• VC Patrick Gallagher on Where CrunchFund is Shopping Now

    192000v2-max-450x450By Semil Shah

    When college friends Patrick Gallagher and Michael Arrington came together in 2011 to start CrunchFund, Arrington — who’d founded the media property TechCrunch in 2005 — brought contacts, startup smarts, and a talent for drumming up attention to the table. Gallagher brought his own sizable network and institutional investing know-how, having been a partner with VantagePoint Ventures and, before that, an investor at Morgan Stanley Venture Partners.

    The mix appears to work. The pair have funded hundreds of companies to date, including Uber and Airbnb. They’re also investing a second fund that closed earlier this year, having reportedly closed on about $30 million, or roughly the amount of their debut fund.

    This week, I asked Gallagher about that second fund via email. We also talked about Arrington, who made Seattle his primary residence back in 2010, a year before he sold TechCrunch to AOL. Our conversation follows:

    When most people think of “CrunchFund,” they think of Mike Arrington. How often is Mike in the Valley these days, and how have you observed him change as he transitioned from a writer and blogger to a full-time investor?

    These days, Mike spends at least half his time in the Valley, where around 70 percent of our investments are.

    When we started CrunchFund, one of the things that really resonated with Mike was the ability to meet with and interact with entrepreneurs at the earliest stages of a company’s life. Those were the types of companies he initially wrote about when he started TechCrunch and what he enjoys the most. Mike has always had a good sense for consumer start-ups but when you’re writing about a company, the opportunity cost is primarily your time to write the article. When you make an investment, the opportunity cost is much higher in terms of dollars and time. The biggest change I’ve seen in Mike since he became a full-time investor is his investment evaluation process. He now spends significantly more time trying out products and getting to know the company founders before he’s ready to sponsor an investment.

    CrunchFund’s smaller bet in Uber’s [$37 million, December 2011] Series B round is now of epic status. Walk us through how that deal came together. Was the partnership divided about making such an investment as a seed firm?

    CrunchFund is primarily a seed and early stage fund, but we allocate up to 20 percent of our fund for later-stage investments in companies we think can still generate venture level returns, and these have included Uber, Airbnb, Square, Skybox Imaging, Bluefly, Redfin, and a few others.

    Mike had written about Uber when it had first launched and had been friends with the company’s CEO, Travis [Kalanick], since 2006. We were both loyal users of the service, and when we found out that the company was raising its Series B, we asked if we could invest a small amount, and they graciously gave us an allocation.

    Tell readers more about what you focus on as an investor, including the B2B side and infrastructure side. I think founders want to know more about CrunchFund’s appetite for startups.

    I started my career in the venture business in 1997 at Morgan Stanley Venture Partners. We were the venture arm of this massive financial services firm that spent over $1 billion on IT, so I’ve spent most of my career investing in enterprise-facing companies and I spend the majority of my time focused on them at CrunchFund. About 40 percent of our investments are enterprise-facing companies, including Digital Ocean, Mesosphere, Branding Brand, Abacus Labs, Feed.fm, Rocketrip, Layer and many others. I see a ton of innovation in the enterprise, from the infrastructure inside the datacenter to the software people are using to manage their businesses day to day.

    I’m also a big believer in companies that sell to [small and mid-size businesses]. I was on the board of Constant Contact through its IPO and have seen firsthand that you can build a large business selling to this segment.

    For enterprise infrastructure deals, which don’t feature as many “party” rounds as do consumer deals, how does a smaller fund like CrunchFund make a dent when all the big firms want to max their ownership?

    CrunchFund typically invests $100,000 to $250,000 as an initial investment, and we normally don’t lead deals, so it’s pretty easy for us to fit into most rounds. We’re additive to any investor syndicate, and we focus on providing specific help with media and PR positioning and
    and introductions for larger follow-on rounds of financing through our network. We also open up our networks for things like business development, recruiting, and customer introductions. For us, because our fund size is still relatively small, investments in this range are meaningful.

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    Connie

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  • Erin Glenn, Alphaworks’s New CEO, on Waiting for the SEC

    Erin-GlennAny new CEO has a lot to contend with, like getting to know employees and clarifying the business’s strategy. Erin Glenn, who recently joined the New York-based crowdfunding platform Alphaworks, has to worry about something else, too: the SEC.

    Launched by Betaworks in February of this year, Alphaworks is a white label platform that obtains stakes in companies via seven venture “sponsors” that leave open between $100,000 and $250,000 of certain startups’ rounds. The companies then sell the equity directly to their own “communities,” in turn making those customers even more loyal.

    Glenn — who spent the previous four years as CFO of the gaming company Kixeye — sees a day when the model is used across numerous industries, though Alphaworks’s clients so far have been consumer-facing Internet companies with impassioned members.

    Gimlet Media, a New York-based podcasting company, is a prime example. Earlier this fall, when the company was looking to top off roughly $1 million in venture funding, it agreed to crowdsource some of the round to its listeners. Alphaworks’s nine employees sprang into action, posting a deal page for Gimlet, reformatting its pitch deck, helping gather audio testimonials and, not last, helping coordinate media coverage to drive interest in the campaign.

    The plan worked. Gimlet’s $200,000 crowdfunding campaign was fully subscribed within three hours. (In fact, the company wound up accepting $275,000.) Alphaworks is now represented on Gimlet’s cap table as a special purpose vehicle whose investors have delegated their voting, follow-on, and information rights to Alphaworks.

    Still, not everyone who wanted to back Gimlet could — not even close, says Glenn, who estimates that just 25 percent of those who began the registration process were able to complete it. The others didn’t qualify as accredited investors. And until the SEC finalizes a key rule in the now two-year-old JOBS Act that was designed to let small businesses raise money from virtually anyone over the Internet, the non-accredited will remain locked out of the process. (As recently as last week, the agency’s chair, Mary Jo White, suggested it’s in no rush to make binding decisions about the rule, called Title III.)

    “It’s frustrating,” says Glenn of the continued delays. “There’s a concern about ‘frothiness’ in the market right now. But in a hot market or a down market, the timing is always going to be difficult.”

    Alphaworks has a uniquely challenging mandate, too. While other crowdfunding platforms cater to wealthy investors in search of investment opportunities, Alphaworks’s focus on turning a company’s fans into owners means it’s catering to very different end users. Not only do many of them lack the financial muscle required currently by the SEC, but some need to be educated on startup investing. (Indeed, Alphaworks, which is backed by $1.5 million from Betaworks, SV Angel, and Lerer Hippeau Ventures, has organized just four campaigns to date.)

    Glenn — who says that Alphaworks is sticking to its original mission — isn’t discouraged. As far as she’s concerned, its patience today will pay big dividends later.

    She notes that Gimlet saw nearly triple the demand for what it raised, taking into account the roughly 75 percent of registrants who were forced to abandon the process along the way. “That kind of demand is a strong signal for Gimlet to talk about,” says Glenn. “But it should also be a signal to the SEC. People want to participate in the growth of their favorite companies. They also want to be responsible for their own financial destiny.”

    And Alphaworks, she suggests, will be waiting to help them.

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    Connie

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  • How Are You Really? TinyPulse Wants to Know

    TinyPulseThere it is, in your Twitter feed. Another acquaintance reporting “some personal news” that you learn in subsequent tweets is a new job.

    It’s not just your friends who are bounding from role to role. According to the Labor Department, 5.1 million people began a new job in October, the highest hiring level recorded since 2007.

    The shift is great for employees, for whom it’s become easier to escape lousy managers. It’s also giving rise to numerous new startups whose “pulse surveys” — – frequent, anonymous employee polls — are helping bosses understand who is happy, who isn’t, and what they can do about it.

    Yesterday, we talked about the trend with David Niu, the founder of TinyPulse, a two-year-old, 20-person, Seattle-based startup that says 500 customers are using its app already, including Microsoft and GlaxoSmithKline. Our chat has been edited for length.

    You’re a serial entrepreneur who sold your first company, NetConversions, to aQuantive in 2004. You also cofounded the mobile TV guide app BuddyTV, which remains privately held. Why start TinyPulse?

    I was getting a little burned out at work a few years ago, and after getting married and having a baby daughter, I convinced my wife to sell most of what we own, put the rest in storage, and buy one-way tickets to New Zealand with our then two-month-old. I needed to recharge. I also wanted to better understand how founders burn out at their own companies. So after six months, I started interviewing entrepreneurs and CEOs — including outside of tech — to ask what their biggest pain point is. Almost everyone named [employee retention] and the fear that once one employee goes, there could be a stampede for the exits.

    I thought: if we flip annual employee satisfaction surveys on their head — make them bite-size and easy for employees to fill out frequently, managers can make small, incremental changes that make a difference.

    How often are these polls typically administered, and how much do your customers pay for them?

    We charge $3 per employee per month. Most clients use them weekly or every other week, though employees can use a “cheers for peers” feature as often as they like. They can also submit virtual suggestions any time.

    Are they prompting real change at organizations? What are some of the stories you’ve heard?

    At one startup, the CEO received feedback that one microwave isn’t enough for 200 people. He was like, “I get it, people. Why did it take TinyPulse for you to tell me?” Meanwhile, another customer, Hubspot, had let go of a few people for performance and fit and people were getting antsy, which the [department head] was able to capture via TinyPulse. So he held an all-hands with the sales and marketing team. He told them, “We love you guys. Your job isn’t in danger. We aren’t in a risky financial situation. Let me explain what happened.”

    It was a little pothole, but it could have become a crater. People bring fear and uncertainty home with them, and they look at other opportunities.

    Can you predict if a stock will go up or down based on TinyPulse ratings?

    It’s been proven that companies that are considered good places to work and that take care of their employees outperform their peers, especially in down years. In good and bad markets, smart companies realize that if their employees aren’t happy, they aren’t as engaged. A good culture is the ultimate competitive advantage.

    There are a handful of other startups in your market, including15Five, Niko Niko and BlackbookHR. Which is your strongest competitor?

    It’s usually nothing — we’re competing with inertia — or Survey Monkey, which is free and easy to use but is a broad-based survey tool. We’re solely focused on helping customers create a happier, more engaged workforce.

    You’ve bootstrapped the business so far. What’s on your road map, and will you look to raise money from investors?

    We plan to launch other offerings. Fans of TinyPulse sometimes ask: Do you do onboarding, exit surveys, time clocks? We think that anything that makes employee engagement easier is possible. As for funding, there’s always a time and place for it, but right now, any minute I spend on fundraising is time not spent on the core business.

    We are humbled that a lot of VCs contact us, often because they see our data in board decks [of their portfolio companies]. They’re like, “What’s TinyPulse?”

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    Connie

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  • Data Detectives Seek Up to $15 Million in Series B Funding

    forensic logicBig data is often used to sell consumers “stuff,” but it has plenty of truly helpful applications, too. One company trying to gather and sift through data to catch bad guys, for example, is Forensic Logic, a 10-person, San Francisco-based company behind a growing law enforcement data sharing platform. With information from roughly 600 local enforcement agencies around the country, users of its platform can, say, track down anyone who has ever been associated with a particular license plate, or every incident related to a certain kind of shell casing, all within seconds.

    Getting buy-in from those agencies hasn’t been a walk in the park. For the most part, 11-year-old Forensic Logic’s bottom-up approach has meant convincing one agency at a time of its merits, starting with a “hub” city. Take the police department of Oakland, Ca., which began using Forensic Logic’s technology to disrupt criminal networks. Once information from its massive police department was poured into Forensic Logic’s repository, its database became more compelling to neighboring city police departments, including Vallejo, Ca., where it’s now a lot easier to track down a robber who might dump his getaway vehicle on one of its streets.

    The company has had to fend against plenty of competitors, including IBM, which helps many police departments process crime-related data. (IBM acquired Forensic Logic’s most direct competitor, CopLink, in 2011 for an undisclosed amount.)

    But Forensic Logic has reached a tipping point, says its cofounder and CEO, Bob Batty, who’s about to begin seeking $15 million in funding for the company, which has so far raised $3.5 million from individual investors.

    For one thing, the company has struck a a growing number of partnerships with federal agencies, among them the FBI, the U.S. Drug Enforcement Agency, and the Bureau of Alcohol, Tobacco, Firearms and Explosives or ATF, whose data Forensic Logic has been extracting digitally and scanning, making it searchable by any law enforcement officer with an Internet connection.

    Looking at the broader market opportunity, there are roughly 18,000 U.S. law enforcement agencies altogether that employ about one million people. Forensic Logic, which operates under FBI criminal justice system regulations and so must be able to record every single user (and every keystroke he or she makes), charges $300 per person per year for its technology.

    Forensic Logic is broadening into other markets, too. It has pilot programs to identify shoplifters in place with Walmart, Kohl’s and Target. (Using facial recognition technologies, Forensic Logic can send names and other information to the companies’ loss-prevention departments in real time, it says.)

    It’s also working with tobacco companies to stop tobacco counterfeiting, which has become a $34 billion business. (Up to 20 percent of cigarettes sold in the U.S. are made illegally in China and smuggled in.)

    Indeed, says Batty, the money the company will look to raise will stretch across six categories, including a field organization to get more of its software installed within local law enforcement agencies, and a retail group.

    It seems like a lot to take on. Batty insists otherwise, though.

    “What we’re selling is bits,” he says. “And we can we sell them many times to many people.”

    Connie

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  • Michael Kim of Cendana Capital On His New $50 Million Fund

    michael_kim_DV_20110104201014 (1)This morning, five-year-old Cendana Capital, which has made a name for itself by backing so-called micro funds, is taking the wraps off a new, $50 million fund of funds — roughly twice the size as its first $28.5 million pool.

    No doubt that’s good news to Cendana’s existing managers – including Freestyle Capital, IA Ventures, K9 Ventures, Lerer Hippeau Ventures, and SoftTech VC. It’ll also undoubtedly be seen as a boon to the many entrepreneurs and operators who are entering the market with hopes for their own seed-stage funds.

    Yesterday, StrictlyVC caught up with Cendana founder Michael Kim to talk about the new fund and his one big concern about today’s market. Our chat has been edited for length.

    Congratulations on the new fund.

    Thank you. We were targeting $30 million so this was way oversubscribed. We hit our hard cap.

    Your first fund must be performing well.

    Our net IRR was 24 percent as of June, and we expect performance to improve from there.

    Who have you backed with your newest fund?

    We’ve invested in five funds so far, four of which were [investments in managers we’ve previously backed], including PivotNorth Capital, SoftTech VC, Forerunner Ventures, and Lerer Hippeau Ventures. Our new investment is MHS Capital, founded by Mark Sugarman. He spent seven years investing his first, $34 million fund, and he wound up with sizable stakes in some great companies, including OPower, Indiegogo, and Thumbtack. We think we’ll eventually invest in roughly the same number of core positions as we took in our first fund, which is 10 or 11.

    Will other new managers have a shot at getting a check from you?

    Yes, though I do think it’s becoming harder for new entrants to compete. At this point, the incumbents really have the credibility to lead the best deals. And the ownership levels a fund can get are important, both because seed stakes get diluted and because the average venture exit is between $50 million and $100 million. If you own just a few percent of a company that exits at that range, it doesn’t really move the needle.

    When you set out to raise this fund a year or so ago, you’d also set out to raise a $25 million fund to make direct investments. Did that come together?

    We raised $17 million.

    Have you been getting asked, or have you been trying, to make more direct investments in the portfolio companies of your fund managers?

    We get involved in a subset of A deals, as well as subset of those companies that go on to Series B deals, where the tech risk is largely mitigated and the companies are generating tens of millions, if not hundreds of millions, of dollars.

    But are your portfolio managers calling you and saying, Hey, it’d be great for you to kick in a little capital so this other guy doesn’t get the position, or are you proactively seeking out these stakes?

    We proactively work with fund managers and entrepreneurs so we can react quickly if there’s an opportunity to invest. We’ve made three investments [from that $17 million fund] already, and in each case, the round was way oversubscribed but we got in because of our fund managers’ relationships with the founders and because the companies thought we could add value. We invested in Casper [an online retailer of mattresses], for example, and we helped them get on CNN a few days ago because my friend is a producer there, and they sold more than they ever have that day.

    Of course, there are cases where Sequoia will come in and do a Series A and not let anyone else in. It’s very competitive, but [we can keep up].

    A lot of people point to Sequoia as having the sharpest elbows. Who else tends not to want to share the Series A pie?

    All the top tier firms are very focused on ownership, and rightly so if they feel like a company has high potential. From what I can tell, Accel is similar, but it’s behavior that makes sense and that seed managers need to negotiate by having a close relationship with founders and [hanging on to their] pro rata rights [if they can].

    There’s concern that the market has been good for so long that a downturn, maybe soon, is inevitable.

    Even if the public markets correct by 20 percent, the most vulnerable sectors are the late-stage companies and investors. Hortonworks [which is going public and expected to command a public market value below what it was assigned during its last financing round] is a perfect example.

    Seed-stage funds are best-positioned for a downturn because if valuations come down, public tech companies will need to focus on growth, and they’re likely to use some of their tens of billions in cash to acquire it. And seed funds can exit companies at much more modest valuations and still get capital recovery.

    Everything could also freeze, including the bank accounts of would-be acquirers.

    If the seed funds can’t exit, that’s a big issue. Even though most of our funds have substantial reserves, they can’t carry a company forever. So a perfect storm would be a 20 percent market crash that causes Series A and B investors to pull back. You could end up with a lot of zombie companies. Still, even with a higher loss ratio, I think we’ll ultimately see seed funds do well. It just takes one or two winners.

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    Connie

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  • Pretty Funny: Peter Thiel

    141111083404044Silicon Valley’s denizens are famously brainy. But many are also perceived as taking themselves too seriously. Peter Thiel, the investor and entrepreneur, has long been relegated to the latter camp, partly because of his controversial views on the merits of dropping out of college, and partly owing to what are often characterized as his extreme libertarian views. But in many appearances that Thiel has made this fall while promoting his new book, “Zero to One,” he has shown another side of himself: talented raconteur.

    Yesterday, in conversation with longtime reporter Bambi Francisco at an event co-sponsored by her media company, Thiel – who is among Francisco’s investors – seemed especially at ease, effortlessly making one funny observation after another.

    Of party rounds, for example, where startups may raise $1 million from 10 investors, Thiel said he’d guess that they’ve typically underperformed relative to startups that raise capital from fewer investors. “The reality is when you have two [backers], they’ve really thought about it, versus 20 [investors, where] it turns out nobody has.” Pushed back by Francisco on the topic (Thiel has himself written $250,000 checks, she noted), Thiel added, to laughter from the crowd, “I don’t think there’s anything morally wrong with it. People have the right to invest their money. They have the right to invest their money badly.”

    Thiel also offered an amusing analogy to explain why people are uncomfortable with the idea of pursuing a monopoly, though he thinks it’s stupid to do otherwise. “If you have a company that’s aiming for monopoly, there’s no one else doing it and you don’t get validation from other people. If you’re doing something that’s really competitive, there are lots of other people doing it and it ends up being validating, though it may be a dumb idea.

    “The autobiographical version I always tell is that I was hyper-tracked as a kid. In my eighth-grade junior high school yearbook, one of my friends wrote, ‘I know you’re going to get into Stanford in four years.’ I got into Stanford four years later. I went to Stanford Law School. I got good grades; I ended up at a top New York law firm. From the outside, it was a place that everybody wanted to get in; from the inside, it was a place that everybody wanted to get out. [Audience laughter.] Seven months and three days later [when I was leaving], somebody down the hall from me said, ‘I didn’t realize it was possible to escape from Alcatraz.’ [I said], ‘All you have to do is go out the front door and not come back.’”

    Thiel has certainly had plenty of opportunities in recent months to perfect his act, which he acknowledged. Asked about the car service Uber, for example, Thiel noted that as an investor in Uber competitor Lyft, he’s “extremely biased.” He then gleefully added, “I’m on record as saying I think Uber is the most ethically challenged company in Silicon Valley, and I’m willing to repeat that every single time at one of these events.”

    Thiel was even charming in recounting missteps along his current book tour, including a September appearance on CNBC, where Thiel said of Twitter: “Twitter is hard to evaluate. They have a lot of potential. It’s a horribly mismanaged company—probably a lot of pot-smoking going on there. But it’s such a solid franchise it may even work with all that.”

    Thiel reiterated yesterday that he thinks Twitter could be better run, calling LinkedIn, which enjoys the same valuation, “much better managed.” But Thiel said his televised comment was largely a “pro Twitter comment. The larger context was that if you have a monopoly, you can screw up everything else.”

    Media outlets are “always trying to get you to say controversial things,” said Thiel, who says he realized pretty quickly that he’d gone further than intended on CNBC when he saw a beaming executive waiting in the wings.

    “As I left the studio, the CEO of CNBC was smiling, and he was like, ‘You did a great job, Peter. We’d love to have you back any time you want to be back here.’ I thought, Wow, have I said too much?”

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    Connie

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  • SendGrid Raises $21 Million to Perfect the Business Email

    Invite-Friends-Uber-1SendGrid, an email delivery platform that counts Pinterest, Uber and Glassdoor among many others that use its technology to engage with their customers, has just raised $20.7 million in Series C funding led by Bain Capital Ventures. (The company has now raised $48 million altogether.)

    Last week, we chatted with SendGrid’s new CEO, Sameer Dholakia, a former key Citrix cloud executive, about what the round says about the five-year-old, Boulder, Co.-based company and the email industry more broadly.

    You joined SendGrid roughly six weeks ago. Why the management change?

    The company had a terrific CEO, Jim Franklin, who helped grow the company from a couple of million in sales to a company that now has 180,000 customers. But he and the board thought it was the right time to make a transition.

    What are you looking to do with this new funding?

    One thing we’re looking to do with this Series C is to accelerate our product innovation and new product lines to kind of diversify the business. One of two themes that we’ll push along is big data. You can imagine that [given the scale of our business], there are insights we can glean and actions we can take on behalf of our customers to make them more effective communicators with their users. We want to take a more holistic approach to email marketing.

    Can you elaborate?

    Not a lot without giving too much away. But as a brand, any customer knows about its users. Their digital fingerprints are significant, from their use of a site, how frequently they open emails, their purchase activity. We want to use that data to create insights that were previously unavailable. At the end of the day, email is an interaction with your user, and you want to customize that interaction based on everything you know.

    How many employees does SendGrid have now, and is it profitable?

    We don’t share information about our finances, but we’ve grown from 150,000 to 180,000 customers over just the last six months, and we’ve sent 300 billion emails, up from 200 billion eight months ago.

    We have 250 employees. We’ve probably added 100 in just the past year, and we’ll be looking to add [roughly another 100] in the next 12 months. It’s a low-touch, go-to-market model, so the size of our direct sales team is minuscule, which is great. It allows us to invest an incredible amount in engineering and technical account mangers and support. A lot of art and science goes into ensuring that our customers’ trusted email makes it to the inbox. We have a double-digit size team that focuses on nothing but catching bad guys on our system and shutting them down.

    How much does your service cost?

    We have a broad base of customers who might be spending a few hundred dollars a month, all the way to some of our largest customers, and they’re in the range of [spending] many tens of thousands of dollars per month.

    New management, new funding. Is it fair to think that you’re eyeing an IPO in the next couple of years?

    Certainly, if our growth rates continue at their current clip, we hope to look toward that in the not-too-distant future.

    Connie

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  • Semil Shah: A Part-Time VC No Longer

    semil.shahAbout a year ago, I sat down with Semil Shah, a plugged-in networker who, back then, was working nearly full time at a podcasting company called Swell and spending his spare time participating in some of the hottest seed-stage financings in Silicon Valley.

    Today, Shah is no longer at Swell, which was acquired by Apple last July. Instead, the part-time VC, as I’d dubbed him, is moving closer to the life he has long wanted as a full-time investor, with a new fund and roles as a venture advisor at two very different venture firms, GGV Capital and Bullpen Capital. We chatted on Friday about how he’s pulling it off. Our conversation has been edited for length.

    Last December, you were investing a $1 million fund. You’d backed 16 companies and you were beginning to think about a $5 million fund. Now I hear that you’re almost there with a second fund.

    Yes, I wound up investing that $1 million vehicle pretty evenly across 35 companies. The idea was to get my feet wet and learn all the little things about investing, like what referrals are like and how you decide to invest and how you interact with a company when you want to fund it and how you interact with a company when you don’t. I learned a lot. Raising a million dollars was not easy. Just trying to put $25,000 into companies wasn’t easy. You have to explain a lot [about the value you bring] and you need other people who are investing to support you. The amount of work and reputation required, even to make a small investment, was surprising.

    What would you say is the standout of that first fund, and have you had an exits?

    The standout is probably [the same-day grocery delivery company] Instacart, which has grown quickly and attracted a lot of attention, though there are a number that are on a great trajectory: DoorDash, Hired, Coin, HashiCorp.

    I’ve had a couple of exits in fund one, but the money wasn’t significant enough to distribute, so I’m still holding it. I could technically recycle it versus distribute it, but I’m not sure I’ll have the opportunity to do that. In fund two, my hope is to follow on in one or two companies, but that’s always up to the entrepreneur, not investors.

    Are you getting enough ownership in these startups to make this model work?

    If you go in early enough, you can have decent size ownership without doing a follow-on. I’m looking at companies before they get to Y Combinator. Part of the reason I enjoy writing so much and being active on Twitter is that I can explain what I’m thinking in real time and people reach out. I’ve had people contact me who don’t know me and introduce me to startups; they’ll just say, I know you like this stuff, and I thought you’d like this company.

    You also seem masterful at networking.

    Honestly, everything I’ve done has been born out of pain more than opportunity. I’d hoped to invest for a long time but I don’t have the typical background required and there are very few jobs. A couple of my friends [in the industry] kind of pulled me aside a couple of years ago and slapped me and said, You have to stop asking people for a job and figure out how to do it yourself.

    Have you been making investments from your newest fund?

    I’ve invested in 20 companies so far, including Chain, a block chain company that ended up being funded by Khosla Ventures, and [office cleaning startup] Managed by Q.

    Where do you want to be five years from now?

    Right now I’m operating on instinct and making decisions in three, four, five days. I put a lot of thought into each investment, but there isn’t much data to go off. As I invest more, I’d like it to be on a path of more concentrated investments.

    I also know I don’t want to be investing by myself. In general, it can be lonely, but you can also get stuck in your own way of thinking. I definitely want to be investing in the early stage somewhere, though.

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    Connie

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  • A Former Mercedes Exec Tries Bypassing the Auto Industry

    Large Image (optional)No one paid much attention when last week, a 15-person company called Apio Systems in Crystal City, Virginia, announced that it had raised $5 million in funding. Mercedes-Benz was probably watching, though.

    In fact, Apio’s founder, Sascha Simon, spent nearly a decade at the company, including as head of its Advanced Planning Group, the same unit that launched Mercedes’s connected car system. But in 2012, Simon began thinking the technologies he was developing could live outside of Mercedes and every other car maker, so he left. We talked yesterday about that decision and what he’s trying to accomplish at his new company. Our conversation has been edited for length.

    You had a big role at Mercedes. Why leave?

    I felt the benefits of the connected car shouldn’t [accrue] just to Mercedes drivers but to everyone. Everyone carries a smart phone, so the idea was: Let’s use smart phones to bring safety benefits to drivers worldwide. I also thought I could do this faster outside of the car industry.

    You’ve created a “situational awareness” technology that provides safety alerts and monitoring tools that help make drivers safer. How does it work, exactly?

    The technology utilizes all the sensors in the smart phone that are there already — the gyroscope, accelerometer, audio and video sensors, barometric pressure [sensors] — and uses them to enable your phone or tablet to sense everything around it. [The smart device then] communicates with our cloud to make a determination about what’s happening. It’s almost like having an extra driver or passenger looking out for you.

    So this is sort of tech for the here and now, until advanced car technologies are more ubiquitous.

    If we had fully autonomous cars, no one would need what I’m doing, but they won’t come that fast. I think if we wait until car companies get there, it will be another 15 years. In the meantime, I believe that we’re building something that can be incredibly helpful in [hastening] that day. If everyone experiences [the advantages of the connected car], then everyone will want it.

    How far along is your tech? And how – or to whom – are you selling it?

    We have a functioning prototype and customers who are waiting, including Transdev, an international, multimodal transportation company that’s both a customer and an investor. It runs everything from trains to trucks and basically, what it will be buying is features and functionalities that will be packaged in the smart phones or apps it already has. [The technology] will allow it to be in constant communication with its vehicles to sense what its drivers are doing, if a vehicle is in trouble, how well a vehicle is performing. It’s a complete feed management platform.

    It’s a subscription model?

    Yes.

    What does Mercedes think about what you’re doing?

    I have communications with former colleagues all the time. That’s about all I can say at this point.

    You just announced $5 million in funding. I don’t suppose you’re thinking about your next round?

    Certainly we’re not ready to announce new funding plans yet, but you can imagine it’s all planned out. Our job right now is to take the money we’ve raised, get product to our customers and take it from there. I can tell you smart devices will continue to take over more functionalities from cars, and I plan to be a part of it.

    Connie

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  • A Custom Apparel Company with Big Ambitions Raises $35 Million

    teespringInto ironic T-shirts? You aren’t alone. In fact, the market is so robust that Teespring, a two-year-old company that helps anyone turn their idea for a T-shirt (or hoodie) into a real product, has just raised $35 million in Series B financing from Khosla Ventures. Andreessen Horowitz, which had plugged $20 million into the company earlier this year, also participated in the round.

    It seems like an awful lot of money for a simple apparel business, but Providence, R.I.-based Teespring says it has big ambitions to move into numerous verticals. “T-shirts are to Teespring as books were to Amazon,” says the company’s co-founder and CEO, Walker Williams, a Brown University grad who originally started the company to help save a college bar.

    Indeed, the general idea is to help anyone with the inclination become an entrepreneur with as little effort as possible.

    Here’s how it works today: Users simply download a picture of their design; Teespring handles the rest, from manufacturing to fulfillment to customer service. Teespring outsources some pieces of the process but going forward, it plans to manage more of it internally. For example, it already has its own customer service department; to further support its ambitions, the company is building out a 105,000-square-foot manufacturing facility in Hebron, Kentucky that it says should significantly increase its manufacturing and logistics capabilities.

    Teespring is still keeping its revenue close to the vest, but it claims that it has already shipped six million products to more than 80 countries and that 1 in 75 people in the U.S. have purchased a Teespring tee in the past year.

    Williams also says that of the “thousands” of vendors and individuals using the service to make their products, “hundreds” of them are “making six figures” and that more than 10 are making in the millions of dollars a year.

    On average, he adds, users pay Teespring between $8 and $10 per T-shirt, and between $14 and $18 per hoodie depending on the print design, the fabric, and the number of ink colors the unit requires. (That includes Teespring’s margin.) From there, users can sell the goods for whatever they want.

    Today, Teespring employs 170 employees. Once it gets its new facility in Kentucky up and running, says Williams, it will be adding 300 more jobs to the payroll.

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    Connie

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