True Ventures

True Ventures Just Led a $12 Million Investment in Still-Stealth Brava

If you’re curious to learn about the latest investment out of San Francisco-based True Ventures, you’ll have to be patient. Though the firm is disclosing that it has led a whopping $12 million Series A round in new startup Brava, details about the startup are scarce.

What we do know: Brava is a new IoT company that plans to create a suite of domestic hardware and software products, beginning with a kitchen appliance that aims to make cooking easier. It also just brought aboard John Pleasants as CEO.

If that name is familiar, it’s because Pleasants has led a number of digital media companies over the last couple of decades, including as co-president of Disney Interactive Media Group, COO of Electronic Arts, CEO of Ticketmaster, and most recently as an EVP at Samsung.

Pleasants also spent a year as the CEO of Playdom, a social gaming company that was acquired for $563 million by Disney in 2010 (thus Pleasants’s role there). It was at Playdom where he met Brava cofounder Dan Yue, who went to high school with Brava’s other cofounder, Thomas Cheng.

Yue was Playdom’s chief product officer and headed to Disney with Pleasants after the sale, logging a couple of years with the entertainment giant as an SVP of product. Cheng meanwhile cofounded the smart parking company Streetline and recently spent a year as the head of hardware at August, the smart lock company.

Oh, and if you’re wondering where True Ventures fits into all of this, the firm sold an earlier portfolio company, social gaming startup Hive7, to Playdom back in 2010 and got to know Pleasants then.

We had the chance to talk with Pleasants yesterday about Brava, which quietly came together about a year ago.

More here.

Howdy Raises $1.5 Million from Top VCs to Build Apps for Slack

Despite a checkered history with online platforms, developers are always looking for the next big distribution model and a small but growing number is betting Slack, the popular group-messaging platform, is the way to go.

One such startup, Austin-based Howdy, may be the first to nab venture funding based largely on that vision. Specifically, the company, which has developed a customizable chat bot application that runs automated tasks for teams on Slack, has just nabbed $1.5 million in venture funding from Bloomberg Beta, True Ventures, a small angel group called Outlier and numerous individual investors.

Howdy is first and foremost a time saver for now, especially when it comes to meetings. For example, after connecting to Slack, the app can simultaneously message each member of a team, collecting status updates that can be archived and viewed by everyone. The idea: to keep meetings from turning into one long catch-up session and enabling attendees to focus on decision-making instead. (Worth noting: Howdy can also be used to collect everyone’s lunch orders. It’s up to the team using it.)

Howdy co-founder Ben Brown says the still-in-beta company will eventually charge customers on a monthly basis but that it’s a “little early to know the details.” What he says he does know is that providing applications, content and services via messaging applications is becoming a “huge opportunity.”

More here.

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.

Duo Security Raises $30 Million More, Led by Redpoint

Duo Security, a five-year-old, 100-person company that sells its cloud-based two-factor authentication software to thousands of organizations, including Facebook, Twitter, NASA and Uber, has just raised $30 million in Series C funding led by Redpoint Ventures, with participation from Benchmark, Google Ventures, Radar Partners and True Ventures. (The Ann Arbor, Mi.-based startup has now raised around $50 million altogether.)

Last week, we chatted the Duo Security’s cofounder and CTO, Jon Oberheide, about how his company is using mobile devices as a second form of authentication, and what comes next.

Some major company’s information is breached every week it seems, yet there are also other two-factor authentication services out there tackling the problem. What makes yours different?

First, we think the existing security is broken. Underlying information technology has shifted out underneath existing security technologies and they aren’t relevant anymore. In the past few decades, your security model was built within the physical walls of your organization, then people began accessing the same device but they weren’t necessarily in the building, which made phishing for those employees’ names and passwords easy. Poor hygiene across multiple sites was the problem we were trying to solve, and we succeeded in ensuring that your identification couldn’t be stolen.

Then mobile devices came along and now everyone uses their own favorite products.

Yes, and those mobile devices aren’t under the control of an IT administrator. You have these cloud services that are being controlled by third parties. IT departments have gone from saying “no,” to partnering with [various parties] to ensure their [devices’] secure enablement.

And you have a new edition that you say works even better than what your customers have been using. How so?

Our new platform edition allows companies to establish what security policies are acceptable and customize protection at the point of entry. It can stop break-ins regardless of whether hackers have a user’s name or password by analyzing a company’s policies for each log-in attempt, including the location of the user, the reputation of the IP address, and what level of device health they want to admit into their enterprises. It addresses, for example, the employee who might forget his phone at the bar. A company can require that a full encryption and screen lock [are activated] to prevent someone else rom picking it up and trying to access corporate information. Or, if you’re a domestic company whose employees primarily log-in from Starbucks, you might want to block access to China or Russia, where a lot of hackers come from. You just click a box and it’s done.

How much more will this new edition cost customers?

On a per user, per month basis, we currently charge $3; our platform edition wil cost $6 per user per month because we’re providing a lot more value to companies that we think justifies [the price hike]

The Industry Gets a New, $50 Million Micro-VC Fund of Funds

Today, Venture Investment Associates, a 21-year-old fund of funds group that commits capital to venture capital, growth capital, and private equity groups, is announcing that it has closed on an oversubscribed $50 million seed fund of funds that counts some pretty tony institutions as LPs. Managing director Chris Douvos — who joined the firm in 2011, having worked previously for TIFF (The Investment Fund for Foundations) and Princeton University’s endowment — won’t let StrictlyVC name those investors. But we talked recently about numerous other facets of the new fund, and who it’s liable to back. Our chat has been edited for length.

This is your second formal micro-VC fund of funds, and half of it is already committed. Is that right?

Yes, we’ve been investing in [micro-VC] since 2004; we were part of First Round Capital’s friends-and-family round. But we closed on an oversubscribed $25 million fund of funds in 2012, 80 percent of which went to four managers: True Ventures, First Round Capital, Data Collective and [O’Reilly AlphaTech Ventures]. And half of this oversubscribed $50 million fund is deployed among First Round, True, and Data Collective. We’re also likely to do OATV again when it comes back in the market.

That’s concentrated.

I believe investing is about conviction. I would give [First Round founder] Josh Kopelman the last dollar in my kids’ college funds.

What kind of ownership percentage do you target?

When we’re a major institutional backer of a new entity, we like at least 10 percent of the fund. In the case of OATV, back in 2006, we did 15 percent of the fund. At Data Collective, we [bought] 10 percent of fund in 2012. We have a group of [institutional] investors who are super sophisticated and we’re sort of bird-dogging ideas for them.

What new idea are you spying? What other types of funds are you looking to back right now?

We’re looking to find another group or two where we can really make an impact and put them in business. Having invested in the space for more than a decade now, it’s easy to tell who the tourists are and who the long-term players are. I focus on groups that somehow punch above their weight, that offer a platform dynamic where their companies will materially benefit from interaction with the VC but where the VC doesn’t end up being a bottleneck.

I’m not looking for sharpshooters that are the next really smart ex-entrepreneur, because I’ve seen that model rise and fall several times. There are a plethora of these people raising funds; I think we’ll have a Cambrian explosion and the species will kind of die off during the next financial crash. It’ll be like a meteor hitting.

Are you seeing many newer firms emerge with platform approaches? I take it you’re looking for another True or First Round – firms that do a lot to facilitate interactions between the founders of their portfolio companies.

Firms that demonstrate platform dynamics are really special, but they’re few and far between. There’s no one on my radar screen right now.

Do you care where a firm is based? Would you fund a firm that’s not in the U.S.?

This is an information business, and when you’re investing far afield, you start outrunning your supply lines of information. You’re investing in people and you need to understand their motivations and their fears and their contexts, and it’s hard to know those when they’re thousands of miles away.

Do you favor VCs who spin out on their own to entrepreneurs?

I think operating experience is overrated and that people undervalue the investing experience of people who’ve written checks of institutional size. When I’m looking at an entrepreneur, I’m asking myself: How do they think about investing as a fiduciary, because it’s a very different skill set and thought process.

There’s a bias in the Valley that [investing experience] is a secondary consideration and that finding a cool technology or exciting team will make everything work out. But we’re starting to see with late-stage deals that are heavily structured and sapping the returns of earlier investors that [those ties] aren’t sufficient to the end goal of making money for investors.

What do you make of AngelList? Do you think more entrepreneurs should or will begin using it to form their own micro VC outfits?

I think AngelList Syndicates and [the accredited investor platform] FundersClub could really reshuffle the landscape. We don’t know yet how those stories play out. We made a small investment in AngelList’s Maiden Lane [a fund that backs investors on AngelList] partially to have a front row seat as things unfold.

But part of me wonders about a lot of people who are raising these small funds. Traditional fund structure is deeply flawed. The average fund lasts twice as long as the average American marriage. It often outlasts their LP’s tenure at an institution. They’ve got to be thinking: Why not raise money via AngelList instead?

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About.Me Lands $11 Million in Fresh Funding

About.me thinks you want more control over how you’re perceived online, and a growing number of investors is betting it’s right. Indeed, the company — which invites users to create a digital landing page that can link to their Twitter, Facebook, Linkedin and Instagram accounts — has just landed a fresh $11 million in funding led by Foundry Group, along with True Ventures, SoftTech VC, CrunchFund and Bullpen Capital.

It’s a strong vote of a confidence in a company that sold to AOL in late 2010 and whose cofounders, Tony Conrad and Ryan Freitas, helped buy it back last February for a fraction of what AOL paid. At the time, they said they believed About.me could scale more quickly as an independent operation, and they made transforming the platform into something sticky — versus a place for users to “set it and forget it” — their top priority.

“We’d created tools for people to create [these online identity pages] but there weren’t engagement loops in the product,” says Conrad. “It wasn’t that that it wasn’t creating value for you, but it wasn’t creating value for us,” he adds, laughing.

Today, numerous new features that allow users to see who has viewed their profile, compliment other users’ pages, and discover other people on the platform with similar interests, are gaining traction with the company’s registered user base of 4.5 million users. (The company doesn’t break out monthly active users but Conrad calls them “incredibly healthy and growing.”)

Going forward, says Conrad, the company plans to do even more for some of its fastest-growing demographic groups, including college students.

“Kids don’t have that much experience, and a lot of them don’t look that great in a traditional CV or resume product,” says Conrad. “About.me ends up replicating what happens in the real world and helps them leverage their personality and their strengths, so that’s one group where we want to create some additional functionality.” Think of the ability to include a resume below the fold as you scroll down, “or a list of ‘here are six things I’ve done,’ ‘here’s my superpower,’ and ‘here’s who inspires me,'” he says.

As for revenue, that can wait, evidently. “Some of [the company’s new funding] will be used to test out different [paths] to revenue,” says Conrad. “Like Twitter tested out Promoted Tweets and Promoted Accounts, we’ll be busy putting stuff out there and testing it. But the focus of [the new round] isn’t on becoming cash flow positive,” he adds.

About.me previously raised $5.7 million.

True Ventures on Spotting Winning Teams

Since its 2005 founding, San Francisco-based True Ventures has been making seed-stage bets on startups, with an eye toward plugging up to $10 million into those that break out.

The firm’s strategy has worked with aplomb. True was the first investor in WordPress parent Automattic — one of the tech industry’s hottest private companies. True also wrote early, small checks to the video ad network Brightroll and the wearable device maker Fitbit, companies that have gone on to raise tens of millions of dollars from eager follow-on investors. I recently caught up with cofounder Jon Callaghan to discuss True’s model, how to know when a startup is souring, and what kinds of companies the firm is backing right now. Our conversation has been lightly edited for length.

True typically gets 20 percent of a company in return for a fairly small first check of $1 million to $2 million. How do you do it?

We’re investing a $200 million fund, so $1 million checks are half of one percent of the fund. If you think about that allocation, it lets us take on an incredible amount of risk. When things work, we have a large enough fund that we can support [the best investments] with $5 million or $10 million – and we do have $10 million in lots of companies. [With] our best companies, we’re the largest shareholder on the lowest cost basis because we were in there on day one.

Some of your founders have enjoyed success before and could presumably sell 20 percent of their company for a bigger check. Why don’t they?

We wouldn’t be doing them any favors by putting too much money in too soon. We’re actually much more aligned by saying, “Here’s $1 million to $2 million to take you through the next 18 to 24 months [to see if your idea works]. Is that worth 20 percent to you?” And it is. It’s a pretty good trade.

When you write a bigger check, you also start bumping into loss aversion. You really don’t want to lose that first check. If you’re in too heavy in the beginning, it’s really scary for any investor. And the last thing that any creative founder needs is a nervous investor.

True has now backed 120 companies. When do you know that you have a great team on your hands, and when do you know a startup is going south?

We like to see a constant thread through [founders’] experiences, meaning that when we hear their story, it’s really clear why they’re doing a particular company. We backed [former Wired editor] Chris Anderson [who founded the unmanned aerial vehicle company 3D Robotics last year] knowing there were a number of threads that led him to his company: his fascination with innovation; his kids’ curiosity in hacking Legos with remote control airplanes; and finally, just knowing that there’s nothing else in the world he’d rather be doing – and this is someone who could be doing anything.

When it comes to the downside, there are a lot of easy tells. Communication gets weird between a founder and the rest of the team. Things just don’t add up. When teams are in flow, you can see it and feel it. Their offices are alive with energy. Those are the good ones. If you spend time at a company and there’s not that energy, then you kind of have to say, “What’s going on here?” It’s usually because some basic stuff is missing. People aren’t on board the mission, or the founder or someone else took the product in a direction that isn’t really resonating with the rest of the team, or the team kind of didn’t have the trust required to get together in the beginning.

True first went after consumer Web companies, then SaaS companies, then infrastructure companies. What does your newest crop of portfolio companies look like?

We think this wave of software and mobile innovation will disrupt very large existing businesses. Hair color is one of two consumer packaged goods companies that we’ve done. In robotics, we’ve funded many interesting and wearable robotics companies that haven’t yet been announced. We now have one of the largest device and wearable portfolios that no one knows about. We also think the car industry, where there’s clearly a huge software opportunity, is really interesting.

It’s a big, scary market, and traditionally you might say, “What? You want to sell to automakers?” But we think there’s a really brilliant team doing something very bold and audacious, and we can and want to take a ton of risk with that first check.

(To read a previously published segment of our chat with Callaghan, on the “Series B Crunch,” click here.)

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True Ventures’ Jon Callaghan on the Series B Crunch

Late last week, I visited Jon Callaghan, a cofounder of eight-year-old True Ventures, a firm that makes seed-stage investments in companies that it can afford to back for the long haul. The firm’s string of hits includes the book recommendation site Goodreads, which raised $2.75 million and sold to Amazon this year for $150 million; 3D printing company Makerbot Industries, which raised $10 million and sold to Stratasys this year for $403 million in stock; and Automattic, the still-private parent company of WordPress. At True’s San Francisco offices, surrounded by a sea of glass windows and polished wood floors, Callaghan shared his views on a number of things, from the firm’s operations to the democratization of startup capital. We’ll feature more of that interview in StrictlyVC this week; what follows is a part of our discussion that centered on the growing shortage of Series B funding for startups.

Years ago, you told me that True only does its own follow-on rounds, meaning in companies it has already backed. Has the firm reconsidered that stance, given that fewer and fewer firms are focused on Series B size investments? You’re investing a $200 million fund. Meanwhile, it seems like an underserved market.

It’s a really interesting part of the market. We’re not building a new product for that market. It’s not in front of us right now, though I personally think about how we can solve the needs of great entrepreneurs, and that’s a big, huge problem in the ecosystem right now.

What’s creating this bottleneck, in your view?

There are definitely too many seed-funded companies. But I think it goes back to risk. I don’t think the normal venture capital model is designed to take extremely large product/market risks. What that means is when companies get through the A [round] to the B and they still have big unanswered questions around product/market, it’s really hard for the normal industry to fund that.

What would you do that’s not being done?

You make sure that [the size of] your investments are relative to your [overall] fund [size] and you embrace the idea of investment failure as part of the model.

Other VCs will accuse you of being patronizing. They’ll say that failure and risk are very much part of their models. What are you suggesting that’s different?

Well, we’re talking about a big gap in the market – B rounds – and the reason those rounds aren’t getting funded is [the startups don’t have] enough traction.

For the most part, the industry has gravitated toward strong, traction proof points because that’s a good business. Put $5 million or $20 million into a business that’s working and write it up? That’s a fantastic business. But it’s different than taking high risks on B rounds. So to your point, I think there’s a product to be built that’s structured around taking high risk in B rounds.

If True Ventures were to do it, what would it look like?

I think there’s probably a $3 million to $5 million B round product to be built that’s sort of in the $15 million to $20 million pre [valuation] range, and in order to do that you’d need a fund large enough to have follow-on capital for each of those. You can run the math. Thirty to 40 companies [in the portfolio] would be pretty optimal.

I think it’s a really interesting slice of the industry, and it’s not rational for Sand Hill Road to come down and do it because [those investors already] have a really good model. There are some funds out there that are really well-equipped to do this and do a phenomenal job, including Foundry Group and Spark Capital — they embrace really big product and market risks. But [most] VCs will fund B and C rounds for things that have product/market fit and traction.

Those are good companies, too. But there are an awful lot of companies that get through A rounds that don’t have all of those things and shouldn’t die or go away.

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Tony Conrad to Founders: VC Is “Not as Easy as It Looks”

Tony Conrad doesn’t doubt for a second that the worlds of founders and venture capitalists are “highly symbiotic.” But it’s easier to succeed in both worlds if you’re a venture capitalist first, he says.

Conrad is speaking from his own experience, having worn both hats for the last seven years. Before Conrad cofounded the first of two companies — including the identity startup About.me, where he is CEO — he was a VC. (He’s still a VC, working as a venture partner with True Ventures in San Francisco.)

As he tells me enthusiastically over coffee near About.me’s offices in the city’s startup-studded Mission District, once he became a founder, he became a much better investor. Among other reasons why: “My ability to gain access to some of the highest quality founders was exponentially improved because they saw me as one of them.”

Conrad’s juggling act has also benefitted About.me, which sold to AOL just days after publicly launching in 2010 and was bought back by Conrad and True Ventures earlier this year. Among the biggest perks he enjoys as a CEO with continuing VC ties is sitting on several boards for True, where he’s privy to instructive conversations, including about conversion marketing metrics. Such insights “totally inform everything we do at About.me,” he says.

Given the advantages of straddling both spheres, it’s no wonder that more founders have begun dabbling in venture capital. Andy Dunn, for example, the cofounder and CEO of the venture-backed men’s clothing company Bonobos, also helps run an angel investment firm called Red Swan Ventures.

Still, Conrad suggests that the path from entrepreneur to investor is a bit trickier than the reverse path.

For example, founder-investors tend to be a little too entrepreneur-friendly at times. (Conrad notes that when True Ventures makes an initial investment, typically in the range of $1.25 million, it expects 20 percent ownership in exchange. Founders without extensive investing experience often ask for far less equity, even when writing similar-size checks.)

Pointing to individuals like LinkedIn founder Reid Hoffman and Workday co-CEO Aneel Bhusri — both partners at Greylock Partners — Conrad says another big benefit to launching a startup as an experienced investor is not having to learn every last thing on the fly. “We already understand the nuances [around] ownership. I didn’t have to learn how to operate on a board, or [the difference between] participating preferred [shares] versus just a straight-up liquidation preference. I already know that.”

It isn’t that every VC is suited to be a strong founder, says Conrad. But the opposite is also true. “You’re seeing a lot of founders who say, ‘Oh, I’m going to go do a fund. It’s easy.’ But it’s not easy. How many of them are killing it? It’s not as easy as it looks.”

Photo courtesy of True Ventures

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