StrictlyVC: November 7, 2013

110611_2084620_176987_imageHappy Thursday! Twitter, tweets, IPO, Jack Dorsey, soaring, billionaires, NYSE, Evan Williams, Twitter, ultra-rich, saga, Nick Bilton, Chris Sacca, Twitter. (Just trying to condition you for the rest of the day.)


Top News in the A.M.

Shocker: When it came to Twitter’s IPO, Wall Street reserved its best information for its top clients.

Dealbook has been live-tracking Twitter’s first hours as a public company. You can see its stream here.

Brian O’Malley of Battery Ventures: “Investors Are Fundamentally Lazy”

Yesterday afternoon, I sat down with Brian O’Malley of Battery Ventures in the gleaming marble lobby of San Francisco’s Four Seasons Hotel. 

Despite having a cold, O’Malley – who has led Battery’s deals in a long line of solid companies, including Bazaarvoice, which helps e-commerce companies manage customer reviews; SkullCandy, which makes headphones and earbuds; and the hotel booking service HotelTonight — spoke animatedly on a wide variety of topics. We chatted at length about the consumer packaged goods space, for example. I’ll share that part of our interview next week. In the meantime, here’s a quick excerpt from our discussion of the ever-evolving dynamics of post-Series A investing.

Money for anything past the Series A round seems to have tightened up this past summer. What are you seeing?

It really depends on the company. The way the market is working today, growth-oriented investors are much more interested in getting into the right company in the right space, versus taking a risk on something that’s unknown. They’ll pay five times the price to get in the Series B of some hot company rather than do something that maybe has some question marks around it.

Do you subscribe to the winner-take-all theory? Do you think there are only a small number of breakout companies worth chasing?

Investors are fundamentally lazy, so a lot of the time, they aren’t going to figure [out a business’s potential] on their own unless they’re super savvy about a particular space.

On the flip side, most VCs now recognize that the winner in any given space does get 90 percent of the economics, while the second-place company gets 8 percent, and everyone else [shares] 2 percent. So by Series B, people are already starting to see how the market is evolving; they’re already starting to see how repeatable your business is, and they’re spending much more time chasing the one or two dozen companies that everyone wants to get into.

And you think that makes sense?

I think it’s a function of larger funds needing bigger exits to make their math work.

As the funds get larger, what you need from a success gets larger as well. For funds for which it’s incredibly easy to raise money, their limiting factor is their time. And companies take longer to exit [these days], and so [the VCs] have less capacity for new investments. And when you have less capacity, you need each of your investments to return more money. That’s one of the big challenges.

What’s another?

What’s interesting, and what has surprised me, is how much people are influenced in terms of which companies they think will break out based on which companies are having success today.

There’s a lot of emphasis right now on these more enterprise-focused businesses, which has a lot to do with enterprise-focused businesses doing incredibly well on the public market. But the reality of my doing a Series B investment is that I’m not going to be selling for three to five years, and the market might be very different by then. Even still, people are willing to back much less mature companies in the space du jour rather than invest in something that has some scale in a space that’s out of favor.


New Fundings

Building Robotics, a two-year-old, Berkeley, Calif.-based company whose software tries to optimize the heating and cooling of buildings, has secured a $1.14 million in seed funding from Claremont Creek VenturesGoogle VenturesFormation 8Navitas CapitalRed Swan Ventures and numerous angel investors. The company was formed early last year at the Berkeley Skydeck startup accelerator, a collaboration between the university’s College of Engineering, the Haas School of Business, the Vice Chancellor for Research office, Berkeley Lab, the City of Berkeley, the Downtown Berkeley Association, and the Chamber of Commerce.

Channel IQ, a four-year-old, Chicago-based company that provides on-demand promotion and pricing information to its retailing and manufacturing customers, has raised $12 million from Drive Capital, the new firm by former Sequoia Capital partners Mark Kvamme and Chris Olsen. The capital appears to be Channel IQ’s first round. (StrictlyVC reported a standalone piece on Drive Capital on Monday if you missed it.)

Concordia Beverage Systems, a 23-year-old, Bellevue, Wash.-based company that makes a range of super-automatic espresso machines, has raised $1.5 million in new funding, according to an SEC filingMarker Hill CapitalFluke Venture Partners, and Heidi Sinclair, the former chair of Weber Shandwick’s global technology practice, are named in the Form D. Concordia raised a $6.5 million round from Marker Hill, Fluke, and Swiftsure Capital last year.

Coresystems, a 13-year-old, Windisch, Switzerland-based maker of a cloud-based field service app, has raised $15.5 million from a syndicate of private Swiss investors, including tech investor Peter Zencke.

ImmunGene, a six-year-old, Thousand Oaks, Calif.-based company, has secured $9 million in a Series A financing from Ally Bridge Group. ImmunGene is a biotechnology company developing targeted protein therapies to treat cancer.

Rubicon Media, a San Francisco-based startup founded by Christopher Griffin, founder of the real-money gaming platform Betable, has raised $22.5 million, according to a new SEC filing. Rubicon was founded in 2013 but has been operating in stealth mode. No investors are listed on its new Form D.


New Funds

Blumberg Capital, a San Francisco-based, seed- and early-stage venture capital firm, has closed its third fund with $150 million. Firm cofounder David Blumberg notes in a release about the new fund that the firm has already seen a 52x return on its initial, 2009 investment in the five-year-old social media management platform HootSuite, which has raised $187 million altogether.

Icon Venture Partners, a year-old venture firm based in Menlo Park, has closed on a $100 million debut fund that will target seed and Series A rounds of companies. The firm is particularly interested in companies that are “taking advantage of the capital efficiency brought about by lower cost, high performance computing infrastructure and a faster time to market for today’s enterprise technology start-ups,” says a release. Icon was founded by Charles Beeler, most recently of El Dorado Ventures, and Jeff Hinck, a cofounder of Vesbridge Partners. The pair has already backed five companies, including the mobile relationship management company Appboy; the security platform company Bugcrowd; 9Lenses, which helps collect and analyze organizational intelligence; Sport NGIN, which makes software for sports organizations; and Swiftstack, a maker of private cloud storage software.

The Austin-based venture capital firm Silverton Partners has just raised $75 million for its fourth fund, money the firm will use to investing solely in early-stage Austin startups. TechCrunch has more.



Venture-backed security company Barracuda Networks went public on the NYSE yesterday, raising roughly $75 million and establishing a market cap of $1.14 billion. (Its shares debuted at $18 and closed last night at $22.80.) Two of its biggest shareholders — Francisco Partners and Sequoia Capital — sold some of their stakes in the offering but they still have sizable ownership positions. Barracuda’s S-1 shows Francisco owned 26.5 percent pre-IPO and that it would own 24.3 percent afterward; Sequoia’s ownership dropped slightly from 17.4 percent to 15.9 percent.

Karyopharm Therapeutics, a four-year-old Natick, Mass-based company that’s working on a drug that would bolster the body’s natural tumor-suppressing proteins, went public yesterday on the Nasdaq. The shares, which debuted at $16, were up by just five cents by the market’s close. Karyopharm’s biggest shareholders heading into its offering were the Cyprus-based firm Chione, which owned 46.8 percent of the company (and now owns 37.2 percent), Plio Limited, which owned 14.6 percent (and now owns 11.6 percent), Foresight Capital, which owned 9.4 percent (and now owns 7.5 percent), and Delphi Ventures, which owned 8.2 percent (and now owns 6.5 percent).

Twitter is now a public company. (Perhaps you’ve heard.), the seven-year-old, Tel Aviv-based company that has been likened to a WordPress for the rest of the world, went public yesterday on the Nasdaq in one of the biggest U.S.-listed Israeli deal in years. The offering could potentially set the stage more Israeli tech firms to pursue IPOs, observes the WSJ. Wix had raised roughly $60 million over the years, including from Bessemer Venture PartnersMangrove Capital PartnersBenchmark CapitalInsight Venture Partners, and DAG Ventures. The company, which sold 7.7 million shares at $16.50 each (they closed at $16.31 per share) has a market value of about $750 million.



Ali Behbahani has been promoted to partner at New Enteprise Associates. Behbahani joined the firm in 2007 and specializes in biopharmaceuticals and medical devices. Before joining NEA, he was a consultant in business development at The Medicines Company, a specialty pharmaceutical company.

Joanne Bradford, who joined the San Francisco Chronicle as president just five months ago, has joined Pinterest as its head of partnerships, reports AllThingsD. Before joining the Chron, Bradford spent nearly four years as the chief revenue and marketing officer of Demand Media, according to her LinkedIn profile.

Tim Connors, the lone GP of PivotNorth Capitaltells the WSJ in an interview about his investing style and his brand new fund: “I’m not a ‘shop at Demo Day’ investor.”

Mark Murphy, who has been leading communications and public affairs for SecondMarket for the last five years, has left to join Bloomberg as head of communications for its financial products, including Bloomberg Terminal.

Greg Sugar is the new VP of business development at the mobile video company Tout. Sugar joins Tout from Zynga, where he was the former senior director of ad revenue. (We’ve heard Sugar is kind of a rock star, so this seems like a big win for Tout.)

Ariel Tseitlin, formerly the director of cloud solutions at Netflix, is joining Scale Venture Partners as a venture partner. You can click here for more on Tseitlin, who will be helping Scale to expand its portfolio of cloud companies.



The Tech Policy Summit kicks off in Napa, Calif., today. You can check out its list of speakers here.

It’s day two of the ad:tech conference at New York’s Javitz center. Click here to learn more about it.


Job Listings

Earlier this year, Microsoft co-founder Paul Allen‘s investment arm, Vulcan Capital, opened a new office in Palo Alto. Now it’s looking to hire a senior associate to help manage the team’s existing investments and support and identify other investment opportunities. (Note: This is a more senior position than the associate director job we shared with you on October 7.)

This person will focus on making investments in the $10 million to $100 million size range in Internet and other tech companies, including mid- to late-stage venture capital, growth equity, recaps, buyouts and strategic public market block investments. Abhishek Agrawal, a former principal at General Atlantic, heads up the office.


Essential Reads

Google has now encrypted the traffic that the NSA was accessing. “F*&k these guys,” says Google security engineer Mike Hearn.

Striking while the iron is hot: Square, the payments startup founded by Twitter cofounder Jack Dorsey, is exploring a 2014 IPO.

Business Insider’s Nicholas Carlson does a deep dive into AOL, and CEO Tim Armstrong‘s ongoing struggle to turn it around.

Smart phones are turning into portable laboratories. (You can read more on the trend in StrictlyVC next week.)



The New Republic explores the world’s biggest building — a Chinese mall you’ve never heard of.

PBS Frontline publishes startling video of billionaire Steve Cohen answering questions about insider trading rules in connection with a 2011 civil suit.

Here’s what sunset looks like from outer space.

This severed head wedding cake reportedly “killed” at a couple’s wedding reception (though the guests declined to eat it, offering politely that they were “just too full”).

Former reporter Stephen Glass, who famously fictionalized part of his work, received a blow by California’s Supreme Court yesterday, which looks unlikely to allow him to practice law in California. The 2000 graduate of Georgetown University Law Center was refused admittance by the New York State Bar in 2002. The Recorder has more.


Retail Therapy

You think your iPhone camera takes perfectly good pictures, but you are wrong, silly reader. If you really want to film what you see, you need a Garmin VIRB, an HD 1080p action camera with built-in Chroma display (don’t ask us what that is), up to three hours of battery life, and a rugged, waterproof* design. (*Device can withstand accidental immersion in 1 meter of water for up to 30 minutes. Longer than that and you are screwed.)


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