StrictlyVC: November 18, 2016

We’ve been racing around but didn’t forget you. Happy Friday, everyone! Hope you have a terrific weekend, and we’ll see you back here Monday.:)

Top News in the A.M.

Amazon is going to sell cars online now, too.

Seen Enough? Here’s How to Get the SEC’s Attention

Sean McKessy spent most of the last five years as first chief of the SEC’s Office of the Whistleblower, building the division into an 18-person unit that has chased down hundreds of the roughly 14,000 tips it has received to date and paying out $132 million to tipsters in connection with successful Commission enforcement actions.

McKessy left the agency in late July to join the Washington office of the whistleblower law firm Phillips & Cohen. He was in San Francisco this week, however, and we sat down with him to discuss a range of things, including how often the agency hears from the startup world, whether the SEC is likely to pursue fewer cases in Silicon Valley under a Trump administration and, either way, how tipsters can get the agency’s attention most effectively.

More from that conversation follows, edited here for length.

You were an SEC enforcement attorney who left to work in the private sector, then came back to the SEC to spearhead this program. What was that like?

It was a fascinating challenge. There was an awards program under the SEC that was specific to insider trading cases, but it had been around for [22] years and the entirety of the payouts was around $3 million. Dodd-Frank established the one that I ran, which was broader and basically said that if you come forward with any kind of securities law violation and help the SEC bring the case, you can get a reward.

How big an award?

The awards can range from 10 percent to 30 percent of the money collected when the monetary sanctions exceed $1 million.

And the money comes from where?

Wisely, Congress set up separate funds for whistleblowers to be paid out of. [So if you get an award], we’ll multiply the 10 to 30 percent against whatever was collected in the case you helped us bring, but the money is going to be paid out of a different pot. What Congress didn’t want was for victims’ rewards to be reduced because we’re [paying a] whistleblower.

What’s the criteria, beyond that a case has to have sanctions of more than a million dollars?

Well, for example, you need to have voluntarily provided information to us. If the SEC sends you a subpoena and that’s why you’re sharing information with us, you aren’t a whistleblower.

You also have to provide original information, though are exceptions; you can take publicly available information and synthesize it into analyses. The paradigm for that would be Harry Markopolos [the former securities industry exec who famously tried in vain to warn the SEC about Bernie Madoff]. He never worked at Madoff; everything he knew was from public documents. But his analysis showed the only way Madoff could be producing the returns he claimed was through fraud. The program was set up [in the wake of that case] so people like Markopolos could be eligible.

The office made a $20 million payout on Monday, but the release about it is very opaque.

The SEC is extraordinarily transparent about the cases it brings, so as soon as it brings an enforcement action, there’s a press release. But the whistleblower office has a statutory mandate not to identify whistleblowers. There are many pieces of information that the public would like to know that we thought could be reverse-engineered [to reveal a source].

The office says 14,000 tips have come through the program since it went into effect in August 2011, and that it has paid out $132 million dollars to 34 people connected with 26 cases to date. Those don’t seem like great odds for potential whistleblowers.

The number of people paid doesn’t necessarily represent everyone who brought good information; some have brought in good information where the sanctions have been less than $1 million. As I was leaving this summer, we had 800 ongoing investigations that were generated by whistleblowers. That’s actually a pretty high conversion rate. At any kind of intelligence or regulatory agency, you’re going to get 100 tips for every one or two that are good; that’s just the nature of the business.

Do you think people are reaching out because of the money or they’re more interested in seeking justice?

In the early days of the program, you weren’t even required to fill out a form, so anyone who supplied anything in writing had technically done what they needed to do, and in one case, we reached out a whistleblower and said, “You helped us bring a really good case; you provided information in writing. You could get paid.” The whistleblower said, “I didn’t do this to get paid; I’m not all that interested in it.” I [strongly encouraged him to accept the award] and he did.

Donald Trump has pledged to dismantle the Dodd-Frank law. Are you worried about preserving what you built at the SEC?

The speculation right now is the SEC’s whistleblower program will be spared because it’s working and it’s a fraud measure, and part of Trump’s philosophy is that we’ve got to “drain the swamp” and root out fraud wherever it may be. And for anyone looking to trim the government, I can’t think [doing away with the unit] is a compelling narrative. I think a lot of what drove people to vote in certain ways was this feeling that the game is rigged. So I don’t know how you tap into that [as a candidate], then turn around and say, “We’re going to take all the resources away from the agencies that we’re counting on to fix the system.”

Are startup employees and investors aware of the whistleblower program and trying to take advantage of it?

More here.

New Fundings

BuzzFeed, the 10-year-old, New York-based digital media company, has raised another $200 million at a valuation of $1.5 billion, the same valuation it had last year, according to documents from CB Insights. Business Insider has more here.

Cogito, a nine-year-old, Boston-based voice-analysis software business, has raised $15 million in Series B funding led by OpenView, with participation from earlier backers Romulus Capital and Salesforce Ventures. Xconomy has more here.

Handshake, a 4.5-year-old, San Francisco-based recruiting platform and professional network for college students, has raised $20 million in Series B financing led by Spark Capital. The round also included participation from earlier backers Kleiner Perkins Caufield & Byers, True Ventures, Lightspeed Venture Partners, Lowercase Capital, Annox Capital and Charlie Cheever. The company has now raised $34 million total. The WSJ has more here.

Inspire Medical Systems, a nine-year-old, Maple Grove, Mn.-based company whose medical devices are used to treat sleep apnea, has raised $37.5 million in Series F funding led by Amazak Health, with participation from OrbiMed Advisors and Medtronic (the medical company it was originally spun out of). Mass Device has more here.

PeerStreet, a three-year-old, Manhattan Beach, Ca.-based crowdfunding platform that provides investors with easy access to loans that are collateralized with real estate, has raised $15 million in Series A funding led Andreessen Horowitz, with participation from The Kaiser Family Foundation, Rembrandt Venture Partners, and Montage Ventures. Reuters has more here.

Prevalent, a 12-year-old, Warren, N.J.-based cyber security company, has raised $60 million in Series C funding led by Insight Venture Partners. More here.

Renew, a months-old, Venice, Ca.-based platform designed to help baby boomers understand their post-retirement benefits, has raised $3 million in Series A funding led by Venrock, with participation from Expa, WTI, Madrona Venture Group, Refactor Capital and angel investors. TechCrunch has more here.

Sigfox, a seven-year-old, Labège, France-based company that operates a cell network dedicated to low-throughput communication for connected objects, has raised a whopping €150 million ($160 million) in Series E funding, including from new investors Salesforce, France’s gas giant Total, and Parrot founder Henri Seydoux. TechCrunch has more here.

Sparkcentral, a five-year-old, San Francisco-based social media-focused customer service company, has raised $20 million in funding led by LRM, with participation from Group MC,  and earlier backer Split Rock Partners and Jackson Square VenturesMore here.

Wearhaus, a three-year-old, Berkeley, Ca.-based wireless headphone startup, has raised $4 million in Series A funding from Tellus International, Xiaoxiang Capital, and China Southern Media. More here.

Yup, a two-year-old, San Francisco-based chat-based mobile tutoring company that was formerly known as MathCrunch, has raised $4 million in a seed extension round led by Sesame Ventures, bringing the company’s total capital raised to date to $7.5 million. Earlier investors in Yup’s seed round included Floodgate and Index Ventures.TechCrunch has more here.

New Funds

Sheila Gulati, a former Microsoft manager who formed the venture firm Tola Capital six years ago, has just closed a $295 million growth-oriented fund. GeekWire has more here.


Xtera Communications, an 18-year-old, Allen, Tex.-based maker of optical networks for terrestrial and subsea applications, has filed for Chapter 11 protection. The company had raised roughly $120 million from investors, including Arch Venture Partners, ComVentures, and New Enterprise Associates, before going public late last year. More here.


Rob Fishman, the co-founder of Niche, has left Twitter, says Fortune. Twitter acquired the startup, which works with influencers on social networks like Vine, in 2015 for a reported $50 million. Fortune’s report notes that Twitter had pulled Niche’s app from the App Store and laid off much of its engineering team in September.

Elon Musk says Tesla’s solar shingles will cost less than a dumb roof. “Electricity is just a bonus.” (In related news, yes, Tesla shareholders yesterday approved plans to acquire the solar energy firm SolarCity, and by an 85 percent majority. Bloomberg has more here.

Volkswagen announced this morning that it’s cutting 23,000 jobs. Dealbook has more here.


App abandonment is climbing, and app installs are only up 6 percent year-over-year, says a new industry report out from Adobe.

Essential Reads

Apple is reportedly asking Foxconn and others to study feasibility of making its iPhones in the U.S. Nikkei Asian Review has more here.

Airbnb’s launch of Trips — which it’s describing as the biggest in its eight-year history — comes as the company is preparing to go public “as soon as possible.” Wired has more here.


Stephen Colbert destroys Apple over its $300 coffee table book.

What to bring to next week’s Thanksgiving potluck dinner.

How little kids figure out who’s in charge.

Retail Therapy

The Shinola Runwell turntable. Made in America. F yeah!

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