughly $100 million this year in a dual U.S.-Canada IPO that could value the company at more than $1 billion, according to WSJ sources.

Wowo, a three-year-old, Beijing, China-based company that operates the Groupon-like, Chinese group-buying site 55tuan.com, has filed paperwork to list its American Depository Shares on the Nasdaq. It’s right now planning to raise up to $40 million.

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Exits

Biofuel maker KiOR, which develops technology to convert wood chips, logging residue and other biomass into renewable crude oil, is reportedly scrapping a proposed bankruptcy auction and plans to turn over control of the company to its lender in a debt-for-equity swap. Famed venture capitalist Vinod Khosla had personally incubated KiOR and, along with the help of Bill Gates, Alberta Investment Management, and the state of Mississippi, had provided roughly $300 million in funding to the company.

Mobius Innovations, a two-year-old, Singapore-based mobile context-awareness platform cofounded by entrepreneur Nirmal Palaparthi, has been acquired by Fractal Analytics, a company that Palaparthi also cofounded and which is now a portfolio company of TA Associates. Terms of the deal were not disclosed.

Newsflo, a two-year-old, London-based media monitoring service tracks more than 55,000 English-speaking media sources based on feeds from 20 or so countries, has been acquired by the educational publisher Elsevier for undisclosed terms. TechCrunch has more here.

QuickFire Networks, a 2.5-year-old, San Diego-based video compression company, has been acquired by Facebook for undisclosed terms. QuickFire doesn’t appear to have raised outside funding.

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People

Venture capitalist Ron Conway is donating $40 million to help pay for the new outpatient medical building at San Francisco’s UCSF Medical Center. The donation was announced Saturday night. The San Francisco Chronicle has the story.

Institutional Venture Partners has promoted Eric Liaw and Somesh Dash to general partners, bringing the firm’s investment team to eight. Liaw joined IVP in 2011 and focuses on working with high-growth companies across a variety of sectors, including enterprise software, Internet, and mobile. He’d previously spent seven years at Technology Crossover Ventures. Somesh Dash joined IVP in 2005 and focuses primarily on later-stage investments in Internet, software, mobile, and technology-enabled services companies. Dash had previously worked as an analyst, including at Credit Suisse First Boston and Sony Entertainment.

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Job Listings

Hercules Technology Growth Capital is looking to hire four managing directors: one focused on energy investments, one focused on special situations, one focused on tech opportunities, and one focused on life sciences.

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Data

Though the fourth quarter of last year saw roughly a dozen “megadeals” (rounds of $100 million plus), deal volume in the past two quarters actually dropped to late 2011 levels — possibly in response to rising valuations, says Mattermark. More here.

According to the National Venture Capital Association and Thomson Reuters, 254 VC firms raised $29.8 billion last year, a 69 percent increase in dollar commitments compared to 2013 and the strongest annual period for fundraising since 2007. (At the fundraising nadir over the past decade, in 2009, 161 venture firms raised a total of $16 billion.)

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Essential Reads

East of Palo Alto’s Eden — a powerful look at the lingering consequences of residential segregation.

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Detours

Eleven questions that will make your kids happier.

Beautiful stairs.

Justin Bieber’s Calvin Klein ads, re-staged.

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Retail Therapy

Pencil brooms.

Polar ice cubes.

A router that can power your devices wirelessly from 15 feet away. Coming soon(ish)!

The Rolling Close: Here to Stay or Gone Tomorrow?

The messaging service Snapchat is the highest-profile company to employ the model, closing $485 million from 23 investors over the course of nine months last year.

Last week, as TechCrunch reported, an eight-year-old, London-based film streaming service called MUBI closed on $15 million in similar fashion, raising the money from 49 investors over many months.

StrictlyVC is aware of two startups in San Francisco that are currently employing the same tactic.

It was a “very transparent and fair process,” says Cakarel, who tells StrictlyVC that “new investors weighed [MUBI’s] increased ‘pre-money’ valuation against a company that was becoming better capitalized [and] that continued to grow its subscriber base significantly throughout the funding period.”

Sign up for our morning missive, StrictlyVC, featuring all the venture-related news you need to start you day.

With Kleiner’s Snapchat Deal, There Isn’t Much to See

A week ago, the WSJ reported that Kleiner Perkins Caufield & Byers is investing up to $20 million in Snapchat at a $10 billion valuation as part of a larger round that the messaging app is assembling. The piece noted that just months earlier, DST Global had also quietly committed capital — at a $7 billion valuation.

The news generated a lot of chatter, with one piece in particular suggesting that Kleiner is part of a broader pump-and-dump scheme to keep valuations frothy until retail market investors are convinced to buy companies like Snapchat on the public market. (If Snapchat is eventually sold for top dollar to a publicly traded acquirer like Facebook and Google, that’s apparently just as pernicious as they, too, are partly owned by retail investors.)

It’s not the first time tech investors have been accused of looking to sell their shares to a greater fool. When it comes to Kleiner’s investment, though, the argument misses the mark. Kleiner’s motivations look simpler to me.

First and foremost, despite a recent string of exits for the firm, including Dropcam’s sale to Google, Kleiner is still seen as slightly out of touch compared with some of its Sand Hill Road peers. It nearly missed Facebook and Twitter. It bet heavily on Zynga. And it has parted ways with many of its younger partners, through attrition, downsizing, and a lawsuit, which probably doesn’t make it any cooler to young entrepreneurs (or younger LPs, for that matter). Some say that institutional investors are no longer swayed by the logos in a venture firm’s portfolio, but LPs don’t swoon over Kleiner like they once did. In this case, maybe Kleiner is hoping the logo makes an impression.

Another motivating factor might be Kleiner’s desire to acquire information rights to Snapchat. What direction is Snapchat moving toward? What new technologies is it developing that will change the face of mobile apps? Who is it partnering with and which startups might it acquire? While it might seem like general information, it puts Kleiner in the know and could help its portfolio companies, at least tangentially.

There’s also IRR to consider. Kleiner’s Snapchat investment might not generate a good cash-on-cash return for the firm, but it could turn into a high IRR deal if Snapchat sells soon, which seems as likely as any scenario given that it has virtually no revenue at this point. Even if an acquisition doesn’t do much for Kleiner’s overall fund, it’s always nice to have some flashy numbers to produce for potential investors.

It may be convenient to use Snapchat as an example of a bubble in Silicon Valley. But pointing to Kleiner’s role in Snapchat’s soaring valuation is giving Kleiner a bit too much credit. The reality is more mundane, as far as I can tell. Kleiner wanted to be associated with a high-profile deal and it was willing to get in at any cost. And it succeeded.

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The Beauty of Annoying Apps

Earlier this week, I stopped at the Palo Alto offices of General Catalyst Partners, an East Coast heavyweight that’s been politely muscling its way into more West Coast startups since planting a flag in the Bay Area in late 2010. One of those companies is Snapchat, the popular mobile messaging startup, and one of the investors I sat down with was Niko Bonatsos, who first brought Snapchat to General Catalyst’s attention. Among other things, we discussed why Snapchat’s most popular feature is no longer “snaps.” Our conversation has been edited for length.

Snapchat users appear to be less and less interested in the company’s “ephemeral” features. Is that a concern?

It’s the same thing that happens with other software products. When they get started, they’re very simple. Over time, their user base diversifies. So with Snapchat’s newest release, you can basically do a live video chat with others on Snapchat rather than one message at a time. And that’s fantastic. In the past, Snapchat was the icebreaker; now you can do much more. It’s still probably the fastest-growing app out there.

What early signals do you look for when it comes to non-transactional products like Snapchat?

If there’s anything that people are talking about in online communities, or if in reviews of apps, you see polarizing reviews, these are good signals.

When you’re controversial, it fuels word of mouth, which also gets amplified by the media. Back in the early days, for example, Snapchat was perceived as the ultimate tool [for lascivious] texting; it wasn’t true, because 75 percent of the user base was girls. But the media picked it up. Later, Facebook launched Poke, which was characterized as a Snapchat killer. Most people didn’t know Snapchat [at that point], and they looked it up and downloaded it. Controversy is great when it comes to building a brand and acquiring users for zero marketing spend. Obviously, you have to graduate from one controversy to another, or three to six months later there’s fatigue, but it can be controversy because of behavior, content, or because your product annoys people.

So investors should be looking for annoying apps.

Yes. With Snapchat, a lot of parents were very annoyed with it. With [anonymous messaging app] Yik Yak, a lot of schools and parents were annoyed. With [the mobile dating app] Tinder, people were telling their friends, “There’s an amazing app where I can check out girls and if I like them and they like me back, maybe we can start chatting and hook up later.” Meanwhile, older people were like, “This is terrible. What are young people doing these days?”

Secret and Whisper, apps where people share confessions and gossip anonymously, are controversial and, to some, annoying.

But their word of mouth isn’t as strong. Things don’t spread quickly from one community to another. Secret hasn’t managed to break out of its techie, Silicon Valley roots. You can see that it has something like 100,000 Android downloads. It launched on Android [in mid-May], but for a company that has raised so much money and been so [buzzed about], you’d expect some more.

I’m also a little hung up by the names Secret and Whisper. How many secrets do you have, really? Maybe one a day? Three times a week? I get the value proposition of the product; it’s like a Twitter parody account. But most content is, “My girlfriend just broke up with me,” or “I hate my boss.” It’s heartbreaking and after a couple of weeks, you don’t want to go back.

Before I go, what’s one last trend you’re seeing?

How fast we’ve gone from single apps to portfolios of apps. Google now has 150 apps between iOS and Android. Facebook has about 40. The world basically saw what happened in China, where companies like Tencent [the Chinese Internet company] now have [hundreds of] apps and do a lot of cross promotion and [essentially] game the app store. Mobility into the top 100 has become much harder for early-stage startups as a result, and if you aren’t in the top 100 app [download rankings], no one can find you. That’s the opportunity and the challenge.

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That’s It?

Almost a week ago, some odious years-old emails written by Snapchat CEO Evan Spiegel were leaked to the media, and it’s a wonder how quickly their content seems to be have been swept under the rug.

It’s understandable, to a point. Spiegel’s emails were written when he was a college student trying to impress his fraternity brothers, not the CEO of Snapchat. Emails are also private communications that, very arguably, should remain private.

Besides, it isn’t like Spiegel holds public office. He never signed up to be a role model. He certainly shouldn’t be held accountable for a culture in which objectifying women not only remains socially acceptable but, for some, seems to border on a competitive sport.

Still, Spiegel’s lone public apology, in which he said he was “mortified and embarrassed,” didn’t go far enough. How about some response from others close to the company, the same people who blog and tweet and talk so openly with reporters about how Silicon Valley is changing the world?

On Friday, Stanford Provost John Etchemendy emailed the university’s student body to say the school is “positively ashamed” that the emails were sent by a Stanford student.

If Snapchat’s influential investors are also ashamed of the noxious attitudes toward women that were conveyed in those emails, they should also say something. It’s easy enough to condemn their content without hanging Spiegel out to dry. And frankly, not doing anything seems like an implicit endorsement, as if what Spiegel wrote isn’t that bad. (It is.)

“We can choose to turn a blind eye to such statements and chalk them up to youthful indiscretion,” wrote Etchemendy to Stanford’s undergraduates. “Or we can be more courageous, and affirmatively reject such behavior whenever and wherever we see it, even — no especially — if it comes from a friend, a classmate, or a colleague.”

Nobody’s going to change Silicon Valley’s attitude towards women overnight, but here’s hoping Etchemendy’s message resonates not only with the men and women of Stanford but with Snapchat’s board, as well. A few choice words could help send the message that objectifying women isn’t okay, no matter how “hot” your company might happen to be.

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Innovation in Snapchat Time

There’s been a lot of talk of “ephemerality” in tech circles lately, driven in part by the rise of Snapchat, the popular mobile app that allows users to send self-destructing messages and images. But Niko Bonatsos, a principal at General Catalyst Partners — which participated in Snapchat’s A and B funding rounds — thinks the trend is becoming ubiquitous and that Internet startups have less time than ever to prove themselves before their window of opportunity slams shut.

Yesterday, I chatted with Bonatsos about the “rapid decay” of so-called digital assets, with Bonatsos noting that our loyalty to digital products is at an all-time low. To prove his point, Bonatsos ticked off a list of “digital” companies to fall from their perches, many disrupted in the span of five years or less (think MySpace, Blackberry, and Firefox, among others).

Bonatsos also pointed to mobile phone apps, noting that more than half the top 100 Android and iOS apps today didn’t exist just a year ago, and that the lists are almost entirely different than two and three years ago.

“Unlike 10 years ago, when we still had product life cycles, today, [users migrate to a new technology] as more of an impulse, and there isn’t a lot of time to act if your product isn’t perfect. People will just migrate to the next form factor, the next paradigm.”

I asked Bonatsos how this constant migration of users is impacting the way he invests. After all, what’s to say people won’t move on from Snapchat to some other app that gains their confidence? He said Snapchat serves a core human need right now – to be authentic and express ourselves privately — which is one of his firm’s criteria. Bonatsos said another buffer against fickle consumers is to back companies that are “used every day to solve a real world problem.” Here, he pointed to Uber, which has largely replaced the frustrating process of calling a cab, and the travel metasearch engine Kayak, a General Catalyst portfolio company that was acquired by Priceline last May.

Still, he noted that it’s never been so important for digital startups to “be on top of their numbers” to “deeply understand the intensity of [their users’] engagement,” and to “be smart [and] leverage user acquisition channels really early on, when they are cheap.”

Bonatsos – who was raised in Athens and holds engineering degrees from Stanford, the University of Cambridge, and the National Technical University of Athens — acknowledged that all of it is “easier said than done.” He also said that startups typically have “some time” to take action if their metrics aren’t heading in an ideal direction — but not much.

“Even when something becomes mainstream,” he said, “the clock is ticking.”

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So Snapchat is Worth More than $3 Billion. Got It.

Yesterday, there was lots of back and forth about Snapchat, the fast-growing messaging service, and the $3 billion all-cash offer from Facebook that it recently spurned, according to the Wall Street Journal’s sources. (Apparently, three sources also confirmed this account to the New York Times.)

As the Journal reported, the “rebuff” came as Snapchat is “being wooed by other investors and potential acquirers. Chinese e-commerce giant Tencent Holdings had offered to lead an investment that would value two-year-old Snapchat at $4 billion.”

It isn’t that Snapchat’s young founders — Evan Spiegel, 23, and Bobby Murphy, 25 – are strictly opposed to being acquired, suggested the Journal. But they think if they wait until the next year, they’ll fetch an even richer valuation.

If they do, they can thank the media for its help.

I’ve read the numerous reasons why this deal makes sense: Facebook is losing steam with the younger demographic. Its Snapchat competitor, Poke, fell flat. Snapchat’s users access the service via their mobile phones, where Facebook wants to reach more of its own users.

But there seem to be at least as many reasons why this Facebook deal doesn’t add up.

For starters, Facebook’s modus operandi is to create a social operating system for the masses. Snapchat’s stated purpose is to prevent sharing. Facebook grows squeamish at the prospect of lactating mothers. One of Snapchat’s more prominent use cases is sexting.

There’s also the size of the reported offer. With the exception of Facebook’s then $1 billion cash-and-stock acquisition of the photo-sharing service Instagram last spring – a deal that helped Facebook quash a growing threat on the verge of its IPO — Facebook isn’t in the habit of splashing out much on acquisitions.

Maybe it’s been waiting for a growth opportunity exactly like the one that Snapchat presents, but Facebook knows as well as any that it’s very hard to buy or create a “category killer.” Instagram has grown from 30 million monthly active users to 150 million monthly active users under Facebook, but it’s no YouTube; there are still plenty of competitors out there. The same is true of messaging services. SnapChat may be processing 350 million “snaps” per day, but it doesn’t own its space.

Which raises yet another point: This deal is expensive. As far we know, Snapchat has no revenue or business model. We’re not even sure how many users it has. (It last reported 5 million users in April; according to the Guardian’s calculations, it probably has around 26 million U.S. users today.)

Even if Snapchat is worth top dollar right now, Facebook has current assets of $10.5 billion. Paying $3 billion in cash would significantly deplete its balance sheet. Observers have likened yesterday’s news to Google’s reported bid to buy Groupon. But with Google’s many tens of billions of dollars in cash, it could have easily afforded to gamble on Groupon; not so with Facebook and Snapchat.

As a reporter, I love acquisitions: they’re exciting, and they often involve very personal stories. Where the rubber meets the road, though, most acquisitions fail. This deal may have been in the cards at one point. But if I were Facebook, I might be happy it didn’t go through.

Venture Heavyweights Sit Back as Deal Sizes Soar

It’s been a banner week for a number of Internet companies.

Last Wednesday, social network Pinterest acknowledged closing on a $225 million round that valued the company at $3.8 billion. Shortly thereafter, AllThingsD reported that Snapchat, the messaging app, is now weighing a $200 million investment round that would value the company at $3.5 billion. And just yesterday, NextDoor, a social network for neighbors, raised $60 million in fresh capital.

But the reality is that some of today’s biggest venture heavyweights have pulled back dramatically on late-stage deals.

Two weeks ago, during a visit to Andreessen Horowitz, Marc Andreessen told me his firm has “done almost no growth investments in the last year and a half.”

Yesterday, Ravi Viswanathan, who co-heads New Enterprise Associates’ Technology Venture Growth Equity effort, told me much the same. “If you chart our growth equity investing over the last few years, it’s been very lumpy,” said Viswanathan. “Last year, I think we did four or five growth deals. This year, I don’t think we did any.”

That’s saying something for a firm that is right now investing a $2.6 billion fund that it raised just a year ago.

Andreessen attributes his firm’s reluctance to chase big deals to an influx of “hot money.” The partnership is “way behind on growth [as an allocation of our third fund],” Andreessen told me, “and that’s after being way ahead on growth in 2010 and 2011, because so many investors have come in crossed over into late stage and a lot of hedge funds have crossed over, which is traditionally a sign of hot times, hot money.” He added, “What we’re trying to do is be patient. We have plenty of firepower. We’re just going to let the hot money do the high valuation things while it’s in the market. We’ll effectively sell into that.”

That’s not to say later-stage deals don’t have their champions right now. At this week’s TechCrunch Disrupt conference, venture capitalist Bill Gurley of Benchmark told the outlet that “a global reality is that some of these companies have systems, they have networks in them, that cause early leads to always play out with really huge platforms.” People “laugh or write silly articles about the notion of a pre-revenue company having a very high valuation,” added Gurley. But “if you talk to some of the smartest investors on Wall Street, or go talk to guys like Lee Fixel or Scott Shleifer at Tiger, they’re looking for these types of things. They’re looking for things that can become really, really big.”

Still, Viswanathan’s concerns sound very similar to Andreessen’s when I ask him why NEA has pulled back so markedly from later stage investments.

“It’s an amazing tech IPO market, and that drives growth,” Viswanathan observed. “But I’d say the growth deals we saw last year [were] elite companies getting high valuations. There are still great opportunities out there. But right now, it feels like there are high valuations even for the lesser-quality companies.”

Photo courtesy of Corbis.

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