StrictlyVC: September 29, 2014

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Top News in the A.M.

Today, Facebook is rolling out its rebuilt ad platform, Atlas, allowing Facebook to sell ads on sites that aren’t on Facebook.


Don’t Panic: VCs and Bubble Trouble

Several of the country’s most prominent venture capitalists have sent the startup world into a hysteria in recent weeks. Bill Gurley of Benchmark kicked off the panic when in an interview with the Wall Street Journal, he lamented that companies have taken their burn rates to levels not seen since 1999 and noted that “more humans in Silicon Valley are working for money-losing companies than [they] have been in 15 years. . .”

Fred Wilson of Union Square Ventures weighed in the following day, writing at his popular blog: “The thing I like so much about Bill’s point of view is that he does not focus on valuations as a measure of risk. He focuses on burn rates instead. That’s very smart and from my experience,very accurate.”

Roughly a week later, Marc Andreessen decided to explain on Twitter why he agrees with both Wilson and Gurley. Using even more vivid language than his peers, Andreessen wrote that “when the market turns, and it will turn, we will find out who has been swimming without trunks on: many high burn rate co’s will VAPORIZE.”

The truth is that none of the VCs needed to broadcast their thoughts so pointedly. Gurley has been saying for years that there’s a problem with later-stage investing. It’s largely because his firm believes so strongly that there’s an inverse correlation between how much money an outfit accepts and the returns it produces that Benchmark continues to raise funds in the neighborhood of $425 million instead of raising more capital, which it could easily do.

It isn’t the first time that Andreessen has voiced concern over burn rates, either. Back in July, he warned entrepreneurs against “[p]ouring huge money into overly glorious new headquarters” and of “[a]ssuming more cash is always available at higher and higher valuations, forever. This one will actually kill your company outright.”

So why clang the alarm bell more forcefully now? Well, burn rates really are rising at later-stage companies, as Pitchbook data underscores. But it’s also worth remembering that while VCs might be friendly and respect one another, when it comes to business, they do what it takes to burnish their own brands. Surely Wilson, Gurley, and Andreessen are genuinely astonished by some wild spending on the part of startups, but they’re also competing with each other – in this case, about who first noticed that startup spending is out of control and who feels the most disgusted by it.

The warnings are also – and perhaps primarily — a defensive move. A flood of late-stage money has poured into the venture industry. While that’s been good for VCs in some cases – Tiger Global and T. Rowe Price are among other newer entrants to mark up investors’ earlier deals – that capital isn’t as welcome as it might have been a year ago, given that it just keeps coming. (As Fortune reported last week, Tiger Global is raising another $1.5 billion fund, just five months after raising its last $1.5 billion fund. It’s hard for anyone to compete with that kind of money, even Andreessen Horowitz, which has raised roughly $4 billion since launching five years ago.)

Gurley and Andreessen have grown increasingly transparent about their disdain for some newer funding sources, in fact. In April, in one of Andreessen’s famous series of tweets, he warned founders to be “highly skeptical” of growth-stage investors outside Silicon Valley, saying they offer founders “breathtaking high-valuation term sheet[s],” then convince the teams to “go exclusive and shut off other talks,” which limits founders’ options going forward.

On Saturday, presented on Twitter with a year-old chart that suggests rising burn rates don’t necessarily point to a bubble, Gurley tweeted: “[C]hart also doesn’t include 2014 (major uptick) and new sources late stage $$ (which is the majority of funding).” He then added, “I never said there was a valuation bubble — I just said burn rates and ‘risks’ are quite high.”

You can’t blame Andreessen, Gurley or Wilson for commenting on the market. These are frothy times, and if trouble is just up ahead, it’s better to be on record for acknowledging some of the risky behavior they’re seeing.

If in the meantime their warnings prompt more companies to eschew these “new sources of late stage money” zeroing in on them, well, that’s probably okay, too.


New Fundings

Agrisoma Biosciences, a 13-year-old, North Vancouver, British Columbia-based agriculture technology company, has held the first close on what’s expected to be an $8 million Series A funding. Cycle Capital Management led the financing, with participation from earlier investor BDC Venture Capital. According to Crunchbase, the company has previously raised $2.3 million.

Anki, a 4.5-year-old, San Francisco-based company that makes intelligent, robotic toy cars and other consumer robotics, has raised $55 million in Series C funding, led by J.P. Morgan, with participation from earlier investors Andreessen Horowitz, Index Ventures and Two Sigma. The company has raised $105 million altogether, reports Recode.

Argus Cyber Security, a 1.5-year-old, Tel Aviv, Israel-based automotive cyber security company that protects “connected” vehicles from malicious attacks, has raised $4 million in Series A funding, including from Magma Venture Partners and Vertex Venture Capital.

Cohealo, a 3.5-year-old, Boston-based startup focused on helping hospitals manage costly medical equipment through smarter analytics, has raised $3.1 million, shows an SEC filing that lists a $5.7 million target. MedCity News has more here.

Credit Karma, a six-year-old, San Francisco-based company whose tools promise to help users track and manage their credit scores, has raised $75 million in growth funding, including from previous investors Google Capital, Tiger Global Management and Susquehanna Growth Equity. Less than a year ago, the company raised $85 million in Series C funding led by Google Capital. The company has now raised $193.5 million altogether. Venture Capital Dispatch has more here.

InnoLight Technology Corporation, a six-year-old, Suzhou, China-based high-speed optical transceiver supplier, has raised $38 million in Series C funding led by Lightspeed China Partners and Google Capital— an investment that marks Google’s first venture foray into China, notes ZDNet.

Isonas, a 15-year-old, Boulder, Co.-based maker of IP proximity card reader-controllers, has raised $5.3 million in funding, shows a new SEC filing that says 33 investors participated in the round.

miDrive, the 2.5-year-old, U.K.-based startup whose mobile app pairs users with local driving instructors, has raised £2 million ($1.6 million) in Series A funding, including from MBM Capital Partners and Holiday Extras. The company has raised $3.3 million altogether, shows Crunchbase.

Parcel, a year-old, New York-based company that delivers packages to people after working hours (when users shop online, their orders are sent to Parcel’s facilities), has raised $1 million in seed funding led by Liberty City Ventures. Great Oaks Venture Capital, TechStars founder David Cohen, Galvanize, and other individual investors also joined the round, reports Venture Capital Dispatch.

Qubit, a 4.5-year-old, London-based company whose software collects and processes large data sets for marketers, helping them optimize their sites in real time, has raised $26 million in Series B funding led by Accel Partners. Salesforce Ventures and earlier backer Balderton Capital also participated in the round, which brings the company’s total funding to $34.9 million altogether, shows Crunchbase.

Superpedestrian, a six-year-old, Cambridge, Ma.-based company behind the Copenhagen Wheel, a technology that turns standard bikes into electric hybrids, has raised $4 million led by Spark Capital. General Catalyst Partners and numerous individual investors also participated in the round, which brings the company’s total funding to $6.2 million, shows Crunchbase.

Verengo Solar, a six-year-old, Torrance, Ca.-based company that makes and sells residential solar products, has raised $15.4 million in new fund, according to a new SEC filing that shows a $25.4 million target. The company had previously raised $22.2 million from investors, including the private equity investor Angeleno Group.


New Funds

BlueDelta Capital Fund, a five-year-old, Mclean, Va.-based venture firm specializing in growth capital investments in the U.S. government technology market, is looking to raise $75 million, shows an SEC filing that states the first sale has yet to occur. Cofounder Mark Frantz has been a managing general partner of In-Q-Tel, a principal with Carlyle Venture Partners, and a partner at RedShift Ventures, among other things. Cofounder Kevin Robbins worked in corporate development at SRA International. Among the firm’s portfolio companies is Shared Spectrum, a Vienna, Va.-based company whose software helps customers make better use of spectrum resources and that raised $3 million from investors a year ago.

Cowboy Ventures, the seed-stage investment firm led by Aileen Lee, is targeting $55 million for its second fund, shows an SEC filing that states the first official sale has yet to occur. The firm closed its debut fund of $40 million in 2012 after Lee left Kleiner Perkins Caufield & Byers, which is an anchor investor in that fund. Cowboy’s investments include the personal grooming products company Dollar Shave Club; smart lock maker August; and NuORDER, an online iPad application for fashion brands and retailers.

Industry Ventures, the 14-year-old, San Francisco-based fund of funds firm, has raised $170 million for its newest fund, shows an SEC filing. The fund targets primary commitments and early secondary purchases in smaller venture capital funds, as well as direct investments alongside its managers. It brings the firm’s total capital under management to more than $2 billion.

Magma Venture Partners, a 15-year-old, Tel Aviv, Israel-based firm, has closed on a new, $150 million fund to invest exclusively in Israeli entrepreneurs. The fund comes just 18 months months after Magma raised its previous, $100 million fund. Magma was among the first investors in the mobile navigation startup Waze, acquired by Google for $966 million last year, as well as Onavo, the mobile intelligence startup acquired by Facebook a year ago for $120 million. The firm typically writes checks of between $500,000 and $6 million, and says it expects to fund up to 30 new companies with its new pool of capital.



Sage Labs, a Boyertown, Pa.-based developer of transgenic animal models with made-to-order disease for research, has been acquired by the British gene editing company Horizon Discovery Group for up to $48 million. Sage was a subsidiary of the publicly traded company Sigma-Aldrich until last year, when it was purchased by management and the venture firm Telegraph Hill Partners and made private. MedCity News has the story here.

Spaces, a year-old, Bay Area company that was developing a program to let remote workers collaborate on the same document simultaneously, has been acquired by the workplace collaboration startup Slack, co-founded by Stewart Butterfield. Financial terms of the all-stock deal aren’t being disclosed. The WSJ has more here.

Shopkick, the five-year-old, Redwood City, Ca.-based shopping loyalty app company, has been acquired by the South Korean wireless firm SK Telecom for about $200 million, according to the WSJ. Shopkick has raised at least $20 million from investors including Greylock PartnersKleiner Perkins Caulfield & Byers, SV Angel, and Citi Growth Ventures & Innovation Group.



Hiroshi (“Mickey”) Mikitani, the 49-year-old founder and chairman of the online retailer Rakuten, is building a house in central Tokyo that’s estimated to cost at least $21 million. That might not be much for a billionaire, but it underscores a shortage in the city’s luxury housing market, reports Bloomberg.

Jason Rhodes has been appointed a partner in the life sciences investment group of Atlas Venture, one of Boston’s most active venture capital firms. Rhodes was most recently the president and chief financial officer at the biopharma company Epizyme. Rhodes also helped foundFidelity Biosciences, Fidelity’s investment division focused on biopharmaceutical companies, medical technology, and healthcare IT. BetaBoston has the story here.

Google executive chairman Eric Schmidt and former SVP of products Jonathan Rosenberg, recently published a new book entitled “How Google Works.” To promote the effort, Schmidt appeared on Bloomberg TV last week, where he talked of the “brutal competition between Apple and Google over Android and iOS . . .” He also answered a question about what goes through his mind when he drives past an Apple Store and sees people lined up around the block to purchase iPhones. “I’ll tell you what I think,” said Schmidt. “Samsung had these products a year ago.”

Almost a year into the job, FCC Chairman Tom Wheeler has established a record as a formidable opponent to the cable and wireless industries he used to represent as a lobbyist, says the New York Times.


Job Listings

The venture investment arm of the Center for Innovative Technology, which makes seed and early-stage investments in Virginia-based technology, clean tech and life science startups, is looking for an investment director.



Is your startup burn rate normal? Mattermark cofounder Danielle Morrill publishes a guide for seed and Series A startups.


Essential Reads

It’s been another rough few days for Uber. Courts in Berlin and Hamburg upheld bans on the company’s service, saying on Friday that the company did not comply with German laws on the carriage of passengers. Meanwhile, in bad news for business right here in the U.S., a San Francisco-based UberX driver reportedly smashed a passenger’s head with a hammer after the two argued over which route the UberX driver should take.



Is Apple’s new campus as earth-friendly as the company makes it sound?

Introducing the “anti-psychopath.”

You can make your own invisibility cloak, and for just $100.


Retail Therapy

Wall murals that take you away.

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