StrictlyVC: November 11, 2014

Good Tuesday morning, everyone! (Web visitors, this version of today’s morning email is easier on the eyes.)


Top News in the A.M.

Wowsers. China’s online retail giant Alibaba says it has pulled in almost $8 billion in sales from its annual “Singles’ Day” shopping event. BBC News has more here.

President Obama’s net neutrality announcement yesterday “threw [FCC Chair Tom] Wheeler’s plans to write new rules by December into a tailspin,” reports Politico.


A Duo Reunites Over a New, Online Lending Opportunity

During the go-go ‘90s, an innovative company called OffRoad Capital emerged on the scene, pairing accredited investors with startups seeking funding via its online platform. A kind of AngelList 1.0, even OffRoad itself was backed by $17 million from roughly 150 accredited investors. Its timing was lousy, though. Just as OffRoad began gaining real momentum, the tech market nosedived, and in 2001, the company was quietly acquired for an undisclosed amount.

But the band is back together. A year ago, in fact, OffRoad founder Stephen Pelletier and former OffRoad executive VP Denise Thomas rejoined forces to create ApplePie Capital, a San Francisco-based online loan business focused on franchise financing. Now the pair, who say they’re chasing a roughly $42 billion market, are announcing $3.77 million in funding from Freestyle Capital, Signia Venture Partners, QED Investors, and Camp One Ventures. Yesterday, I caught up with Thomas, who has taken on the role of CEO, to learn more.

Why the franchise industry?

We saw an opportunity partly because there’s a lot of data that shows the franchise segment of the small business market is a heck of a lot less risky than small businesses at large.

Where is the money coming from that you plan to loan out?

We have [access] to capital aside from the capital we’ve raised to operate our business — money from institutional and individual investors that will allow us to fully fund the loans that come on the platform. We aren’t disclosing those specific sources; that’s precious information to us. But all sorts of interesting people are involved.

Not many people realize this but on P2P lending platforms, just 25 percent of the capital comes from individuals at this point. The rest comes from institutions. They saw the performance data and realized they could base decisions on their own models to ensure they’d hit their target returns. Our model is attractive to many of those same investors, particularly double-bottom line investors with mandates to create jobs. One in 20 working Americans is employed in the franchise industry.

What interest rates will you charge, and how much will you see versus these institutional investors whose money you’re using?

Our interest rates will range rom 8 to 12 percent and could get even lower over time [as our risk falls]. We don’t make money on the spread; that goes to the investors, minus a 1 percent processing fee, and there’s no real margin there. We make money off the origination fee, which is 5 percent if the money comes entirely from our network and 3 percent if [our customers] raise money from their own network, which we also help facilitate, taking on the liability, handle processing, handle state registrations, loan servicing, and so forth.

Why is what you’re offering better than SBA loans, which offer more competitive interest rates?

I’ve interviewed more than 50 brands, and SBA loans have become very painful. First, they’re offering 20 percent fewer of them before the financial crash of 2008. It’s also very difficult for anyone to get a loan of less than $1 million. And though today’s rates are 5 to 6 percent, you’re not locked into those rates; they could change, unlike our rates. Not last, it can take up to four six months. We’re offering speed and flexibility. By the way, we’re compatible with SBA loans. Maybe someone can’t qualify for one today, but after they’ve owned two or three or four units, they might.

Is there a penalty for paying off your loans early?


I remember OffRoad creating an index of startups that investors could back. Is there a plan to package these loans together to minimize the risk of ApplePie’s investors?

Absolutely. We don’t have a fund today, but we’re already diversified across five industries, and for now, there will be two ways for investors to participate. They can either choose the brand they want to invest in, or they can talk with us about a vehicle that, let’s say, commits $10,000 across 10 deals. We can ensure that happens.


New Fundings

Avalara, a 10-year-old, Bainbridge Island, Wa.-based company whose cloud-based software handles sales tax and other transactional tax compliance issues for its customers, has raised $100 million from Warburg Pincus. The company has raised $181.6 million altogether, including from Sageview Capital and Battery Ventures.

Cavendish Kinetics, a 20-year-old, San Jose, Ca.-based MEMS platform that reduces the cost of incorporating MEMS components into semiconductors, has raised $7 million co-led by Tallwood Venture Capital and Wellington Partners, with participation from Qualcomm Ventures and other existing investors. The company has now raised $32.5 million altogether.

Datashield, a five-year-old, Park City, Ut.-based managed security services company, raised $4 million from Huntington Capital.

DogVacay, a two-year-old, Santa Monica, Ca.-based pet-sitting service that competes with, has raised $25 million in Series B-1 funding led by new investor OMERS Ventures. Other participants in the round included GSV Capital and earlier backers Benchmark, DAG Ventures, First Round Capital, Foundation Capital and Science Inc. The company has now raised $47 million altogether. (Rover has raised $25.9 million.)

Elevate Digital, a three-year-old, Chicago-based interactive digital advertising and software company that makes touchscreen advertising and information kiosks, has raised $4 million in Series B funding led by earlier investor Advantage Capital Partners. The company has now raised at least $12.2 million to date, including from SFX Entertainment and Partners Path Investments., a nearly two-year-old, Dublin, Ca.-based company that provides continuous cloud security for Amazon Web Services, has raised $9.85 million in Series A funding led by Bain Capital Ventures, with earlier backer True Ventures participating. The company has now raised $11.4 million altogether.

Execution Labs, a two-year-old, Montreal-based accelerator has raised 6 million Canadian dollars ($5.3 million) in Series A funding led by Corus Entertainment, with participation from earlier backers BDC Capital, Real Ventures and White Star Capital. The company has raised $6.7 million altogether, shows Crunchbase.

Humedics, a Berlin-based company whose mobile measurement device helps clinicians determine a patient’s liver function capacity within minutes, has raised 6.3 million euros ($7.8 million) in Series C funding led by new investors Seventure Partners and Vesalius Biocapital Partners. Earlier investors also participated in the round, including ERP Startfonds of the Kreditanstalt für Wiederaufbau, High-Tech Gründerfonds, Peppermint Venture Partners, VC Fonds Technologie and Ventegis.

Raise Marketplace, a four-year-old, Chicago-based online marketplace for gift cards that was formerly known as CouponTrade, is disclosing that it raised $18.1 million in Series A funding from Bessemer Venture Partners last December. The company has so far raised $23 million altogether, it says.

Revel Systems, a four-year-old, San Francisco-based iPad-based point-of-sale platform, has raised $100 million in Series C funding from the private equity firm Welsh, Carson, Anderson & Stowe, with some unnamed strategic investors participating. The company had previously raised around $13.8 million from investors, including DCM and Rothenberg Ventures. TechCrunch has more here.

Spirometrix, a two-year-old, Pleasanton, Ca.-based company whose medical device uses sensors to detect hidden inflammation in the lungs of asthma sufferers, has raised $8.6 million in Series B funding led by new investor NGK Spark Plug Co.. Simul Investments also participated.

Yello Mobile, a two-year-old, Korea-based startup that has been incubating and acquiring startups across numerous verticals — mobile shopping and advertising, mobile travel, and mobile content among them — has raised $100 million, all from Formation 8, at a $1 billion valuation. The round brings the company’s total funding to $176 million. TechCrunch has more here.

Ziarco, a two-year-old, Palo Alto, Ca.-based company that develops therapeutic agents for treating inflammatory and allergic diseases has raised $33 million in Series B funding from Pfizer Venture Investments,BV Investment Partners, Amgen Ventures, Lundbeckfond Ventures, and New Enterprise Associates. The company has so far raised $40.6 million altogether, shows Crunchbase.


New Funds

Deutsche Telekom, owner of T-Mobile, has this morning announced a €500 million ($620 million) fund called Deutsche Telekom Capital Partners that it will use to invest in seed- to late-stage European and U.S. startups. The amount is double the amount that the carrier had previously committed to venture investments through its earlier fund T-Venture, established in 1998, which it’s now closing to new investments. (T-Venture’s team will “remain on board” and continue managing their existing portfolio of roughly 100 companies, says the company.) DTCP will officially launch next year; former Blackstone executive Vicente Vento will head it up.

Teralys Capital, a five-year-old, Montreal-based Canadian fund of funds manager, has held an initial close of $279 million for Teralys Capital Innovation Fund, a new fund of funds created under the Canadian government’s Venture Capital Action Plan. The firm says it is the only Canadian investor dedicated to all sectors – information technologies, life sciences, and clean or industrial-focused firms. It also says it will cover all investment stages from start-up to expansion and growth. More here.



Hortonworks, a three-year-old, Sunnyvale, Ca.-based Hadoop startup that spun out of Yahoo, is going public, it disclosed in a public filing yesterday. (The company had filed confidentially with the SEC in August.). The company, which posted an $86.7 million loss on $33.3 million in revenue in the first nine months of this year, has raised roughly $250 million from investors. Among them is Benchmark Capital, which owns nearly 19 percent; Index Ventures, which owns 9.5 percent; the software company Teradata, which owns 8.3 percent; and Hewlett-Packard, which owns 6 percent. CEO Rob Bearden owns almost 7 percent of the company. Recode has more here.

New Relic, a seven-year-old, San Francisco-based software analytics company that has raised roughly $215 million from private investors, alsofiled to go public yesterday. The company is majority owned by Benchmark Capital, which holds a 22 percent stake; Insight Venture Partners, with 5.6 percent; Tenaya Capital, with 4.9 percent; and Trinity Ventures, which owns 13.6 percent. CEO and founder Lew Cirne also managed to hold on to a whopping 27.3 million stake, shows the filing.

On Deck Capital, the seven-year-old, New York-based online lender to small businesses, also revealed its IPO plans yesterday, showing in a filingthat it plans to raise $150 million, a placeholder that may change. On Deck has raised roughly $409 million from private investors over the years. Its principal shareholders include RRE Ventures, which owns 15.4 percent of the company; Institutional Venture Partners, which owns 14.4 percent;Village Ventures, which owns 10.8 percent; Sapphire Ventures (formerly SAP Ventures), which owns 10.1 percent; First Round Capital, which owns 6.5 percent; Google Ventures, which owns 6.3 percent; and Tiger Global Management, which owns 6 percent. CEO Noah Breslow — who joined On Deck as senior VP of products and technology at its founding — owns 2.4 percent of the company. Bloomberg Business has more here.



Leftronic, a four-year-old, San Francisco-based company that provides real-time business data and analytics dashboard that its clients use to monitor performance indicators, has been acquired by AppDirect. Terms of the deal weren’t disclosed. Leftronic had raised more than $500,000 in seed funding from Y Combinator, Jerry Yang, Paul Buchheit, SV Angel, and RightVentures.

Rooster Teeth, an 11-year-old, Austin, Tx.-based digital studio, has been acquired for undisposed terms by Fullscreen, one of the largest YouTube multichannel networks, reports Variety. Terms were not disclosed. Fullscreen is majority-owned by Otter Media, the company AT&T and Chernin Group established last spring. Rooster Teeth appears to have raised just $2.4 million in equity crowdfunding last August.



Society photography Drew Altizer has posted some red-carpet photos from Sunday’s 2nd Breakthrough Prize ceremony. Among those pictured: Facebook’s Mark Zuckerberg, News Corp’s Rupert Murdoch, Dropbox’sDrew Houston, Jawbone’s Hosain Rahman, Path’s Dave Morin, Brit + Co’s Brit Morin, Fuseproject’s Yves Behar, Box’s Aaron Levie and, oh, yes, Jon Hamm and Benedict Cumberbatch.

The amazing track record of Benchmark‘s Peter Fenton looks even more brilliant today. Fenton is a director at both HortonWorks and New Relic, both of which filed to go public yesterday. (Back in February, StrictlyVC noted that the best VCs, including Fenton, make their own luck.)

Shaygan Kheradpir stepped down as CEO of Juniper Networksyesterday, after less than a year on the job.The board wasn’t thrilled with his conduct related to a customer negotiation, reports Bloomberg. Rami Rahim, an executive vice president who has been at Juniper for 17 years, was named CEO to replace Kheradpir.

Google cofounder Larry Page‘s Family Foundation is donating $15 million to fight Ebola. Page posts about it here.

Tristan Walker of Walker & Co. is featured in a superb new Fast Company piece that traces his path from “one of the roughest neighborhoods in Queens” to renowned Silicon Valley figure. Says Walker’s wife of one of his early decisions to accept a job at the startup Foursquare where he initially worked for next to nothing: “I didn’t get it . . . As a black man, you don’t take risks like that.”

Wearable camera maker GoPro‘s chief executive, Nicholas Woodman, plans to sell a portion of his stake as part of an $800 million offering of the company’s shares, he told Reuters in an email, writing: “I plan to sell a portion of my holdings in GoPro, but no one should misunderstand my commitment to the company or our vision.”


Job Listings

Facebook is looking for a corporate development manager to help lead acquisitions for the company. The job is in Menlo Park, Ca.


Essential Reads

It’s no exaggeration to say that Facebook’s future depends on the success of its mobile messaging application; here’s why Facebook has entrusted it to former PayPal president David Marcus.



Do not waste your two most productive hours.

The man who kept Trader Joe’s whimsical.

It looks like a Wes Anderson outtake, but this insane stunt is real.


Retail Therapy

Nine under-the-radar road trips within two to three hours of San Francisco.

The Snail My Email letter writing project. You email, they write out your note and put it in the post for you. No charge.

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