StrictlyVC: December 19, 2014

Happy Friday, everyone! Today, we have something a little out of the ordinary: Lise Buyer of Class V Group, a consultancy for firms looking to go public, has written a column for us, authored with her colleague Leslie Pfrang. It’s a great guide for companies that are contemplating a run at the public market in 2015. Hope you enjoy it. (Web visitors, you can find an easier-to-read version of the column, along with the rest of today’s email, right here.)

Also, a quick reminder that we’re not publishing StrictlyVC next week. We hope you have a terrific holiday with loved ones, and we’ll see you back here on Monday, December 29.


Top News in the A.M.

BBC investigation has found poor treatment of workers in Chinese factories that make Apple products, including exhausted workers who were filmed falling asleep on their 12-hour shifts. One undercover reporter, working in a factory making parts for Apple computers, had to work 18 days in a row despite repeated requests for a day off. Another reporter was housed in a dormitory where 12 workers shared a cramped room. Apple says CEO Tim Cook is “deeply offended” by the allegations.

Whoa. Citigroup raised the valuation of Instagram this morning from $19 billion to $35 billion.


Ready to Go Public? Really? You’re Sure?

It’s been a pretty terrific time in the IPO market this past year. According to Renaissance Capital, through December 15, there have been 271 IPOs in the U.S. in 2014, compared with 221 IPOs a year ago at this time, a volume increase of 23 percent. Thanks to Alibaba’s thunderlizard of a deal, the dollars raised by IPOs this year, $84.2 billion, exceeds last year’s total of $ 54.6 billion by 54 percent. Not bad.

Ah, but look deeper and you will see that actually, roses weren’t coming up everywhere. While 271 IPOs have been completed so far this year, conservative estimates suggest that more than 350 companies filed S-1s, a difference of nearly 30 percent. For every 3 deals that filed and went public this year, at least one did the training, filed an S-1 and didn’t make it to the starting line. Of course, we need to back out those companies that filed late in the year, targeting a 2015 transaction. If we aggressively estimate that 20 fit that pattern, we still have more than 50 that didn’t get the job done as planned. When you consider the time and expense required for an initial filing, that is a big number.

What’s the difference and what price “optionality”?

Bankers and others can be convincing when suggesting companies take advantage of the relatively new option to file confidentially: “Get on file now, then choose your timing later, but you’ll be ready.” Factually correct? Yes. Good for your business, your P&L, your employees or your IPO? Not so fast. Preparing for an IPO too soon is neither a cost free nor risk free option.

The ongoing and elevated expense, distraction, loss of momentum and sometimes embarrassment (Box anyone?) that accompany a premature “go” decision can easily outweigh any timing flexibility benefits.

OK, but IPOs do take a long time. How do we know when to start?

At January board meetings, following the “year in review” appraisals, many private company boards will have the “Is this the year to go?” conversation. (By “go,” we mean schedule a bake-off and hire bankers.) In advance of those meetings, we offer five questions every board should ponder before dropping the green flag:

1) Can your sales and financial teams accurately forecast results for the next few quarters? Did you nail your forecasts last quarter? If answering either of these is anything other than a rock solid “yes”, then take your time. Public investors show no mercy to companies that miss an early quarter. Worse still, the brickbats courtesy of angry investors will be but mere annoyances relative to the grenades your employees, customers and partners may lob through your door if you miss an early public quarter.

2) Do you have the right team in place? No really, are you sure you have the right team in place, not just for the IPO but also for the long term? Step back and take a cold, clear look. The team that helped you get this far may be gifted, battle-tested and composed of friends. That doesn’t mean it’s the team for a fast-growing public company. Public investors want to know that the C-suite in place for the IPO can scale the organization. Newly public companies juggle enough knives when adjusting to the market’s spotlight. There’s little bandwidth for concurrently integrating new senior leaders.

3) Is your business model stable and ready for public scrutiny? Admittedly, there are companies (like Twitter) where even 12 months post-IPO the model remain an enigma. We grant that if your business has north of 200 million active users, investors may cut you some slack. However, for most, a more stable model correlates to a larger crowd of investors rallying around your IPO’s order book. Are you hoping to migrate to a subscription model? Do you see significant price changes or regulatory updates on the near-term horizon? Launch that new model or absorb the changes before you step on the IPO court. In the eyes of investors, a foot-fault of your own making — or because someone else moved the lines in a way you could have predicted — will cripple your stock’s performance.

4) Are you ready for an intense audit? The reason most companies on the IPO trail get thrown off course is because their audits aren’t ready on schedule. Audits won’t be rushed. The drill-down scrutiny on every last decimal point is much more intense when your auditors know you’re preparing for an IPO. The size of your audit team and number of questions will often triple during this process.

5) Is your company really strong enough to support the valuation you expect? For this point, we will excuse readers at health-science companies, but for those selling products and services, size matters. Management teams tend to be optimistic. Bankers, reflecting experience, tend to be conservative. Your finance team may produce a model projecting revenues over the next two years of $X and $Y. By the time bankers have helped you “refine” them, your forecasts (for the sell side analysts) will likely be closer $.7X and $.8Y. Expect similar treatment (in the opposite direction) for your expense projections. It is those banker-adjusted numbers from which your initial valuation range will be determined. Do the exercise in-house to be sure the projected valuation, based off a hacked-up model, will be acceptable before hiring banks and kicking off a process. The more directly you face the conservative forecast reality, the better prepared you will be for the go/no go decision.


New Fundings

Bustle, a 1.5-year-old, Brooklyn, N.Y.-based news, entertainment, lifestyle, and fashion site, has raised $15.5 million in Series C funding led by General Catalyst Partners. Other participants in the round include Time Warner Investments, Rothenberg Ventures, 500 Startups and The Social+Capital Fund. The company has now raised roughly $27 million to date.

Echodyne, a new, Bellevue, Wa.-based company that makes radar products based on metamaterials technology invented by Intellectual Ventures in collaboration with Duke University and the University of California at San Diego, has raised an undisclosed amount of funding led by Bill Gates and the Madrona Venture Group, with participation fromVulcan Capital, Lux Capital, The Kresge Foundation, and others. The company is the fourth spin-out of Intellectual Ventures.

Hampton Creek, a three-year-old, San Francisco-based company that’s committed to finding new ways of using plants in food products, has raised $90 million in Series C funding led by previous investors Horizons Ventures and Khosla Ventures, with participation from a long list of other investors, including Collaborative Fund, Founders Fund, Salesforce CEO Marc Benioff and Facebook co-founder Eduardo Saverin. The company has now raised $120 million altogether. TechCrunch has much more here.

Mixpanel, a five-year-old, San Francisco-based advanced analytics platform that was originally incubated at Y Combinator, has raised $65 million in new funding from earlier backer Andreessen Horowitz, reportedly at a $865 million valuation. TechCrunch has more here. The company had previously raised around $12 million, including from Sequoia Capital, Bebo founder Michael Birch, and Affirm cofounder and CEO Max Levchin, among others.

Scioderm, a two-year-old, Durham, N.C.-based company in clinical studies with a topical therapy meant to treat the genetic skin disorder epidermolysis bullosa, has raised a $20 million Series B funding led by new investor Redmile Group, with participation from earlier backers Morgenthaler Ventures and Technology Partners.

Skytap, an eight-year-old, Seattle-based service that aims to help development and test teams in the enterprise work more efficiently, has raised $35 million in new funding led by Insight Venture Partners, with participation from earlier backers, including OpenView Venture PartnersIgnition Partners, Madrona Venture Group, and Washington Research Foundation. Skytap has now raised $64.5 million altogether.


New Funds

Venture Investment Associates, a 21-year-old fund of funds group, has started raising a $150 million fund of funds that will back venture capital, growth equity and buyout funds, according to VentureWire. The firm recently closed a $50 million seed fund of funds. (StrictlyVC talked with managing director Chris Douvos about the latter last month.)



DraftKings, a 3.5-year-old, Boston-based daily fantasy sports business, is looking to go public in as little as two years, CEO Jason Robins tells The Street. DraftKings had raised $41 million in Series C funding led by Raine Group back in August; it has raised $76.4 million to date, shows Crunchbase.

Juno Therapeutics, a 13-month-old, Seattle-based biotechnology company, priced 11 million shares at $24 each in its IPO last night, for gross proceeds of $264 million. Shares for the company’s widely anticipated IPO begin trading today on Nasdaq under the ticker symbol JUNO.



Zomato, a 6.5-year-old, New Delhi, India-based, Yelp-like service, has acquired Italian rival Cibando for undisclosed terms. Zomato, which now has a presence in 20 companies, has raised $113 million from investors. TechCrunch has more here.



Billionaire Sean Parker has donated $24 million to Stanford to study severe allergic reactions and look for a cure. Parker after whom the Sean N. Parker Center for Allergy Research will be named, has reportedly been in the emergency room up to 14 times himself owing to a severe peanut allergy.

In the fall, 35-year-old Minecraft creator Markus “Notch” Persson sold his company to Microsoft for $2.5 billion. Now, he has outbid Beyonce and Jay Z on this $70 million pad in Beverly Hills.

Venrock partner Bryan Roberts, a life-sciences investor, has quietly racked up six major exits this year — four IPOs and two acquisitions with high price tags. Venture Capital Dispatch asks him how he pulled it off.

Entrepreneur-investor Peter Thiel says he’s taking human growth hormone pills in hopes of living to be 120 years old. More here.



StrictlyVC is hosting its very first “Insider” event on Thursday, February 12, from 5 p.m. to 8 p.m. in the art gallery of Next World Capital in San Francisco. Featured speakers include AngelList Naval Ravikant, investor and entrepreneur Keith Rabois, Strava cofounder and CEO Mark Gainey, and Next World cofounder Craig Hanson. (There will also plenty of drinks, hors d’oeuvres, and networking to go around.) Half the tickets have sold already; get yours here.


Essential Reads

Unilever has dropped its lawsuit against the three-year-old food makerHampton Creek. Unilever, which makes Hellman’s and Best Brands mayonnaise, had accused Hampton Creek of false advertising for calling its egg-free spread “mayo.” Hampton Creek said public support for its sustainable products likely prompted Unilever to abandon the suit.

New York magazine on Yahoo‘s Marissa Mayer and the so-called “glass cliff,” a term psychologists apply to the act of promoting women to board positions after a company has started faltering.

According to a new Bloomberg report, the hackers who broke into Sony’s Hollywood unit probably spent months collecting passwords and mapping the network before they committed a last act of vandalism, setting off a virus that wiped out data and crashed the system in 10 minutes.



Incredible real-life castles from around the world.

The language of food.

Who said what? The 2014 news quiz!


Retail Therapy

The ol’ Rambo Lambo. It could be yours.

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