StrictlyVC, LLC

Six months ahead.

Xapo

StrictlyVC: April 20, 2015

Hi, and happy Monday, everyone! Hope you had a wonderful weekend.
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Top News in the A.M.
Nokia is reportedly plotting a return to the consumer phone market in 2016.San Francisco denizens face an ugly reality. Phone numbers with 415 are running so low that phone companies have begun assigning numbers starting with area code 628.
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Wences Casares on the Future of Xapo (and Bitcoin)
Wences Casares is among the most-trusted proponents of the digital currency bitcoin. Indeed, last year, Casares – a serial entrepreneur who previously ran the digital wallet service Lemon (acquired by LifeLock in late 2013) – raised $41 million for his now 40-person, Palo Alto, Ca.-based company, Xapo, including from Benchmark and Fortress Investment Group.
That amount has since been dwarfed by other bitcoin startups – the payments processor and wallet startup Coinbase announced a $75 million round in January, for example – but Casares says he doesn’t need more capital any time soon. Despite a price crash last year and some high-profile security breaches, bitcoin’s growth, and Xapo’s, continues apace, he says. We talked the other day in a conversation that has been edited here for length.
When you were raising money for Xapo last year, a single bitcoin equaled $650. Now, bitcoin are worth $225 a piece. How has that price fall impacted your business?
For people who’ve been looking at bitcoin for three or four years, that’s not really the story. Bitcoin has done the same thing several times: [jump from], nine cents to $10; $1 to $17; $17 to $30 — all the way to $100. So those who’ve been around along time have seen it go from nine cents to $200.
Also, when we raised that money, there were 3 million people using bitcoin. Today, there are 12 million. There were 20,000 transactions; today there are 100,000. Back then, bitcoin represented 50 percent of all cryptocurrency volume; today, it represents 96 percent.
But are your customers transacting more now that it’s worth less, or are they continuing to sit on it?
There are two very different markets. You have the California and New York market, [where people] own it as a speculative payment and who never do a payment, and [those 10 million people] account for most of the bitcoin. Then you have emerging markets where you see [2 million other] users with a lot less coins, and they’re using it because they don’t have credit cards and that hasn’t changed with the price.
Where are people most actively using bitcoin in emerging markets, and is it becoming any easier to use in those places? 
People are using it in India, Turkey, Indonesia, Brazil. The barriers remain enormous. It’s very hard to use it. But if you have no other way of paying online, you’re willing to go through enormous hurdles.
You’ve said that establishing trust is the biggest hurdle that bitcoin faces. Isn’t simply understanding it an even bigger obstacle? 
Bitcoin looks like the internet before there was a browser. A lot of us tried explaining PCP stack and how the protocol works [etc.] and nobody really started using it because of those explanations. It happened because someone wanted to keep in touch over email or Skype or Facebook.
[Similarly], the main use case for bitcoin is micro-transactions, and the internet will look different five years from now when you can move cents and hundreds of users who don’t have credit cards but $5 of bits can unlock certain things that you can’t unlock any other way.
Xapo’s business is centered on a bitcoin wallet whose users store the bitcoin in vaults – or physical servers — around the world. What are they like, how many does Xapo manage, and why are they located where they are?
These are large facilities where there are sections owned by other companies, with sections that are exclusive to us that we don’t share with anyone else. We have five – one in Switzerland and the others on other continents. They’re not very close because you have to be able to lose one due to a disaster like an earthquake, flooding or nuclear war.
Would you ever need more?
No. Even if we were 10,000 times our current size, it isn’t like bitcoin take up more space. We have five [servers] because each bitcoin has five keys. Imagine a door that has five keys and you need three to open it. Basically, if you lose one or two facilities owing to natural disaster or theft, you can use the other three to move the bitcoin to a safe location.
Many bitcoin companies are tackling numerous things, like Coinbase. It’s a wallet provider. It’s also an exchange. Why are you focused on the wallet alone?
Because it’s hard enough to win at one business and do it really well. At the beginning, AOL gave you connectivity and weather and email addresses and financial news, and it didn’t win at any of those things. Bitcoin is the same. A lot of companies do many things; we’d rather build the best wallet in the market.
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New Fundings
58.com, a 10-year-old, Chaoyang, China-based classifieds site (China’s biggest in terms of monthly unique visitors), has acquired a 43.2 percent stake in its Beijing-based rival Ganji for $412.2 million in cash and stock, reports TechCrunch. 58.com, which went public on the New York Stock Exchange in 2013, also disclosed that Tencent Holdings has provided it with $400 million in new funding to increase its ownership position in the company. Tencent now owns 25.1 percent of the business. More here.AllCampus, a 2.5-year-old, Chicago, Il.-based startup that collaborates with universities and helps them expand online enrollment programs, has raised $844,000 as part of a round that’s targeting $3 million, shows an SEC filing. The company has previously raised $1.5 million in debt and a separate, $6 million round from Noson Lawen Partners.Boombotix, a three-year-old, San Francisco-based maker of portable and Bluetooth-enabled loudspeakers, audio accessories and mobile apps, has raised $4 million as part of a $10.8 million round, shows an SEC filing. According to Crunchbase, the company had previously raised $4 million from a long list of investors, including Red Hills Ventures, Great Oaks Venture Capital, Grishin Robotics, Walden Venture Capital, Baseline Ventures, and The Social+Capital Partnership.

Cnano, an eight-year-old, Santa Clara, Ca.-based maker of  multi-wall carbon nanotubes products for the energy storage, structural and electronics industries, has raised $15 million in Series C funding led by GRC SinoGreen Fund, with participation from Hotung Investment Holdings; several new, unnamed investors; and earlier investors Pangaea Ventures, Presidio Partners, WI Harper Group, IDG Capital Partners and Megatop Capital. The company has raised at least $27 million to date, shows Crunchbase.

Contego Medical, a 10-year-old, Raleigh, N.C.-based maker of angioplasty balloon and stent delivery catheters, has raised $5.6 million in Series B funding led by Hatteras Venture Partners, with participation from Mountain Group Partners, Lookout Capital and Medical Mutual.

Citified, a year-old, Portland, Or.-based peer-to-peer parking app startup, has raised $600,000 in seed funding, shows an SEC filing that lists a $900,000 target. The service appears to be available in Portland only right now. More here.

Fanli, a nine-year-old, Shanghai, China-based online rebate and flash sale site, has raised an undisclosed amount of Series C funding at a $1 billion valuation led by Rakuten, says the company. According to Crunchbase, Fanli has raised at least $30 million from investors previously, including QiMing Venture Partners, SIG China, and Steamboat Ventures. China Money Network has more here.

Flashpoint Global Partners, a 3.5-year-old, New York-based security service that provides its customers with data about areas on the internet where mainstream search engines are unable to penetrate (also known as “the Dark Web”),  has raised $5 million led byTechOperators, with participation from Bloomberg Beta, Cisco Investments, Greycroft Partners, and K2 Intelligence.

Freshdesk, a five-year-old, San Francisco-based maker of cloud-based customer support software, has raised $50 million in new funding led by Tiger Global Management, with Accel Partners and Google Capital participating. The company has now raised roughly $95 million altogether. TechCrunch has more here.
GamEffective, a 2.5-year-old, Tel Aviv, Israel-based enterprise gamification company (its graphics aim to improve sales, customer service, on-boarding and more), has raised $3 million in Series A funding led by Verint Systems, with participation from the company’s earlier backers, including 2B Angels and Shaked Ventures. The company had previously raised at least $1 million in seed funding, shows Crunchbase.KiteDesk, a 3.5-year-old, Tampa, Fl.-based sales intelligence platform, has raised $4 million in seed funding from unnamed angel investors. VentureBeat has more here.
MX, a five-year-old, Provo, Ut.-based company that partners with financial institutions and online banking and payment network companies to help them create segments, deploy offers, and start tracking campaigns, among other things, has raised $20 million in new funding as part of a $30 million round, shows an SEC filing. The round doubles the amount that the company had previously raised across numerous rounds, shows Crunchbase. Earlier backers include Peak Ventures, Commerce Ventures, North Hill Ventures, TTV Capital.OneSignal, a year-old, San Francisco-based company that makes retention marketing tools and push notifications for mobile developers, has raised more than $2 million in seed funding, including from Rakuten Ventures, Y Combinator, Tamares Capital and numerous individual investors, including Justin Kan.Oscar, a nearly two-year-old health insurance company that focuses heavily on technology, design, and data, has raised a whopping $145 million in new funding led by Founders Fund at a valuation that TechCrunch sources peg at $1.5 billion. The company has now raised $295 million altogether, including from Li Ka-shing, Wellington Management, Goldman Sachs, Thrive Capital, Khosla Ventures, General Catalyst Partners, Red Swan Ventures, BoxGroup and others. More here.

Samba TV, a 6.5-year-old, San Francisco-based startup that provides television analytics, is now partly owned by the ad giant Interpublic Group, which has acquired a minority stake as part an effort to understand how consumers are watching television. The companies aren’t disclosing the size of the investment. Samba had previously raised at least $8.2 million, including from August Capital, Gary Lauder, and Mark Cuban, shows Crunchbase. The New York Times has more here.

Sulekha, a 15-year-old, Chennai, India-based local services classifieds company, has raised $28 million in Series C funding led by Singapore’s sovereign wealth fund GIC, with participation from earlier backer Norwest Venture Partners. The company had previously raised at least $16.5 million, including from Mitsui Global. The outlet Inc42 has more here.

Widetronix, a 12-year-old, Ithaca, New York-based company that makes ultra-low power sensor platforms, has raised $1.2 million in equity and debt, shows an SEC filing. According to Crunchbase, the company has raised less than $1 million in the past, including from Gotham Ventures.

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New Funds
Sep Kamvar, director of the Social Computing group at the MIT Media Lab, has raised a $2.5 million venture fund called Fireweed Fund, shows an SEC filing. Kamvar spent four years as the head of personalization at Google. He was also the founder and CEO of Kaltix, a personalized search company that was acquired by Google in 2003.
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IPOs
Baozun, an eight-year-old, Shanghai, China-based e-commerce service company that helps smaller businesses with site design, development and hosting, IT infrastructure, customer service, warehousing and logistics, is planning to raise up to $200 million in a U.S. IPO, shows a new SEC filing. The company’s biggest shareholders include Alibaba, which holds a 23.5 percent stake in the company; Softbank, which owns 17.8 percent; funds owned by Goldman Sachs, which owns 9.8 percent; and the private equity firm Infinity Group, which owns 6.6 percent.Legend Holdings, the parent company of Chinese PC vendor Lenovo Group, is reportedly planning to launch an IPO in Hong Kong later this year that could be the biggest in Asia so far this year. More here.China’s government has just drafted rules for companies’ IPO applications to be reviewed by the nation’s two stock exchanges, rather than regulators. More here.

Three IPOs planned this week.

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Exits
SunGard Data Systems, the Wayne, Pa.-based financial tech company, is exploring a sale that could value it at as much as $10 billion, says Reuters. SunGard was acquired for $11.4 billion a decade ago by Silver Lake Partners, TPG Capital, Bain Capital, Blackstone Group, Goldman Sachs Capital Partners, KKR and Providence Equity Partners.
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People
Klout co-founder and CEO Joe Fernandez has stepped down from his role leading the company, which sold to Lithium Technologies for a reported $164 million in cash and stock a little more than a year ago. According to Recode, Fernandez is off to pursue other startup ideas; as part of the transition, he’s also joining Lithium’s board of directors.According to a new book coming out next month, Elon Musk very nearly sold his car company, Tesla Motors, to Google in 2013. More here.Ellen Pao’s attorneys, Therese Lawless and Alan Exelrod, talk with the San Francisco Chronicle about losing, sexism and what’s wrong with the tech industry.

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Essential Reads
Twitter has filed a “tweetstorm” of trademark applications.Late Friday, WhatsApp disclosed that it now has 800 million users. More here.
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Detours
The quick trick one self-made billionaire uses when trying to make a tough decision.A winning Craigslist ad. (You try selling a 2002 Ford Taurus.)What 10 famous movie mansions would cost in real life.

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Retail Therapy
Save your whiteboard ideas.You’ll be the coolest parent at the soccer match with this chair. (Also, good luck getting out of it!)

Wences Casares on the Future of Xapo (and Bitcoin)

Wences CasaresWences Casares is among the most-trusted proponents of the digital currency bitcoin. Indeed, last year, Casares – a serial entrepreneur who previously ran the digital wallet service Lemon (acquired by LifeLock in late 2013) – raised $41 million for his now 40-person, Palo Alto, Ca.-based company, Xapo, including from Benchmark and Fortress Investment Group.

That amount has since been dwarfed by other bitcoin startups – the payments processor and wallet startup Coinbase announced a $75 million round in January, for example – but Casares says he doesn’t need more capital any time soon. Despite a price crash last year and some high-profile security breaches, bitcoin’s growth, and Xapo’s, continues apace, he says. We talked the other day in a conversation that has been edited here for length.

When you were raising money for Xapo last year, a single bitcoin equaled $650. Now, bitcoin are worth $225 a piece. How has that price fall impacted your business?

For people who’ve been looking at bitcoin for three or four years, that’s not really the story. Bitcoin has done the same thing several times: [jump from], nine cents to $10; $1 to $17; $17 to $30 — all the way to $100. So those who’ve been around along time have seen it go from nine cents to $200.

Also, when we raised that money, there were 3 million people using bitcoin. Today, there are 12 million. There were 20,000 transactions; today there are 100,000. Back then, bitcoin represented 50 percent of all cryptocurrency volume; today, it represents 96 percent.

But are your customers transacting more now that it’s worth less, or are they continuing to sit on it?

There are two very different markets. You have the California and New York market, [where people] own it as a speculative payment and who never do a payment, and [those 10 million people] account for most of the bitcoin. Then you have emerging markets where you see [2 million other] users with a lot less coins, and they’re using it because they don’t have credit cards and that hasn’t changed with the price.

Where are people most actively using bitcoin in emerging markets, and is it becoming any easier to use in those places?

People are using it in India, Turkey, Indonesia, Brazil. The barriers remain enormous. It’s very hard to use it. But if you have no other way of paying online, you’re willing to go through enormous hurdles.

You’ve said that establishing trust is the biggest hurdle that bitcoin faces. Isn’t simply understanding it an even bigger obstacle?

Bitcoin looks like the internet before there was a browser. A lot of us tried explaining PCP stack and how the protocol works [etc.] and nobody really started using it because of those explanations. It happened because someone wanted to keep in touch over email or Skype or Facebook.

[Similarly], the main use case for bitcoin is micro-transactions, and the internet will look different five years from now when you can move cents and hundreds of users who don’t have credit cards but $5 of bits can unlock certain things that you can’t unlock any other way.

Xapo’s business is centered on a bitcoin wallet whose users store the bitcoin in vaults – or physical servers — around the world. What are they like, how many does Xapo manage, and why are they located where they are?

These are large facilities where there are sections owned by other companies, with sections that are exclusive to us that we don’t share with anyone else. We have five – one in Switzerland and the others on other continents. They’re not very close because you have to be able to lose one due to a disaster like an earthquake, flooding or nuclear war.

Would you ever need more?

No. Even if we were 10,000 times our current size, it isn’t like bitcoin take up more space. We have five [servers] because each bitcoin has five keys. Imagine a door that has five keys and you need three to open it. Basically, if you lose one or two facilities owing to natural disaster or theft, you can use the other three to move the bitcoin to a safe location.

Many bitcoin companies are tackling numerous things, like Coinbase. It’s a wallet provider. It’s also an exchange. Why are you focused on the wallet alone?

Because it’s hard enough to win at one business and do it really well. At the beginning, AOL gave you connectivity and weather and email addresses and financial news, and it didn’t win at any of those things. Bitcoin is the same. A lot of companies do many things; we’d rather build the best wallet in the market.