• Thirteen Virtual Reality Companies Head to San Francisco

    samsung-gear-vr-innovator-editionLate last year, three-year-old Rothenberg Ventures announced it would be launching a startup accelerator, River, that planned to provide $100,000 in seed funding to virtual reality companies expressly. To some, it might have seemed like a calculated, and possibly unwise, bit of counterprogramming. After all, by backing a variety of startups, most accelerator programs are able to hedge their bets and reduce the risk that a whole batch will fall out of fashion.

    Yet the San Francisco firm argues that the the 13 companies it has selected, from roughly 200 applicants, is as diverse as any early Y Combinator class. An eye-mounted head-tracking display that helps the physically challenged with daily tasks? Check. Virtual reality technology that changes the way people experience news events? Check. “Everyone keeps calling it a ‘sector,’” says the firm’s founder, Mike Rothenberg. “But just as the Internet is ubiquitous, virtual reality will be ubiquitous in 10 or 20 years. This technology is really going to change everyone’s life.” We talked about it yesterday.

    You’re about to welcome 13 companies into your new accelerator program, which will run from February through May. What was the criteria for acceptance?

    We were really looking for the most innovative applications across every industry. We also wanted a mix of hardware and software. We didn’t know what we’d get, but we have companies coming from Japan, South Africa, New Zealand France — companies building great companies in education, in pain management . . .

    How far along are they?

    They’re pretty mature companies for the most part. Some have been building their companies for eight to ten years. Fove, which makes an eye-tracking head mounted display that lets users navigate using their eye movements, has a complete product that works and is amazing.

    Have these companies raised capital in the past?

    Some of them have some capital. [Fove, for example, passed through Microsoft Ventures Accelerator in London last summer.] But in general, venture capital hasn’t been focused on virtual reality too much yet, so in some cases, the companies hadn’t raised anything prior. We have a South African company that bootstrapped and figured out a way to get customers to pay for VR from the beginning.

    What size stake are you taking for your $100,000?

    We aren’t disclosing that. We looked at Y Combinator and other accelerators and incubators and tried to learn [from what they do].

    Just two companies you’ve accepted are hardware companies. Is that by design? Do you think most people will be creating virtual reality technology for platforms like Samsung Gear VR and the upcoming Oculus Rift?

    We didn’t have set targets, but in my opinion, the big companies know what they’re doing. There’s a lot of good hardware being built by great tech companies with deeper pockets; smartphone use will become more common, too. So software and content companies might be a little more of a fit [for this program].

    We also just saw so a lot of mind-blowing applications. We have a company, Psious, a smartphone-based tool that’s solving phobias by simulating heights and plane travel and spiders. Another, DeepStream, tackles pain management. Burn victims enter into a world of snow and it lessens their pain. A third company, Emblematic Group in L.A., is doing immersive journalism, showing reporters what it can feel like to be on the streets when a bomb goes off and hopefully making them more empathic in the process.

    Why announce the companies now? Why not wait until they’re ready to meet with investors at a demo day you’re staging in May?

    We want them to take advantage of their affiliation with River while they’re here in America. Some of them are already planning to move to San Francisco. Many of them are here for three months alone, and we want them to meet with the people they want to meet, including investors.

    Those investors will invariably be conjuring up exit scenarios. Aside from Facebook and its subsidiary Oculus, which acquired two VR companies last month, do we know what companies are actively shopping for VR technologies?

    The smartest companies. It’s the same for everything. Who’s going to buy the 360-degree action sports camera? Whoever is making cameras and wants to stay in business.

    You can find River’s full list of startups here:

    DeepStream VR
    Description: VR games for pain relief and rehabilitation
    Tag line: Virtual Reality games to relieve pain
    Founders: Howard Rose, Ari Hollander
    Discovr
    Description: immersive learning experiences about exploring the ancient world
    Founder: Josh Maldonado, Omar Charles, Professor Bernard Frischer
    Based in: Toronto, Canada
    Emblematic Group
    Description: immersive journalism in VR
    Founder: Nonny de la Pena
    EmergentVR
    Description: application to create, edit and share 360 VR experiences with the world using mobile phones
    Founders: Peter Wilkins, Chris Wheeler
    Website: n/a
    Fove
    Description: The world’s first headset to use eye tracking to create an immersive experience
    Founders: Yuka Kojima, Lochlainn Wilson
    Based in: Tokyo, Japan
    Innerspace
    Description: high quality VR content focused on artistic and cultural expression
    Founder: Balthazar Auxietre and Hayoun Kwon
    Based in: Paris, France
    Psious
    Description: platform for mental health practitioners to help patients cure fears using immersion therapy in VR
    Founders: Xavier Palomer, Danny Roig
    Based in Spain
    Reload Studios
    Description: independent game studio made of ex-Call of Duty developers and ex-Disney artists
    Founder: James Chung
    SDK
    Description: VR for industrial training
    Founders: Shaun Wilson, Christian Yves Fongang
    Based in: South Africa
    Solirax
    Description: education platform for exploration, discovery and creativity
    Founders: Tomas Mariancik and Karel Hulec
     
    Thotwise
    Description: indie game studio focusing on exploration and suspense
    Founder: Ariel Arias
    Based in: Argentina
    Website: thehumgame.com
    Triggar
    Description: 360-degree capture camera and system
    Founders: Bruce Allan and Rob Allan
    Based in: Australia
    Vantage VR
    Description: 180 degree viewing experience for concerts and live events
    Tag line: Ticketmaster for VR events
    Founders: Juan Santillan, Michael Richardson
    Website: vantage.tv
     

    Connie

    , ,
    , , ,

  • Pushbullet, Beloved by Users, Shoots for Fresh Funding

    Ryan OldenburgPushbullet, a San Francisco-based, six-person software startup whose free app makes it easy for users move notifications, links, and files between devices, is announcing $1.5 million in seed funding from General Catalyst Partners, SV Angel, Alexis Ohanian, Garry Tan, Paul Buchheit, and other angel investors.

    It’s in the market again, too. As is often the case with today’s startups, Pushbullet is announcing a round that came together some time ago – 10 months ago in this case – as a way to kind of raise its flag. Says founder Ryan Oldenburg, a former Android developer at Hipmunk who formed Pushbullet with several former Hipmunk colleagues: “We don’t need a giant round to power a sales force – just a standard Series A. Everyone here has two jobs and I’d like to start making that not be the case anymore.”

    VCs could certainly do worse. Since launching in 2013, Pushbullet says it has distributed “tens of millions” of notifications and transferred hundreds of thousands of links, files, and text snippets across users’ various devices, garnering rave reviews from CNet, Wired, and LifeHacker in the process. Just this morning, GigaOm described it as “one of those rare apps where, once you start using it, you’ll likely begin wondering how you lived without it for so long.”

    Now, it’s a matter of raising user awareness, preferably before Apple and Google find other ways to better tie together their operating systems across devices. (With Pushbullet ranked far below the most downloaded productivity apps, according to both App Annie and Android Rank, the race is on.)

    We talked with Oldenburg about the company last week.

    What compelled you to start Pushbullet?

    It started about a year-and-a-half ago. I had a smart phone, but as a programmer, I spent a lot of time working on computers, which traditionally didn’t work with smart phones, nor did anyone think they should. As a result, people were doing odd things, like emailing themselves to get their files on their phone. A world where people have both smart phones and tablets is great, but nobody had been acknowledging the opportunity to make it much better.

    How did you know you’d struck on something?

    It was just a side project, but it had an unexpectedly awesome reception. The first 15,000 [users] signed up within a couple of weeks without any PR. I just submitted it to Reddit and it struck a nerve.

    You then headed to Y Combinator. What did the program do for you?

    Y Combinator has a way of making you feel not good enough and like you have to work 10 times harder – which isn’t a bad thing. If you’re the right person [to lead a startup], it makes you want to do what it takes to grow beyond tens of thousands of users to tens of millions. It got us to think much bigger.

    How much bigger? Will we see an enterprise version of Pushbullet?

    At this point, we’re focused on building it for consumers. But as we get later stage, this [technology] is definitely something that will fit into enterprises and [where we’ll probably get the most financial support]. Dropbox [straddles] both worlds, too, and that model works for us.

    Connie

    ,
    , , , , , ,

  • AngelPad Elbows 13 Young Startups Into the World

    AngelPad Demo DayThe demo days of five-year-old AngelPad — an accelerator program run by married founders Thomas Korte and Carine Magescas – have become a hot ticket both in New York and San Francisco. Yesterday afternoon was no different. In downtown San Francisco, in a crowded co-working office space, 13 companies that had been groomed over the preceding four months pitched select investors, and they appeared to like what they heard.

    No doubt the investors were expecting big things. AngelPad works with two batches of roughly 12 companies twice a year – one on each coast—and nearly all of them have snagged seed funding from investors, with a handful of startups going on to raise tens of millions of dollars, including Vungle, Crittercism, and Postmates.

    AngelPad — which takes a 7 percent stake in each startup in exchange for $50,000 (plus another $4,000 per founder) — has even come close to a billion-dollar exit in MoPub, a mobile advertising startup that Twitter acquired for $350 million in stock in September 2013; the company was worth roughly $800 million when Twitter went public two months later.

    Whether AngelPad’s newest batch — its eighth — will prove as promising remains to be seen. But at least a handful of companies looked like strong contenders for follow-on funding.

    One of our favorites, for example, was CstorePro, a SaaS application that promises to help convenience store owners more easily track their sundry, disparate products, as well as assist them in buying what they need, in the right amounts, from the cheapest wholesalers.

    The company isn’t alone in the space. StoreTender and Retalix are just two other vendors trying to help owners streamline their store operations. The world of convenience stores is also highly fractured — which could be a challenge or an opportunity, depending on your vantage point. According to the research group IBISWorld, roughly 68.2 percent of convenience-store operators employ less than five people. Still, there’s a giant market to pursue here. According to IBIS, as of 2012, the U.S. convenience store and truck stop industry included about 120,000 stores with combined annual revenue of about $355 billion.

    A second company that piqued our interest is Allay, an easy-to-use online HR and benefits platform for the country’s 500,000 insurance brokers — many of whom are getting knocked around by the fast-growing health insurance broker Zenefits. Given those brokers stand to lose $32.5 billion in yearly commissions, you can bet there’s a big opportunity in helping them figure out a better way to pair buyers and sellers of health care, and quickly.

    We also really liked HelloSponsor, an online platform that helps brand advertisers find, buy, and track sponsorships at scale. Roughly $3 billion is spent yearly on consumer events, and anyone who has tried to raise money for one can tell you that it’s a pain in the neck. The big question is whether sponsors will be as eager to scour opportunities on the platform – including by industry and geography – as event organizers will be eager to be found.

    Of course, you’re the investors! If you’d like to form your own opinions about the startups that presented yesterday, you can find the full list on a tear sheet here. AngelPad has also made it simple to meet with any or all of them. Just click here.

    Connie

    ,
    , , , , , , , , ,

  • Distelli Skips the Seed Round to Land a Powerful Board Member

    Rahul SinghIn recent years, there’s been no shortage of chatter about seed funding, from the alleged benefits of seed rounds to their ballooning size. (Clinkle, anyone?)

    Distelli, a two-year-old infrastructure automation company that simplifies code deployment and server management for developers, decided to skip past it all to raise $2.8 million in Series A funding led by Andreessen Horowitz, a round that sees general partner Scott Weiss joining Distelli’s board.

    The decision makes sense given the broader context. Distelli was founded by Rahul Singh, the fourth engineer on the Amazon Web Services team. He spent nine years building the platform services and infrastructure that powers the cloud computing platform, and he’s accustomed to finding ways to move things forward as quickly as possible.

    In fact, Singh — who says Amazon’s developers push out new code every 11 seconds – not only credits Amazon’s growth with its own “move fast” culture, but he says Amazon inspired him to make it easy for any developer to iterate just as quickly. Toward that end, Distelli enables engineers to communicate with every server in their environment to learn what’s running on each of them, as well as update their code or roll it back, and track every change in the process.

    It isn’t a brand-new concept. Distelli, which is based in Seattle and employs six people (including two other former Amazon engineers), is going up against a number of competitors. Among them are Chef, a company that allows its users to automate how they build, deploy, and manage their infrastructure, and Puppet Labs, which also develops IT automation software. Both have raised many tens of millions of dollars in venture capital, too.

    Singh argues that Distelli has a much bigger vision than other startups and that Distelli’s biggest competition at the moment are the many software teams still building their own infrastructure automation systems internally.

    Still, says Singh, it was important to have someone like Weiss – who cofounded the email security company IronPort Systems back in 2001 – in Distelli’s camp as soon as possible.

    Indeed, skipping over seed funding had “little to do with equity and valuation,” he explains. “The real significance of doing an A round was that angel rounds often don’t include board seats and I want a great partner to execute because the opportunity is so huge.”

    As for the size of the round, which is modest by recent standards, Singh observes that “just as raising too little can be a problem, raising too much can be a problem, too. I wanted to ensure we raised enough money to reach our next set of goals and to achieve what we want in the next 18 months — without getting complacent.”

    Connie

    ,
    , ,

  • Fast Chat with the Inimitable Howard Lindzon

    Howard LindzonBy Semil Shah

    Howard Lindzon is an active guy, and that’s just how he likes it. A serial entrepreneur, Lindzon is best known for creating two companies: WallStrip, an online video show that took a satirical approach to financial news and was acquired by CBS in 2007, and StockTwits, a venture-backed social network for traders and investors. But Lindzon is a very active investor, too, with dozens of angel investments to his name, including Buddy Media (acquired for nearly $700 million by Salesforce in 2012) and LifeLock (which staged a successful public offering).

    Lindzon is also the cofounder of Social Leverage, a seed-stage investment fund that typically invests between $100,000 and $500,000 in companies. Among its investments is Kensho Technologies, whose data crunching software attracted funding from Goldman Sachs in November; ApplePie Capital, an online loan business focused on franchise funding (StrictlyVC profiled it here); and Robinhood, a new brokerage firm whose lets customers trade stocks without paying commission.

    To learn more about Robinhood — and get Lindzon’s take on some other things — we chatted with him recently.

    People love the idea of commission-free stock trades. Where does Robinhood go from here? How does it unseat established competitors?

    [Founders] Baiju [Bhatt] and Vlad [Tenev] are super smart. They have just enough experience to attack the millennial market and not so much that they are scared of the industry walls. First, they had a great launch. I can’t imagine the complications of launching an app that has to work almost perfectly because the company is regulated and trying to establish the trust of its customers, whose money is moving through its system. They also had to keep their heads down and go through the long process of dealing with the SEC and FINRA and audits. But they’re fearless with respect to the past and dealing with hard problems.

    The way they win in my opinion is by disrupting customer acquisition. Ameritrade and Etrade are public companies. Go look up what they spend a year on marketing. It’s insane. I also think it’s much easier for Robinhood to get into some form of “robo-advising” later on [meaning providing portfolio management online with minimal human intervention] than the other way around.

    Many in the industry still associate you with Stocktwits and with angel investing. Fewer know about Social Leverage.

    I started Social Leverage with Tom Peterson, who has been my pal and partner since graduate school at ASU. Originally, back in 2008, we started a holding company inspired by Betaworks that would invest in and operate startups, but we learned that we’re best-suited for just investing, using social leverage as a means for accelerating startups.

    Right now, we’re raising our second fund and Gary Benitt has just joined as a GP. In 2010, we invested in Gary’s startup, [a maker of customer-service help desk applications called] Assistly, which was acquired [in 2011] by Salesforce [for $50 million in cash]. Gary just left Salesforce, and we’re thrilled to have his experience and passion for entrepreneurs and startups. He’s also in San Francisco, which is great.

    Which raises another point: You live in San Diego and still manage to invest in great new companies. How? Aren’t most of these deals syndicated based on proximity?

    Before San Diego, I lived in Phoenix for 20 years. I was the only in my peer group who was not doing real estate deals. Around 2004, an Apple Store opened across the street from my office, and the world I lived in — hedge fund, trading, with Windows and a Bloomberg [terminal] — changed. I just quit cold turkey, believing that the financial world would just go web and browser.

    The trend away from the terminal and Windows in the financial world is five years behind the rest of the disruption – still. But with that switch, I started thinking differently about the world; I started thinking longer term about bigger trends. In 2006, I met the founders of Golfnow.com in Phoenix – they were the OpenTable for tee times – and I went pretty much all in. Comcast acquired them a few years later. I also met the founders of Lifelock, a Tempe [Arizona] company and again invested and wow, did they deliver. Long story short, it doesn’t matter where you live.

    You’ve written about Silicon Valley’s insularity. If you could point to one thing the Bay Area is getting wrong right now, what would that be and why?

    The Bay is doing very little wrong. The area is being swept up in the biggest boom of all time, so the only thing they might be getting wrong is diversification. Phoenix went on a long real estate boom from 1991 to 2008. That did not end well.

    Semil Shah is a guest contributor to StrictlyVC. Shah is currently working as a venture advisor to two funds, Bullpen Capital (which focuses on post-seed rounds) and GGV Capital (a cross-border U.S.-Asia fund).

    Connie

    ,
    , ,

  • CircleUp Carves Out a Niche, as the AngelList of Private Equity

    Rory-Eakin-CircleUpCircleUp isn’t a household name. But the three-year-old, San Francisco-based crowdfunding site has become well-known to consumer and retail companies that are too small to interest private equity firms yet growing too fast for a bank loan. So far, 70 businesses with yearly revenue of between $1 million and $10 million have raised an average of $1 million from CircleUp investors, all of whom are “accredited,” and who, on average, write checks in the neighborhood of $30,000.

    Many of those backers — and there are more than 10,000 of them — are high-net-worth entrepreneurs or executives who’ve been in or around the consumer space, says CircleUp cofounder Rory Eakin. But the next largest group isn’t wealthy dentists looking to play venture capitalist, he says. It’s financial services pros. “We’re seeing hedge fund [investors], VCs, and other investment professionals who like making direct investments without the typical fund structure,” he says. “More family offices and [registered investment advisors] are coming on to the platform, too.”

    It’s a little like AngelList — though less risky, suggests Eakin, citing Kauffman Foundation findings that smaller consumer and retail product companies return 3.5x within four-and-a-half years on average. Eakin, whose company now employs 40 people, told us more last week in a conversation that’s been edited for length.

    You work with companies with at least $1 million in revenue. Why is that threshold meaningful?

    It means these companies have an established product in the market, with suppliers, distribution and customers — data [that] can help put CircleUp’s investors in a position to succeed.

    The companies offer investors equity in return for their capital. How much, typically?

    A company typically sells 10 to 30 percent in a round on CircleUp. Investors can own all or a portion of that amount based on how much they invest.

    How do you assess the companies that are applying for funding on your platform?

    We [pore over] proprietary data about the more than 6,000 companies that have applied, as well as look at third party data, to score a company on how it has performed relative to its category. For example, if your natural shampoo is growing at 100 percent a year, that’s interesting, but if the category is growing at 200 percent per year, you’re losing market share.

    If more than 6,000 companies have applied for funding on the platform, yet 70 have completed a round, you must be turning away most applicants. Why?

    We’ll pass for two or three reasons. The first is valuation. Consumer goods tend to be valued off revenue multiples, so it’s a cleaner metric than you see in tech, and it gives us [information] to pass on to companies that aren’t priced appropriately based on risk. We also look at the experience and background of the management team, as well as the brand itself. Assessing the latter is more art than science, but we’re doing things with data now that helps us screen for it more efficiently.

    Are you actively seeking out companies or is your deal flow mostly inbound?

    A lot of great companies apply, but we’ve also done a lot of work to expand our partnerships. We get a lot of companies from PE firms with nowhere to send smaller companies. We’re also networking actively with bankers, brokers, and lawyers to ensure that we have quality companies.

    We’ve also announced partnerships with General Mills, Proctor & Gamble, and Johnson & Johnson that are designed to help companies thrive after they raise money.

    How so?

    Largely, they meet with founders in an informal mentorship program where they talk about distribution and key functions of helping companies scale. It’s a win-win, because these strategics get to see what’s happening in the early stage of the market and they get exposure to these new products, while the [smaller] companies form relationships with [these potential investors, who might also acquire them].

    CircleUp is a broker-dealer, meaning you accept a commission for facilitating the transactions on your platform. Do you share publicly what that percentage is?

    It’s a small amount that’s competitively priced.

    What about fundraising? CircleUp announced its last round nearly a year ago. Are you talking with investors again?

    A [new round] isn’t on the roadmap. Our focus right now is on continuing to see opportunities and to reduce friction in the market. We knew the market wasn’t functioning as well as it could, but we didn’t appreciate just how painful things had been for these companies and investors.

    Sign up for our morning missive, StrictlyVC, featuring all the venture-related news you need to start you day.

    Connie

    , ,
    , , , , ,

  • App Annie Rakes in $55 Million as It Races Away from the Pack

    App-AnnieAccording to Comscore, activity on smartphones and tablets now absorbs 60 percent of our digital media time, driven predominately by apps. Yet, for the most part, anyone hungry to know how — and how often — those apps are used has been left in the dark.

    Onavo, an app analytics company, was widely seen as providing better insights into app usage than most analytics startups. But when it was acquired by Facebook last year, its insights were moved behind a curtain.

    Now, App Annie, the five-year-old, San Francisco-based mobile analytics company, says it has developed everything Onavo featured and much more.

    To an extent, it’s following Onavo’s playbook.

    Onavo’s mobile measurement product evolved out of a couple of applications designed to do something very different – help users reduce their expensive data consumption. Once the company gathered enough user data, it shifted gears, turning itself into a market intelligence product.

    Similarly, App Annie is rolling out a tool today called Usage Intelligence that provides customers with detailed analytics about individual app usage and engagement – information that largely comes from its free, five-month-old VPN Defender app, which offers encrypted and secure access to a user’s favorite sites and apps.

    Conveniently, VPN Defender also gives App Annie a window into its users’ app usage.

    The development is a big deal for app developers and investors who’ve been unable to accurately gauge how apps fare on the open market, as well as how people use them after they’ve been downloaded.

    It’s a huge boon, too, for App Annie, which makes money by selling yearly contracts for its analytics and says its broader tool sets are already being used by most top mobile app developers, giving it insights into 675,000 apps as a result.

    The company — whose average contract is $80,000 per year — isn’t yet profitable, says cofounder and CEO Bertrand Schmitt. “I’d be sad if we were,” he says. “It would mean we don’t know where to invest next.”

    App Annie is clearly an IPO candidate, though. In fact, the 300-person company has just raised $55 million in Series D funding led by Institutional Venture Partners, a late-stage investment firm that just saw its 101st portfolio company go public in December. “Among the reasons we chose to work with IVP was their extensive experience with IPOs,” says Schmitt, who says an offering isn’t in the cards for 2015 but suggests it’s not too far off either.

    In the meantime, App Annie — which has now raised $94 million altogether — remains focused on growing its business as fast and as wide as possible. The company already has 10 offices around the world. And it expects its headcount to reach 450 by year end as it pursues several new markets more aggressively, including India and South America.

    Schmitt says App Annie intends to create more of a social network around the business that makes it easier for developers to share and collaborate on App Annie.

    Unsurprisingly, the company also plans to release many more apps like VPN Defender from which it can continue to wring valuable and lucrative insights for its customers — and break further away from competitors in the process.

    “If we keep improving as we have done, how do you fight?” says Schmitt. “There’s no other company with the same ability to execute.”

    Connie

    , , , , ,

  • Tyler Winklevoss on the Positive Impact of “The Social Network”

    Tyler+Winklevoss+iD3xax1Fdzpm (1)By Semil Shah

    Cameron and Tyler Winklevoss, the twins who remain best known for their legal fight with Facebook CEO Mark Zuckerberg — and the ensuing depiction of that battle in “The Social Network” — have moved on from those days. Still, speaking for both men, Tyler Winklevoss recently agreed to share some thoughts about life in the public spotlight and how it has impacted the brothers.

    Many people in tech and startups know your name but may have an impression of you based on movies and press stories. What’s one thing you wish people knew about you that you feel is misunderstood?

    I think most people in tech and startups today actually know us through the investments we’ve made, the projects we’re working on, or their own first-hand experience in meeting or working with us. Over the past two years we’ve met with hundreds of entrepreneurs, attended many demo days, and keynoted at TechCrunch Disrupt, the Bitcoin 2013 Conference, and Money20/20, to name a few. We’ve co-invested with many top valley investors, built what we believe to be a strong portfolio, and have worked very hard to bring value beyond capital to entrepreneurs we’ve partnered with. Chances are, if you are a part of the tech ecosystem in either Silicon Valley, Los Angeles or New York, you know us or know someone who really does knows us, and this informs your impression of us, not a Hollywood movie.

    That being said, “The Social Network” was a fantastic film and it was a lot of fun to watch its success. It was certainly an interesting time back then, but we never got too caught up in it. We couldn’t. Our focus was on training for the Olympics. Today, we’ve traded athletics for Bitcoin and angel investing. The fact that we were portrayed in a film that won some Oscars and almost won for Best Picture is a cool piece of history, but it’s not really relevant to our daily lives. I feel the same way about graduating from Harvard and Oxford and competing in the Olympic Games. I’m proud of these accomplishments, but I don’t spend a lot of time thinking about them. They’re in the past and just not directly related to what I’m trying to accomplish these days.

    As for what the crowd understands or misunderstands, your guess is as good as mine. At the end of the day, impressions drawn from a movie or a movie portrayal, either right or wrong, live in a parallel universe of pop-culture. This is not a universe that I live in so I don’t spend much time analyzing it.

    What was your largest takeaway from the whole experience?

    My largest takeaway is just how powerful films can be. When we graduated from Harvard in 2004, computer science was the least popular major. When we went back to Harvard to speak to students in 2012, computer science was the tied for the most popular major on campus and it seemed like every student was involved in some sort of startup or had plans to be down the road. “The Social Network” has driven a lot of this cultural interest and shift towards technology and entrepreneurship and has had a profoundly positive impact on young people around the world. I’m very happy for this.

    As you grow as investors, do you see yourselves moving into traditional VC, or being more entrepreneurial and taking investing in a new direction?

    Right now, we’re really enjoying the freedom and agility that comes with running our own book, and this freedom has turned out to be a great asset so far. If we were operating a traditional VC fund, there’s a good chance we never would have been able to buy Bitcoin back in 2012, because Bitcoin is not a C-corp, and VC funds are, by and large, restricted to investing in corporations. I can only imagine what the conversations might have been like trying to explain what Bitcoin was to our LPs, let alone defend a direct investment in the asset itself. Being a fiduciary to outside parties also makes it a lot more complicated to put on the entrepreneur hat, which we have done with the Bitcoin ETF and the WinkDex bitcoin price index.

    Bitcoin aside, we’ve been able to place bets in a wide-range of sectors that I think has been crucial to our overall learning. While focus is important, there’s a lot of promising deals in our portfolio that wouldn’t be living side-by-side if we had a stricter mandate.

    Have you totally ruled out a traditional venture fund?

    We haven’t, but we’ve never really been traditional guys in that sense, and traditions don’t necessarily last forever. I do believe that venture crowdfunding will replace a significant portion of the venture capital stack in the future. This just has to be the case. Right now we see the majority of syndicate activity at the seed level, but it’s conceivable that later rounds could be filled out by syndicates down the road. By increasing liquidity, access and flexibility on both sides of the ledger, the crowdfunding model has the potential to greatly improve the power of the venture capital marketplace.

    We’re more interested in exploring this new path before walking down the existing one.

    Semil Shah is a guest contributor to StrictlyVC. Shah is currently working as a venture advisor to two funds, Bullpen Capital (which focuses on post-seed rounds) and GGV Capital (a cross-border U.S.-Asia fund).

    Connie

    ,
    , , , ,

  • Investing the Winklevoss Way

    Nautica Men's - Front Row - Fall 2013 Mercedes-Benz Fashion WeekBy Semil Shah

    Cameron and Tyler Winklevoss, the 6-foot-five-inch, Olympic-rowing twins who remain best known for their legal battles with Facebook CEO Mark Zuckerberg, could have taken the money they were eventually awarded in the case (a reported $65 million shared with partner Divya Narendra) and hit the beach. They decided to become full-time investors instead. In fact, since 2013, they’ve been assembling startup stakes across numerous industries. The brothers, who live both in L.A. and New York, have grown especially bullish on Bitcoin, creating among the single largest portfolios of the digital currency. To better understand why they’re so convinced that Bitcoin is here to stay — despite a rough 2014 — we asked Tyler to explain their thinking.

    You are both well-known for a variety of things now. Briefly catch us up on all of your activities. What are you both focused on for 2015?

    Sure. Over the last two years, Cameron and I have been focused on building Winklevoss Capital. Prior to this, we were elite athletes for close to 15 years. After retiring in 2012, we decided we wanted to get back into the startup game and investing seemed like a natural entry point. For the past two-plus years we been spending a lot of time building a strong network of fellow investors and promising entrepreneurs. We’ve been fine-tuning our filters to what we like and don’t like, and developing our overall investment thesis. Most importantly, we’ve been investing a lot. Ourportfolio now comprises more than 40 companies and is growing by the day.

    Our main focus for the coming year will be in Bitcoin and growing our overall angel portfolio. In the Bitcoin world, we will continue or joint role as both investors and entrepreneurs. We believe there will be some great opportunities in the infrastructure company layer, as well as some promising application layer startups. We will be working on the Bitcoin ETF and improving the WinkDex, the Bitcoin price index we launched in February, which will be used to price the Bitcoin ETF.

    In the non-Bitcoin world, we will continue to place bets on strong entrepreneurs. We’ve found a lot of great teams attacking compelling problems in the logistics, human operations, smart home, consumer packaged goods and security spaces. We’ll keep our ears to the ground in those spheres but also be on the lookout for other secular trends that start to emerge.

    You’re both active on AngelList. How do you plan to use your own fund and AngelList to your advantage? Are you thinking of angles beyond just crowd-based syndication?

    AngelList has been instrumental to our overall investing. We’ve found great investments on the platform and the platform has made it really easy to diligence companies. Being able to message a founder directly or see a company’s existing investors and reach out to them makes the research process much more efficient. When the opportunity to invest directly in AngelList presented itself, the decision was a quick and easy “yes.”

    We recently launched the Winklevoss Capital Syndicate on AngelList and have already begun syndicating our first deal. We think the crowdfunding venture model has a lot of merit and we have been devoting significant time and effort towards getting behind it. When possible, our plan is to syndicate the deals that are appropriate and give accredited investors access to these deals. Our current portfolio demonstrates the types of deals we do, and investors who back our syndicate ahead of time will get priority. It’s important to note that backing does not obligate an investors to invest in any of our deals.

    I still think there is ample room to improve crowd-based syndication before focusing on other alternatives. Currently, closing takes days waiting on every wire and ACH transfer to hit. Incorporating Bitcoin into the AngelList platform for instance, would allow settlement to happen immediately. In addition, there is a lot of territory to be explored with regard to smart contracts in this context. Investors could invest contingent on certain fundraising targets being met, and the real-time balance of a syndicate would be completely transparent if it lived on the blockchain. Investors worried about momentum could instead invest immediately, knowing that if certain goals weren’t met, their money would be sent back. This particular example could help mitigate a chicken-and-egg funding dilemma and tip some startups into getting funded that otherwise wouldn’t.

    But the possibilities don’t end there. Any conceivable investment term could be baked into a syndicate smart contract and be triggered when certain milestones were met. Pro-rata pre-emptive rights, super pro-rata pre-emptive rights, sliding scale discount rates, information rights, etc., could be hard-wired, all the way to the election of a board member by vote of the syndicate investors. It is going to be fascinating to see this play out.

    You’re both big Bitcoin believers, but 2014 was a tougher year. As early-stage investors and with only a few larger firms investing (or conflicted out), how do you help your seeded companies thrive during a time where the area isn’t as hot as it was in 2013?

    2014 had its own set of challenges for Bitcoin, but as the saying goes, what doesn’t kill you makes you stronger. I think Bitcoin will finish the year more robust than ever. I say this taking into account a lot of metrics beyond just a surface measure of price. Price is just one indicator of strength, and there is evidence to show that the price highs at of the end of last year were more noise than signal (as a result of Mt. Gox trading bot manipulation), and should not be used as a benchmark. A more complete measure of strength should include the number of 10xers and tier-one venture capitalists who have moved into the space. It should also include growth in the number of Bitcoin startups, the amount of accelerators, incubators and hackathons that are Bitcoin-focused, and the sheer lines of Bitcoin-related code that have been written. All of these numbers have grown dramatically this year.

    Bitcoin may have lost some of its novelty buzz, but today it lives in meaningful business and technology headlines more than ever. Let’s not forget that less than a year ago the majority of media stories were busy lampooning Bitcoin as a ponzi scheme and/or a safe haven for money laundering that was on the brink of being outlawed. Now, serious Bitcoin news and developments are reported by the minute in the most respected and well-read publications and blogs around the world. If some of the frenzy has ceded to a calmer, more earnest narrative, then I think that is a positive development.

    The growth curve of venture capital Bitcoin investments over the last few years has been steep and up and to the right. Provided that there isn’t a major economic downturn, I believe the venture capital money flowing into the space will be plenty to fuel continued growth. Some have brought up a potential funding gap with respect to core development. I think that is a more relevant concern, but again, there are a lot of projects and non-profits tackling this.

    This year, both federal and state lawmakers have time and again decided not to outlaw Bitcoin but rather embrace it as an extremely transformative and monumental technology. This sets the stage for some great possibilities for this year and beyond.

    Sign up for our morning missive, StrictlyVC, featuring all the venture-related news you need to start you day.

    Connie

    ,
    , ,

  • The Partovi Brothers Keep It In the Family

    Ali Partovi and his twin brother HadiNationally, the Partovi twins don’t have the same name recognition as another pair of high-powered twins who will soon be appearing in StrictlyVC. But in the Bay Area, the 41-year-olds’ involvement in a startup – as both operators and investors – is a powerful signal that a company is probably on to something big.

    Ali Partovi was on the founding team of the Internet ad company LinkExchange, acquired by Microsoft in 1998 for $265 million; Hadi Partovi was on the founding team of the speech recognition company TellMe Networks, also acquired by Microsoft, for $800 million in 2007. The brothers have also been early investors in Zappos, Facebook, Airbnb and Dropbox, among others, and they’ve cofounded two organizations together: iLike, a social music service that sold to MySpace for a reported $20 million in 2009, and Code.org, a two-year-old nonprofit that’s making computer science available in more schools. (This reporters’ sons have participated in its one-hour introduction to computer science, along with more than 75 million other people.)

    StrictlyVC recently talked with the twins to learn more about their relationship, what’s most interesting to them right now from an investing standpoint, and what they make of the broader market. Our chat has been edited for length.

    Hadi, you live in Seattle, while Ali lives in the Bay Area. How long have you lived in different cities, and how often do you see one another?

    HP: I’ve been up in Seattle since 2002, but we see each other every few months.

    You’ve been investing together for many years. How full-time is that pursuit? How involved are you in Code.org?

    HP: Code.org now has 40 employees; it’s pretty all-consuming. We’re still investing as angels, though as a side job, which is when we’ve been best at investing. Because we don’t have enough time, we reject almost everything. But being picky makes us more selective. Of the 30 to 40 investments we’ve made, only two or three have been failures, and we’ve had 13 or 14 exits.

    How many companies did you back in 2014?

    AP: We made only four new investments. Over the past five years, we’ve averaged only four new investments per year. If anything, I’d be happy with even fewer. Our annualized IRR as investors has been 44 percent, not including Dropbox, Airbnb, Indiegogo, and others [that haven’t exited yet].

    How does a startup win you over?

    HP: We like companies that are making a social impact – not a charity but companies that have a vision that the world should be different and better. Snapchat, for example, is a really high-value business, but it’s unclear that its mission is making the world a better place. We also like tech that’s disrupting the physical world.

    But the quality of the people involved is what’s most important. We’re probably the only investors out there who will run a tech team through a tech interview as if they wanted to get a job at Google or Facebook. After all, why would an investor give tons of money to someone who couldn’t possibly get a job at [one of those two companies?]

    Have you missed out on deals because of that hurdle?

    HP: Some, though if we miss them, it’s not a big deal. We can afford to be choosy. Also, I think entrepreneurs recognize that our investment means a lot and that they can tell other people, including other VCs, who know about our interview process.

    What size checks do you write and what do you expect for your money?

    HP: Check sizes range from $100,000 to $250,000 typically, and the size of the stake completely depends on whether something is earlier or late. I think the biggest check we’ve written was $2 million for [the still-private, cloud-based electronic medical records company] Practice Fusion, which we think is incredibly promising.

    Would you make an investment without your brother’s blessing?

    HP: Yes, though we’ve made better investments when it’s unanimous. Ali has a passion for food-related investments, but almost all the rest have been joint investments.

    You were both investors in the food tech company Hampton Creek, correct? Did you participate in its $90 million Series C round, announced last month? Ali, you even joined, then quickly left, the company as its chief strategy officer. Are you and Hadi still investors in the company or have you sold your stake to other investors?

    HP: We did not participate in Hampton Creek’s newest round.

    AP: We are still holding our shares in Hampton Creek. Hadi and I’ve actually co-invested equally on most of my food and agriculture investments, including the biggest ones: Hampton Creek, BrightFarms, and Farmland. This is an area I’m very passionate about. I see enormous opportunity to make agriculture not only better for the world but also more efficient. [But] it’s important to temper passion with skepticism, and this is why Hadi and I make a good team. One of us always plays devil’s advocate. I rarely invest in anything if I can’t convince my identical twin brother to do so, too, and vice versa.

    Have either of you ever failed miserably at something?

    HP: I’d consider our last startup [iLike] a flop. Getting acquired isn’t bad, but getting acquired by MySpace, which was clearly on its way out of the history books, is. iLike had a meteoric rise but also a meteoric fall. We made a bet on the earlier version of Facebook’s platform, which enabled us to quickly grow to 16 million users. Then Facebook changed the rules of platform. iLike was one of many companies that built a user base on Facebook, then realized that user base wasn’t going to last.

    AP: I agree. I [also] think there’s still a big opportunity in music discovery. While iTunes and Spotify have replaced the retail music store, nothing has emerged that truly replaces radio and MTV as a medium for discovering new music, learning about new releases and upcoming concerts, and creating a sense of community around shared music tastes.

    Where else do you see opportunity, heading into 2015?

    HP: We’re almost entirely consumer facing with a few exceptions. The one deep technology thing we’ve backed is Nervana [a San Diego-based company designing chips, hardware and software to speed a computer’s ability to learn over time]. There’s a whole lot that people don’t imagine that computers are capable of but that you’ll see in the next five years. It’s still in the R&D stage, but we think it’ll be a breakthrough architecture.

    There are also a lot of untapped ideas and spaces if you think about changing the physical world and the many things that could be done better with computing and technology. For example, we think 3D printing will come online in a real way in the next few years, moving more from printing collectibles into furniture and artificial limbs that are the exact size needed.

    People also talk a lot about self-driving cars, but we think you’ll see self-driving ships even sooner. A lot of time and money is spent putting big boxes on ships, including the people [required to staff them]. But unlike self-driving cars, which can seem scary – there are a lot of people on roads – the most dangerous thing about a ship is the people on board, who could drown. As long as you don’t puncture a ship, the worst thing that could happen is that it will stop.

    Photo by Susan Tripp Pollard/Bay Area News Group

     

    Connie

    , , , , , ,

StrictlyVC on Twitter