StrictlyVC: October 6, 2014

Good morning, everyone, hope you had a terrific weekend. (Web visitors, this version of today’s email is a little easier on the eyes, fyi.)


Top News in the A.M.

Hewlett-Packard is officially separating its PC and printer businesses from its corporate hardware and services operations, a maneuver that should “give rise to two publicly traded companies, each with more than $50 billion in annual revenue,” reports the WSJ. Meg Whitman will be CEO of the enterprise-focused business, to be called Hewlett-Packard Enterprise. She’ll also serve as nonexecutive chairman of the PC company, which will be called HP Inc. Dion Weisler, now head of HP’s printing business, will be president and CEO of that second business.

Bitcoin is trading at $325 this morning, way off its peak last year. Seeking Alpha has some theories about what’s going on. So does Dealbook.


What Went Wrong(a) at Wonga

In the span of seven years, Wonga, a London-based online payday lender, managed to become one of the best known Internet brands in the U.K, with half the buses in London plastered with its ads, along with a good number of soccer players, through Wonga’s sponsorship of the English Premier League team Newcastle United.

Then, late last week, the company disclosed that it was writing off some $350 million of debt – at a cost of roughly $56 million to the company — following a “voluntary agreement” between the company and the U.K.’s Financial Conduct Authority (FCA), which took over regulation of the consumer finance sector last year. Wonga’s implicit admission: That despite the more than 8,000 pieces of information that its algorithm takes into account when assessing a potential borrower, the company had lent money to people (330,000 of them) it should have declined.

Andy Haste, an executive chairman who was installed at Wonga in July to rehabilitate the company, said that going forward, the company is committed to lending only to those who can “reasonably afford” a loan. Haste – who was hired into Wonga after it was caught sending bogus letters from nonexistent law firms to customers in arrears – also added that he “agreed with the concerns expressed by the FCA and as a consequence of our discussions we have committed to taking these actions.”

So when did things go south at Wonga and can the company — which has raised roughly $145 million from Balderton Capital, Accel Partners, Wellcome Trust, Oak Investment Partners, Greylock Partners, Dawn Capital, Meritech Capital Partners, and Index Ventures over the years — ever recover? Unsurprisingly, it depends on who you ask.

Insiders generally paint a picture of a company that’s been the victim of a changing regulatory environment. When Wonga was launched, its business was lightly regulated by the Office of Fair Trading (OFT), which was “not a banking oversight function that had a great deal of power or was intrusive,” observes one investor. Wonga suddenly faced a much more stringent set of checks and balances when the regulation of consumer credit was transferred last year from the OFT to the FCA.

The FCA’s regulators have been overly harsh, too, insists another source, who suggests its cozy relationships with established players is primarily why the FCA almost immediately began poring over the fine print at Wonga. “Wonga’s business was always regulated,” says the insider. “From the first day, it was licensed; it had its own underwriting agents and was being reviewed by regulators. But becoming such a large brand so quickly was hurting the established banks, which are very influential in a country like the U.K.”

Still, those who spoke with StrictlyVC also concede that Wonga made plenty of mistakes – not working earlier with financial services authorities, “running the business a lot looser than they should have,” and those threatening debt collection letters among them. (The latter proved an especially big embarrassment to the Church of England, which had unwittingly invested in Wonga through an investment fund; it ditched its stake in July.)

The company’s once-renowned algorithm also appears to have failed the company – a lesson, possibly, to many newer lending companies that believe the sophisticated algorithms they’re developing are akin to impenetrable moats.

As says one insider: “With algorithms, you always think you’re doing the right thing until the sh_t hits the fan. You ask the guys involved in Long Term Capital Management [the famous hedge fund that collapsed in the late ‘90s] whether they knew there was a ‘black swan’ in their algorithm; they didn’t.”

The question now is whether Wonga stands any chance of surviving. Haste has said he believes Wonga, which serves 1 million customers, can succeed as a small company. Others close to the company aren’t so sure about its fate. Says one source: “Will Wonga be a big business again? I doubt it because of the damage to their brand reputation.”

Say another: “If Wonga can afford to pay the penalty and stick around, they have a business to build. Consumers in the U.K. don’t have a lot of other good options. The banks are still doing a sh_tty job.”


New Fundings

Appsee, a two-year-old, Tel Aviv, Israel-based mobile analytics service that helps measure user behavior within an app, has raised $2 million in Series A funding from earlier investors Giza VC and Moshe Lichtman, with participation from new investor Flint Capital. The company has raised $3 million altogether. TechCrunch has more here.

Alteryx, a four-year-old, Irvine, Ca.-based company whose software helps users build analytical apps from a variety data sources, has raised $60 million in Series B funding led by Insight Venture Partners, with participation from earlier investors SAP Ventures and Toba Capital. The company has now raised $78 million altogether.

Beepi, year-old, Los Altos, Ca.-based used car marketplace, has raised $60 million in funding, including from Sherpa Ventures, Foundation Capital, and earlier investors Redpoint Ventures, Sherpa Foundry CEO Tina Sharkey, OLX founder Fabrice Grinda, IG Expansion co-founder Jose Marin, Homeaway co-founder Brian Sharples, former Loopnet CEO Rich Boyle, and Silicon Valley Bank. The company has now raised $65 million to date. Venture Capital Dispatch looks at what all the fuss is about.

BuildZoom, a 2.5-year-old, San Francisco-based online marketplace for remodeling and construction services, has raised $2.15 million in seed funding led by Formation 8, with participation from Streamlined Ventures and Goldcrest Investments. The company previously raised roughly $1.4 million in earlier seed funding, including from Y Combinator, whose program it passed through last year.

Curbside, a year-old, Palo Alto, Ca.-based company whose app searches real-time local inventory across retailers and uses location-based technologies to alert stores when a customer is arriving for a pickup, has raised $8 million in Series A funding led by Index Ventures. Individual investors also participated, including former Yahoo president Sue Decker and former Visa president Carl Pascarella. The company has raised $9.5 million so far.

Estify, a two-year-old, L.A.-based company whose software enables insurance companies and automotive body shops to communicate more seamlessly, has raised $1.5 million in seed funding from Romulus Capital and ff Venture Capital. The two firms had previously provided the company with $800,000.

Ingogo, a three-year-old, Sydney, Australia-based mobile payments start-up, has raised the equivalent of $7.8 million from Australian investors, including John Ho, who runs the Pan Asian hedge fund Janchor Partners.

Opal Labs, a four-year-old, Portland, Ore.-based maker of collaborative planning software for brand marketing teams, has raised $8 million in Series A funding led by Madrona Venture Group. The company has now raised $10.1 million altogether, including seed funding from Portland Seed Fund, Oregon Angel Fund and others.

Reduxio Systems, a two-year-old, Tel Aviv, Israel-based next-generation hybrid storage company, has raised $15 million in Series B funding led by Seagate Technology, with earlier investors Intel Capital, Jerusalem Venture Partners and Carmel Ventures participating. The company has now raised $27 million to date.

Roost, a five-year-old, Sunnyvale, Ca.-based smart-home platform company whose still-stealth product will sell for less than $50 and relies on a “retrofit opportunity” versus creating new smart home devices, has raised $975,000 in seed funding from DCM Ventures; Legend Star, an investment division of Legend Holdings; and angel investors, including DCM’s general partner Jason Krikorian, who cofounded Sling Media.

Sourcery, a two-year-old, San Francisco-based payments and commerce platform that focuses on the wholesale foodservice industry, has raised $2.5 million in seed funding, including from Palantir co-founder Joe Lonsdale, Yammer cofounder and CTO Adam Pisoni, Techstars co-founder David Tisch, Postini founder Shinya Akamine, and former Oracle CFO Jeff Epstein.

Savara Pharmaceuticals, a seven-year-old, Austin, Tx.-based company that’s developing new pulmonary drug delivery solutions, including an inhaled antibiotic for certain infections seen in cystic fibrosis patients, has raised $10 million in bridge funding from previous (unnamed) investors, along with new (unnamed) investors. The company has now raised at least $47.7 million to date, shows Crunchbase.

Snapchat, the 3.5-year-old, Venice, Ca.-based mobile messaging startup, is set to receive some funding from Yahoo, which is looking to reinvest part of the $5 billion it has made by selling part of its stake in Alibaba, reports the WSJ. One WSJ source said Yahoo is investing roughly $20 million at a $10 billion valuation.

Square, the 5.5-year-old, San Francisco-based e-commerce start-up, has quietly closed on $150 million in fresh funding led by the Government of Singapore Investment Corporation, reports the New York Times. The round values Square at $6 billion.

Yoogaia, a year-old, Espoo, Finland-based interactive online yoga studio, has raised $630,000 in seed funding led by the Nordic venture firmInventure, with unnamed angel investors participating. TechCrunch has more here.

Zoomdata, a two-year-old, Reston, Va.-based company with a data visualization and analytics platform, has raised $17 million in Series B funding led by Accel Partners, with earlier investors New Enterprise Associates, Columbus Nova Technology Partners, Razor’s Edge Ventures and B7 participating. The company has now raised $22 million altogether.


New Funds

North Atlantic Capital, a 28-year-old, Portland, Me.-based growth-stage venture firm, is hoping to raise up to $50 million for its fifth fund, shows anSEC filing first flagged by VentureWire. According to its Form D, the fund’s first sale has yet to occur.

Thrive Capital, the four-year-old, New York-based venture firm that has backed a long list of high-profile companies, including Twitch, Warby Parker, and Instagram, has closed its fourth fund with $400 million, more than double the size of its $150 million predecessor, which closed in 2012. Dealbook has more here.

TVM Capital Life Science, a Montreal and Munich-based venture firm focused on life sciences investments, has closed its latest fund, TVM Life Science Ventures VlI, with $201.6 million. Its cornerstone investors includeTeralys Capital and Eli Lilly and Company. More here.



Fifteen-year-old Yodlee, an aggregator of financial apps for both consumers and small enterprises, saw its shares rise 12 percent on its first day of trading Friday, closing at $13.44 up from $12.

As for this week, eight IPOs are expected to raise $1.3 billion.Renaissance Capital breaks them down.



MessageMe, the two-year-old, San Francisco-based mobile messaging application startup, has been acquired by Yahoo in a deal that TechCrunch sources peg in the “double-digit millions” of dollars. MessageMe had raised $13.4 million across three rounds, shows Crunchbase. Its investors include Greylock Partners, True VenturesFirst Round Capital, Google Ventures, SVAngel, Resolut.vcAndreessen Horowitz, and Social+Capital Partnership, among others. More here.

MobileSpaces, a three-year-old, Silver Spring, Md.-based mobile app security company was acquired by Pulse Secure for an undisclosed amount. MobileSpaces had raised $11.6 million from Marker and Accel Partners, shows Crunchbase.

Rumgr, a three-year-old, Las Vegas-based location-based marketplace for buying and selling goods, has been acquired for an undisclosed amount by e-Bay, reports Tech Cocktail. The company had raised $500,000 in seed funding, including from VegasTechFund. The company’s small team reportedly moves over to eBay’s headquarters this month.



500 Startups has promoted two investors from partner to managing partner: Bedy Yang joined the outfit in early 2012 and has been investing primarily in Brazil on behalf of 500 Startups. Khailee Ng joined the firm 18 months ago to lead its investments in Southeast Asia. TechCrunch has more here.



The Bill and Melinda Gates Foundation is looking to hire a Program-Related Investments Fellow. Applicants must have an advanced degree, plus five to ten years in management consulting, investment banking, private equity or venture capital.


Essential Reads

The WSJ gathers evidence of 1999-like spending, including a CEO who is “building an octagonal, mixed-martial-arts cage-fighting ring because one of his employees asked for it,” and an entrepreneur who drove to a meeting with Y Combinator’s president Sam Altman a week after completing a $10 million, early round of financing. He was driving a new Porsche sport-utility vehicle, says Altman.

Facebook Messenger is all set up to allow friends to send each other money.



How a doctor, a trader, and billionaire Steven Cohen became entangled in a vast financial scandal.

Thirty minutes with the amazing Kilian Jornet Burgada.

Where skinny people sit at restaurants.


Retail Therapy

New York’s major fall art auctions are coming up fast. Here’s some of what’ll be on the block.

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