StrictlyVC: December 18, 2014

Good Thursday morning, everyone! Semil Shah here, helping to run StrictlyVC through month’s end. Here’s a bit about me from yesterday’s newsletter, if you missed it.

If you’d like to chat about anything, you can usually find me on Twitter; I’m @semil.

If you’re looking for an easier-to-read version of this email, you can find it here.


Top News in the A.M.

The hackers win. Yesterday afternoon, Sony Pictures Entertainment announced it will not be releasing the Seth Rogen-James Franco comedy “The Interview” in any form. It also removed any mention of “The Interview” from its official web site.

According to Variety, Sony spent $42 million making the movie and “tens of millions” promoting it. The decision follows threats of a 9/11-style attack on theaters that showed the film.

American officials now believe that North Korea was “centrally involved” in the hacking of Sony Pictures computers. Meanwhile, veteran security experts aren’t so sure.


VC Andy Weissman on the DNA of Union Square Ventures

For the last four or so years, Andy Weissman has been a partner at New York-based Union Square Ventures. But like his colleagues, including Fred Wilson and Brad Burnham, Weissman has been investing since the boom and bust of the late ’90s. He first joined Soundview Ventures/Dawntreader Ventures in 1999, spending more than six years with the firm before cofounding Betaworks with John Borthwick in 2007. In 2011, when Betaworks began to focus less on creating an investing portfolio (which Weissman had managed) and more on becoming an operating company, he hopped over to Union Square Ventures.

We talked last week about his work, and what USV is doing to maintain its status as one of the most successful venture firms in the game today.

How has USV’s thesis around “engaged networks of users” factored into investing in mobile-first companies? It’s obviously hard to find apps on mobile, and distribution can feel gated.

Well, at some level our thesis is not monolithic but instead is by design flexible, debatable, and evolving. When we wrote this post [about our pursuit of large networks of engaged users, differentiated through user experience, and defensible through network effects], we tried to explain how each of those words in the thesis matter, and how they each are subject to conversation over time.

So, at another level, the thesis applies to mobile-first companies the same way it applies to any companies or sectors, from mobile to blockchain to marketplaces. That being said, when you have a device that is available in everyone’s pocket, is location aware, and so forth, all the other attributes of a mobile device and mobile apps, there are real questions about the strength of the network effects. Are they the same? Or stronger? Or even weaker? That’s a conversation we’ve been having.

Speaking of which, tell us more about Figure1 and the story of how you came to invest in the company.

Kind of funny. I read something somewhere about the company. And I searched on Twitter and found the names of some of the founders. So I reached out to them on Twitter. A year later, we participated in their Series A financing. One of the best things was that as we got to know them, we realized Figure1 was precisely the kind of company in a medical or healthcare related field that was consistent with our thesis. I just didn’t know that until afterwards.

USV often travels as a team to the Bay Area and other regions to meet companies. This seems different than the lone-wolf culture of other firms.

USV operates in particular way. It’s not necessarily the only way to operate, nor is it necessarily the best way, but it is our way. We are a small firm by design and structure (meaning team size and capital size). And our framework for decision-making is a a particular point of view about the Internet – the thesis. So at least two times a year, we all go to San Francisco and get to spend a little more intimate and collective time with the companies we’ve invested in and others that we want to get to know us better. It works well. That small collaborative nature is part of the DNA. So we move in packs sometimes.

On mobile, besides Twitter, where do you find yourself having the most conversations? What apps are you most social on and why?

Twitter, Tumblr, Groupme, Reddit — the usual suspects. I lurk a lot in Figure1 and K-Pop Amino [a social network for Korean pop songs, photos, news and Korean music videos], then some other, very niche communities. As my friend Brad Dickason wrote to me the other day, “Put any self-branded introvert in a room with someone else who shares their passion and an intense dialogue ensues.”

USV has been doing more seed rounds of late. Naming rounds these days seems more complicated than it’s worth. How has USV adjusted its strategy to meet today’s environment?

I think we view our DNA as early stage investors foremost, without regard necessarily for whether something would classically be called Seed or A or whatever. I don’t think we’ve really adjusted the strategy. There are periods when we seem engaged in companies that at the earliest stages require less capital, and periods when the don’t. Lately, there have been more of the former than the latter, but we’ve also done a few of what you’d consider classic “Series A.”


New Fundings

Beautycounter, a 1.5-year-old, Santa Monica, Ca.-based company that sells non-toxic personal-care products, said that TPG Growth has made a strategic investment of undisclosed size in the company in exchange for a minority stake in its business. Reuters has more here.

Expect Labs, a three-year-old, San Francisco-based company whose speech recognition technology aims to predict the items you intend to search before you say them, has raised $13 million from new strategic investors, including Samsung Ventures, Intel Capital, Telefónica Digital and Liberty Global Ventures. Fenox Venture Capital, Westcott and Quest Venture Partners also joined the round. Venture Capital Dispatch has more here.

First Opinion, a two-year-old, San Francisco-based startup with a texting app that pairs doctors who want to work from home with people who have basic health questions, has raised $6 million in Series A funding led by Polaris Partners. Earlier backers also joined the round, including Felicis Ventures, Monashees Capital, Scrum Ventures and True Ventures. The company previously raised $2.6 million in seed funding, including from 500 Startups and Greylock Partners.

Flexus Biosciences, a 1.5-year-old, San Carlos, Ca.-based biopharmaceutical company that’s developing small-molecule cancer immunotherapies that target regulatory T cells, has raised $38 million in fresh funding from Celgene Corp., Column Group, and Kleiner Perkins Caufield & Byers.

Inbox Messenger, a 1.5-year-old, New York-based mobile messaging application, has raised $3.9 million in seed funding from unnamed angel investors. The company has now raised $4.9 million, shows Crunchbase.

Open Garden, a nearly four-year-old, San Francisco-based mobile broadband network for Internet of Things devices, has raised $10.8 million in Series A funding led by August Capital, with Firebolt VenturesFuture Perfect Ventures, Kima Ventures, Tseung Kwan Ventures and Sherpalo participating. The company says the round closed in March and “remained undisclosed until now for competitive purposes.” The company has raised $12.8 million altogether.

P97 Networks, a two-year-old, Houston-based cloud-based mobile commerce and marketing platform for the convenience and fuel retailing industry, has raised $8 million in Series A funding led by Emerald Technology Ventures led the round, with participation from American Trading and Production Corp. and other unnamed new and existing investors,

Padlock Therapeutics, a year-old, Cambridge, Ma.-based company that’s developing therapies that remove molecular triggers behind autoimmune diseases such as rheumatoid arthritis, has raised $23 million in Series A led by Atlas Venture. Padlock was incubated as part of the Atlas Venture seed program.

PeerNova, an eight-month-old, Silicon Valley-based company that’s developing distributed trust systems based on blockchain technologies, has raised the first tranche of a Series A equity and debt funding round led by Mosiak Partners, with participation from Crypto Currency Partnersand individual investors.

Quanergy Systems, a two-year-old, Sunnyvale, Ca.-based company whose software and sensors capture and process 3-D mapping data in real time, has raised $30 million in Series A funding led by Rising Tide Fund, with participation from Wicklow Capital, Motus Ventures, and Wardenclyffe Partners. The company has now raised $34.5 million to date.

Rapid7, a 14-year-old, Boston-based maker of security risk management software, has raised $30 million in fresh funding from earlier backers Bain Capital Ventures and Technology Crossover Ventures. The company has now raised at least $89 million, shows Crunchbase.

RealConnex, a two-year-old, New York-based creator of an online marketplace for real estate services and investing, has emerged from beta with a $3.5 million Series A round led by Star Capital and Stratus Investments, Venture Capital Dispatch reports. As part of the funding, one of the lead investors, Star Capital, is also creating a $100 million fund, the RealConnex Opportunity 1 Fund, to finance projects on the platform. More here.

Redfin, the 10-year-old, Seattle-based online real estate search and brokerage service, has raised $71 million in Series G funding, including from Annox Capital, Brothers Brook, Glynn Capital Management, and Wellington Management, reports Inman News. The company has now raised $167.8 million to date.


New Funds

Avalon Ventures, a 31-year-old, La Jolla, Ca.-based early-stage venture firm, will be looking to raise a new, $250 million fund next year, the firm tells VentureWire. Its last fund, Avalon Ventures X, closed on $200 million in 2012.

High Peaks Venture Partners, the 10-year-old, New York-based early-stage venture firm, is looking to raise up to $60 million for its third fund, shows an SEC filing that states the firm has raised $11.2 million so far.

Khosla Ventures, the 10-year-old, Menlo Park, Ca.-based venture firm, is raising a new $400 million seed fund, according to an SEC filing flagged by TechCrunch.



RainStor, a 10-year-old, San Francisco-based startup specializing in online big-data archiving on Hadoop, has been acquired by publicly traded Teradata Corp. for undisclosed terms. RainStore had raised at least $26 million from investors, shows Crunchbase. Its backers included Credit Suisse and Storm Ventures.



First Round Capital just posted its holiday video, “All About Burn Rate.”

More semi-embarrassing emails leaked as part of the Sony hacking were published yesterday. Among them, a note from Insight Venture Partners cofounder Jerry Murdoch to Snapchat founder Evan Spiegel around the time that Snapchat turned down Facebook’s $3 billion acquisition offer last year. “I am happy to hear that Zuck came back and you wisely turned him down again!,” writes Murdoch to Spiegel. “Ha that must have been painful for him! He is too cheap to really pay up for the thing that is killing his core.” Business Insider has more here.

Snapchat CEO Evan Spiegel wrote a year ago that Facebook would soon see a reversal of its fortunes, shows a separate email exchange with Snapchat board member and Sony executive Michael Lynton that has surfaced in the Sony hack. Wrote Spiegel, “Facebook has continued to perform in the market despite declining user engagement and pullback of brand advertising dollars — largely due to mobile advertising performance – especially App Install advertisements. This is a huge red flag because it indicates that sustainable brand dollars have not yet moved to Facebook mobile platform and mobile revenue growth has been driven by technology companies (many of which are VC funded) . . . This props up Facebook share price . . . When the market for tech stocks cools, Facebook market cap will plummet, access to capital for unproven businesses will become inaccessible, and ad spend on user acquisition will rapidly decrease – compounding problems for Facebook and driving stock even lower. Instagram may be only saving grace if they are able to ramp advertising product fast enough.”

The seven-year-old online dating platform Zoosk has shaken up management has postponed plans to go public. Chief Executive Shayan Zadeh and President Alex Mehr are stepping down, though both will remain on the company’s board. Kelly Steckelberg, who has worked for the company for four years, including as its CFO and COO, will become CEO. Zoosk had filed to go public in April. It has raised roughly $60 million from investors over the years, including Bessemer Venture Partners and Crosslink Capital.



Renaissance Capital just released its 2014 US IPO annual review. You can view the whole report here.


Essential Reads

Jawbone‘s missing Christmas.

Graphene: Fast, strong, cheap, and unusuable.



Kids’ movies feature more onscreen deaths than films for grownups, says a surprising paper published this week.

I am an artisanal attorney.


Retail Therapy

Sushi socks.

The “Blackberry Classic” smartphone. Really.

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