StrictlyVC: August 28, 2015

Hi, happy Friday, dear readers!

Two quick things: TechCrunch Disrupt is coming up September 21 through September 23 and we’re super excited to be a part of it. We’ll be interviewing the Conways, along with other top VCs Aileen Lee, Jeremy Liew, Dana Settle, and Todd Chaffee. The full agenda was published yesterday; you can check it out here.

Also, as longtime readers know, we don’t publish many guest submissions (for a variety of reasons that probably wouldn’t interest you). We’re making an exception today, though, for a solid piece by Craig Hanson, cofounder of Next World Capital in San Francisco. Enjoy, and have a terrific weekend!


Top News in the A.M.

Ian Rogers, who mapped out Apple’s online radio strategy, has resigned, just two months after the launch of its Beats1 radio service. The Financial Times has the scoop here.

Avid Life Media CEO Noel Biderman is stepping down, the company announced this morning. Avid Life Media, operates Ashley Madison. More here.

Apple‘s next big iPhone event happens September 9th.

Facebook has announced that on Monday, for the first time ever, one billion people logged on to the site.


Market Tumult and the Marginal Productivity Trap

By Craig Hanson

The most disruptive aspect of capital market shifts isn’t simply that financing your business becomes easier or harder. It’s that the underlying math the market uses to value your company fundamentally changes. Public markets, venture capitalists and even employees evaluate you through a different framework. These shifts can be dramatic, with severe consequences for those still adhering to the prior paradigm. The market is reminding us of the potential for one of these systemic shifts now.

For the past couple years, investors of all stages have been chasing furiously after high-growth companies, and rewarding them with valuation multiples exponentially higher than the difference in their growth rate would otherwise imply. An almost single-minded obsession on growth rates has understandably driven companies to dramatically increase their sales and marketing spending, faster than historical norms, fueled by round sizes larger than historical norms.

The constraint, however – the gravitational impact of expansion economics – is that as more sales and marketing budget is spent in a period of time, the efficiency of that spend (in terms of qualified leads, sales prospects, sales, etc) naturally declines. This law of diminishing marginal productivity makes sense when you stop to think about it. When you move from the top 10 ROI marketing programs to the next 20 down the list, you’re investing in lower return programs. If you see 50 sales rep candidates in a quarter, and move from hiring the top 5 to hiring the top 20, you’re going to get lower productivity reps (assuming the manager is good at picking reps in the first place).

Despite this, in the recent environment, CEO’s have felt immense pressure, and a bit of economic rationale, in increasing sales and marketing spending even as the productivity of those dollars declines. In other words, even as it drives productivity and efficiency metrics down, some CEOs keep stepping on the gas. Why? There are 2 reasons: one bad and one (temporarily) good.

First the bad reason. Foremost, as some investors are pumping up round sizes, at all stages, much higher than normal, CEOs given this largesse naturally feel immense pressure to spend it. In too many cases, they have to increase spending dramatically in order to have any hope of reaching the herculean growth rates needed to justify the lofty valuation they just received. Shooting the moon is the only play in the book which has hope.

There is a second reason, which has slightly more economic rationale, but only temporarily.

More here . . .


New Fundings

DreamBox Learning, a nine-year-old, Bellevue, Wa.-based company that makes elementary mathematics education software, has raised $10 million in Series B funding led by Owl Ventures, with participation from Tao Capital Partners. The company has now raised $45.6 million altogether, shows Crunchbase. More here., a six-year-old, Shanghai, China-based online food ordering platform, has raised $90 million in fresh funding from the Shenzhen-listed Chinese shopping mall operator Beijing Hualian Department Store Co. In January, the company reportedly raised $350 million Series E funding led by CITIC Private Equity. More here.

iZettle, a five-year-old, London-based mobile payments company that’s expanding into small business loans, has raised $67 million in Series D funding led by earlier backers Intel Capital and Zouk Capital, with participation from other earlier investors Creandum, Dawn Capital, Index VenturesNorthzone and 83North. TechCrunch has more here.

Merus, a 12-year-old, Utrecht, the Netherlands-based cancer therapy developer, has raised €72.8 million ($80.5 million) in Series C funding co-led bySofinnova Ventures and Novo Ventures, with participation from earlier backers Johnson & Johnson Innovation, Pfizer Venture Investments, Bay City Capital, LSP Life Sciences Partners and Aglaia Oncology Fund. More here.

MimiVax, a three-year-old, Buffalo, N.Y.-based company that’s developing a cancer vaccine, has raised $1.55 million in venture funding from Buffalo Capital Partners. The company had earlier secured $2 million in government grants. Buffalo Business First has more here.

Narvar, a three-year-old, San Mateo, Ca.-based shipping and delivery platform, has raised $10 million in a round led by Accel Partners, with participation from Commerce Ventures, Crosscut Ventures and Freestyle Capital. TechCrunch has more here.

XL Hybrids, a seven-year-old, Boston, Ma.-based company whose hybrid electric powertrain for commercial fleet vehicles reduces fuel consumption by a reported 20 percent, has raised $10.5 million in Series C funding led by former Morgan Stanley executive Peter O’Brien. Venture Capital Dispatch has the story here.


New Funds

Cross Valley Capital, a nine-month-old, Philadelphia, Pa.-based venture firm, has raised a $20 million seed fund, reports Dow Jones VentureWire. The firm, whose anchor LP is the Miami-based incuabor Rokk3r Labs, says it plans to invest in early-stage companies focused on digital health, hospitality, travel or logistics. More here.



Motorola Mobility will absorb the mobile unit of Lenovo, the Beijing-based technology giant, with Motorola Mobility president Rick Osterloh leading the global smartphone business.

NumberFire, a five-year-old, New York-based predictive sports and advanced analytics platform that appears to have raised less than a million dollars in seed funding, has been acquired for undisclosed terms by the fantasy sports company FanDuel. More here.



Google cofounder Sergey Brin (now president of newly minted Alphabet) has reportedly checked out a $49 million mansion in Alpine, N.J., a township whose other residents have included P. Diddy, Chris Rock, and Stevie Wonder. In case you’re remotely curious (and c’mon, you are a little bit), The New York Post saysthe “12-bedroom, 19-bathroom spread boasts an indoor basketball court, fitness center and a pool,” along with a “4,000-bottle wine cellar, movie theater, ballroom, formal dining room, dining terrace and three bars.” Oh, there’s also a “master suite with two spa bathrooms and dressing suites, and there’s also a fully equipped staff apartment.”

Kim Kardashian and Kanye West have reportedly settled up with YouTube cofounder Chad Hurley over a video of their 2013 engagement that he shot and then allegedly posting to MixBit, a collaborative video app owned by his newest company, Avos Systems. TMZ has the story about the reported $440,000 Hurley is paying in damages here.

Chris Lehane, who spent more than six years working in the Clinton White house and was the spokesman for former Vice President Al Gore in his 2000 presidential campaign, has joined Airbnb as its head of global policy and public affairs. The New York Times has more here.

Venture capitalist Tom Perkins — best known in recent years for putting hisfoot in his mouth — is back in the limelight, arguing in a full-page ad in the New York Times that presidential candidate Carly Fiorina is a visionary executive who helped revive Hewlett-Packard during her tenure as its CEO.


Essential Reads

Snapchat is charging brands for video ads viewed less than a second, according to buyers.



The art of the out-of-office reply.


Retail Therapy

flag in a frame. For proud ‘Mericans.

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