• Hiten Shah: Mr. Tough Love

    Hiten ShahI’m sitting at a cafe in San Francisco’s North Beach neighborhood with Hiten Shah, and he’s telling me what’s right and wrong with StrictlyVC. The good news: it appears to have so-called product-market fit. The bad: its site is too basic, though Shah puts it much more charitably. “It’s not like a criticism, but let’s make the design better. We can fix it with just some little tweaks.”

    In all likelihood, I’m one of at least five new people who will, over the course of the week, sit down with Shah, a three-time entrepreneur and occasional angel investor who has gained renowned in the Bay Area as an active startup advisor, and who is often sought out as a “growth hacker.” (Shah’s two most recent companies, bootstrapped Crazy Egg and venture-backed KISSmetrics, both help businesses measure and optimize their sites, their social and mobile applications, and their revenue.)

    I’ve sought him out for a latte and some light conversation. Our conversation has been edited for length.

    You spend a lot of time with entrepreneurs, many of whom are thinking about growth. When is it the right time to start obsessing over it?

    Well, first, I think growth hacking and all these tactics that people are sharing are good, but there isn’t enough conversation around the work that you have to do first. People tend not to spend a lot of time on foundational stuff before they start trying all kinds of random things. As for when to start thinking about growth, the common adage around here is that you want to think about it after you’ve hit product-market fit, meaning that enough of your customers already love what you’re doing that lots of other people in the world would probably benefit from your product.

    Is there a percentage of customers who have to really love a product? What’s the tipping point?

    There’s all kinds of market research around this. One stat suggests that if 12 out of 30 people really love your product – meaning they’d be very disappointed if it disappeared – you have what resembles product market fit. A small group can be very impactful in helping you understand [your product].

    You make occasional angel investments, including in the shared inbox app Front, which just raised $3.1 million in seed funding. Are bigger seed rounds the way to go? Any thoughts on this newish trend of serial seed rounds?

    The advice I always give people is to hold off on trying to raise money until they’ve removed as much risk as possible from their product. The startups they’re competing with today are much farther along than they were seven to 10 years ago.

    On the debate over whether companies should do seed rounds and [whether two rounds dilutes founders too much], it’s entrepreneurs’ fault. Maybe they received bad advice, but it’s more likely that they’ve overspent.

    Overspent on rent? Employees?

    Sometimes they spend money on marketing before they have product-market fit, or they hire too many people too fast, or they pay too much in rent.

    I’d think the latter would be particularly tricky, given the steep price of office space in San Francisco specifically, where so many startups want to be.

    I do think rent is an issue, but the talent pool here – from executives to [lower level staffers] — is higher than anywhere else right now, so if you’re not here, you have to offer all kinds of crazy things or else be the number one company in your area, which is hard. In San Francisco, you can be a [mid-tier] company and still hire a lot of great people. Luckily, there are lots of shared workspace options for startups, like Heavybit Industries.

    I think a bigger issue is a lack of education around operating an early-stage business.

    Why don’t you write a handbook?

    I don’t like writing. I’m doing a 30-day blogging challenge. I’m on day four and I’m still dreading what I’m going to write about.

    Connie

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  • VC Erik Rannala on the “More Cautious” L.A Startup Scene

    erikrannalaL.A. has been receiving a lot of attention from investors lately, as local venture capitalist Mark Suster enthusiastically observed in a detailed overview of the market yesterday. Indeed, as Suster noted, SVAngel’s David Lee and early Twitter investor Chris Sacca are among a small but growing number of investors who’ve relocated to L.A. to capture its upside.

    Erik Rannala certainly gets it. Rannala was a product manager at eBay who went on to spend nearly three years running the seed-stage firm Harrison Metal with his former eBay colleague Michael Dearing. The gig, in Palo Alto, was great. But when another former eBay colleague, Will Hsu, proposed working together in L.A., where Rannala’s wife grew up, he leapt at the opportunity, forming the L.A-based accelerator MuckerLab with Hsu in 2011. (The two have since raised a $20 million seed fund called Mucker Capital.)

    As far as Rannala is concerned, there’s a lot of love about the L.A. scene. For one thing, entrepreneurs are “more cautious with their burn because capital isn’t nearly as plentiful in L.A. as in the Bay Area, or even New York.” He likens their mindset to someone “growing up during the depression . . . even when you eventually have infinitely more capital, it’s harder to shake the frugality that was learned the hard way in leaner times.”

    Many entrepreneurs in the Bay Area “haven’t experienced that,” he notes.

    Valuations are also “more reasonable,” Rannala says, insisting that “dollar for dollar, you’re getting more for your money down here than in the Bay Area at the top of the cycle.”

    Rannala thinks it’s a little easier for L.A. entrepreneurs to escape the groupthink of Silicon Valley, too. “We’re seeing a lot of entrepreneurs here who are looking at existing industries that are getting software enabled [and figuring out how to expedite their transition] rather than doing purely derivative things like social,” though there’s plenty of that, too.

    As an example, Rannala points to Santa Monica-based Surf Air, a members-only airline that offers unlimited flights for a $1,750 a month. The venture-funded company started flying last year with three used single-engine turboprops that seat seven passengers. It recently ordered 15 new Pilatus PC-12 NG aircraft. (*MuckerLab wrote the company’s first check. Surf Air has gone on to raise $18.8 million altogether.)

    Everything said, Rannala, who still travels regularly to the Bay Area, is trying to be pragmatic about L.A.’s boom times. Though he doesn’t think for a minute that “LA is a flash in the pan” – for a long list of familiar reasons, he argues that the tech ecosystems in both L.A. and New York “are not short-term phenomena” — he also notes that a “shortage of indigenous local capital up and down the stack,” could mean problems if the market turns.

    Bay Area investors are “inclined to invest outside the Bay Area right now, particularly when it comes to companies that are further along,” Rannala observes. “It’s [to be determined] how this evolves when we’re at the bottom of the cycle.”

    *An original version of this story reported that MuckerLabs was not an investor in Surf Air. Apologies for the mix-up.

    Connie

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  • Peter Thiel: Apple Is No Longer a Tech Company – and Neither is Google

    peter-thielPeter Thiel has been overturning the furniture at nearly each stop of a current tour to promote his new book, Zero to One. An appearance this morning at a conference in Half Moon Bay, south of San Francisco, was no different.

    In a half-hour sit-down that showcased Thiel’s talent for saying the unexpected, Thiel compared Apple to Coca Cola, saying Apple is no longer a technology company but a hugely successful marketing company. He then suggested that Google – challenged as it seems to be in putting the roughly $60 billion on its balance sheet to work – is also deluding itself in its continued belief that it’s a technology company.

    “These companies end up building up cash because they are out of ideas relative to size of company,” said Thiel, characterizing both Apple and Google as “in denial.” That happens when “your brand is still as a tech company . . . But as soon as you start buying back your shares, a complete admission of failure as a technology company is complete.”

    (Apple began paying shareholders dividends two years ago. Thiel gives Google “at least a decade” to begin providing shareholders with a dividend, given the company’s stock structure, which has further cemented the control of founders Larry Page and Sergey Brin over time.)

    Thiel’s comments are sure to stir up discussion in tech circles, particularly after the excitement that Apple in particular has generated around its newest iPhones, its Apple Watch (expected early next year), and its highly anticipated mobile payment platform, which is reportedly being released in two weeks as part of Apple’s newest iOS update.

    The observations likely took the crowd by surprise, too. Earlier in the sit-down, Thiel had talked at length of being a “big fan” of founder-led businesses, including Google. “I think those that are not have a tremendous problem,” he said. He also called Apple the “paradigmatic” “zero to one” kind of company whose breakthrough technologies have repeatedly changed the world.

    Still, times change, he noted. Apple no longer has Steve Jobs at the helm. And while Thiel said he didn’t “want to take pot shots at [Apple CEO] Tim Cook” given the “impossibly big” shoes he has had to fill, Thiel suggested that Apple’s future now depends very much on how close smart phones are “to their final form,” as Apple is unlikely to produce anything revolutionary going forward. “If there isn’t much more to do with smart phones, it’ll be like marketing Coke and Pepsi and will produce [a lot revenue for Apple] for years to come,” said Thiel.

    As for Google, Thiel acknowledged that the company is “still trying a lot of things,” an understatement if ever there was one. But he called it “striking that even a company like Google . . . is building up more and more cash.”

    Google’s former CEO and now executive chairman Eric Schmidt “was used to getting attacked from investors [for] spending money on flaky things,” said Thiel, but at least Schmidt was spending. Given that the company has done so little with its cash hoard despite a zero-interest rate environment, there’s little reason to believe it’s capable of much beyond iterating on its core search monopoly, suggested Thiel.

    In fact, Thiel told the audience, “If you’re investing in Google, you’re probably hoping at some point that they’ll admit that they’re no longer a tech company and buy back your shares at a higher price.”

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

    Connie

  • Troubled Payday Lender Wonga Still Has a Chance, Insist Insiders

    wonga_2368090bIn the span of seven years, Wonga, a London-based online payday lender, managed to become one of the best known Internet brands in the U.K, with half the buses in London plastered with its ads, along with a good number of soccer players, through Wonga’s sponsorship of the English Premier League team Newcastle United.

    Then, late last week, the company disclosed that it was writing off some $350 million of debt – at a cost of roughly $56 million to the company — following a “voluntary agreement” between the company and the U.K.’s Financial Conduct Authority (FCA), which took over regulation of the consumer finance sector last year. Wonga’s implicit admission: That despite the more than 8,000 pieces of information that its algorithm takes into account when assessing a potential borrower, the company had lent money to people (330,000 of them) it should have declined.

    Andy Haste, an executive chairman who was installed at Wonga in July to rehabilitate the company, said that going forward, the company is committed to lending only to those who can “reasonably afford” a loan. Haste – who was hired into Wonga after it was caught sending bogus letters from nonexistent law firms to customers in arrears – also added that he “agreed with the concerns expressed by the FCA and as a consequence of our discussions we have committed to taking these actions.”

    So when did things go south at Wonga and can the company — which has raised roughly $145 million from Balderton Capital, Accel Partners, Wellcome Trust, Oak Investment Partners, Greylock Partners, Dawn Capital, Meritech Capital Partners, and Index Ventures over the years — ever recover? Unsurprisingly, it depends on who you ask.

    Insiders generally paint a picture of a company that’s been the victim of a changing regulatory environment. When Wonga was launched, its business was lightly regulated by the Office of Fair Trading (OFT), which was “not a banking oversight function that had a great deal of power or was intrusive,” observes one investor. Wonga suddenly faced a much more stringent set of checks and balances when the regulation of consumer credit was transferred last year from the OFT to the FCA.

    The FCA’s regulators have been overly harsh, too, insists another source, who suggests its cozy relationships with established players is primarily why the FCA almost immediately began poring over the fine print at Wonga. “Wonga’s business was always regulated,” says the insider. “From the first day, it was licensed; it had its own underwriting agents and was being reviewed by regulators. But becoming such a large brand so quickly was hurting the established banks, which are very influential in a country like the U.K.”

    Still, those who spoke with StrictlyVC also concede that Wonga made plenty of mistakes – not working earlier with financial services authorities, “running the business a lot looser than they should have,” and those threatening debt collection letters among them. (The latter proved an especially big embarrassment to the Church of England, which said it had unwittingly invested in Wonga through an investment fund; it ditched its stake in July.)

    The company’s once-renowned algorithm also appears to have failed the company – a lesson, possibly, to many newer lending companies that believe the sophisticated algorithms they’re developing are akin to impenetrable moats.

    As says one insider: “With algorithms, you always think you’re doing the right thing until the sh_t hits the fan. You ask the guys involved in Long Term Capital Management [the famous hedge fund that collapsed in the late ‘90s] whether they knew there was a ‘black swan’ in their algorithm; they didn’t.”

    The question now is whether Wonga stands any chance of surviving. Haste has said he believes Wonga, which serves 1 million customers, can succeed as a small company. Others close to the company aren’t so sure about its fate. Says one source: “Will Wonga be a big business again? I doubt it because of the damage to their brand reputation.”

    Say another: “If Wonga can afford to pay the penalty and stick around, they have a business to build. Consumers in the U.K. don’t have a lot of other good options. The banks are still doing a sh_tty job.”

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

    Connie

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  • Max Levchin’s Glow Closes on $17 Million

    o-GLOW-FERTILITY-APP-facebookGlow calls itself a women’s health and fertility company, but like nearly everything launched by its cofounder, the serial entrepreneur Max Levchin, it has much bigger ambitions.

    For the past year, the startup — with offices in San Francisco and Shanghai — has been focused around an iPhone app for women who are trying to get pregnant. It helps them track their fertility cycles and find optimal days when they might conceive, in exchange for a wide assortment of data that it anonymizes. The app is free but users can also opt-in to a program to which they pay $50 a month, with those who don’t conceive after 10 months receiving their money back, plus a split of all funds contributed by those who do.

    The 21-person company claims it has already helped 25,000 women become pregnant. And it more recently created a post-pregnancy app for expectant mothers to track their progress.

    But Glow isn’t interested in women’s health alone, says Levchin’s cofounder, Mike Huang. Glow plans to tackle a host of other areas where similarly focusing on “prevention” can keep users from costly corrective events later (like the fertility clinic). Toward that end, the company, which raised $6 million in funding at the outset, has just added $17 million in fresh funding led by Formation 8, with help from initial backers Founders Fund and Andreessen Horowitz. Its idea, broadly: to generate even more data, which Glow sees as good for the apps, good for the broader medical community, and good for employers, too.

    In fact, Glow’s chief (and possibly only) source of revenue is expected to come from enterprises that offer Glow apps as an employee benefit, paying $50 per month to help keep its workforce healthy.

    Asked about obvious privacy concerns around issues like pregnancy, Huang says employers will never know which of its employees are trying to conceive or who hasn’t yet announced that she is expecting. Glow provides employers only with information about how many people have signed up for the service.

    He adds that a small but growing number of companies, including the file storage company Evernote, the onine ticketing service Eventbrite, and the cloud computing company Pivotal, are already customers. The focus now, says Huang, is, “How do we get this to be bigger?”

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

    Connie

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  • A Young VC Resurfaces with His Year-Old Startup: Spruce

    RayBradfordEvery month, a few startups that enable patients to consult with doctors without visiting their offices seem to emerge from nowhere. It’s no wonder. According to the research firm IHS, revenue from these so-called telemedicine companies could hit $1.9 billion in 2018, up from $240 million last year. That shift owes largely to the Affordable Care Act, which is pressuring doctors to help drive down costs, but it’s also easy to imagine that a growing number of doctors likes the prospect of practicing medicine from anywhere, at any time.

    Some companies, like Teladoc — which just raised $100 million from investors — have begun partnering with insurance companies like Aetna and Blue Shield of California to offer subscribers telemedicine services as an added benefit in their coverage. Others like venture-backed HealthTap and Doctor on Demand, both of which offer live videoconferences with doctors, are going straight to consumers.

    A year-old company, Spruce — founded by former Kleiner Perkins Caufield & Byers partner Ray Bradford and launching publicly today — has a slight twist on the latter model. The 11-person, San Francisco-based company is debuting a mobile app that enables patients to pay $40 to consult with doctor but doesn’t give them instant care. Instead, users log on to the app, provide details about their specific condition, and receive a response from a board-certified physician within a day. (If a prescription is required, that information gets forwarded on to the pharmacy of the user’s choice.)

    It doesn’t sound terribly revolutionary, but as Bradford explains it, the market opportunity makes up for a lot. “The majority of healthcare will be tech enabled and delivered via mobile devices. If you think about size of market and volume of doctors, you start to appreciate what a massive shift this will be, and we think the trend is just getting started.”

    Earlier this week, we chatted briefly about Spruce, which is first targeting patients with acne problems but plans to expand into other ailments once it nails down its act.

    Why acne first?

    Fifty million Americans have acne. It’s not just a teenage problem. Most doctors visits are by adults. Meanwhile, the average wait time to see a dermatologist in the U.S. is 30 days, so the majority of people settle for over-the-counter solutions.

    Why not employ videoconferencing, as are many other telemedicine startups?

    It’s more convenient. Both the patient and doctor are doing things on their own time. If you’re on the clock with a doctor [Doctor on Demand customers pay $40 for 10 minutes or so with a physician, for example], maybe I can’t share everything I want to share. Likewise, the [offline] doctor is answering my questions, rather than going through the motions of collecting information in a rote way.

    You left Kleiner to start this company in August of 2013. How much have you raised and will you be in the market again soon?

    We raised $2 million in seed funding from Kleiner, with participation from Baseline Ventures and Cowboy Ventures. We raised it later last year [so we’re not raising again just yet].

    You spent a couple of years as a VC and you worked previously in product development at Amazon Web Services. How do those experiences inform what you’re doing now?

    The biggest way is seeing the importance of picking a big market, and you don’t get a much bigger market than healthcare.

    Connie

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  • Amplify.LA Turns the Accelerator Model Inside Out (Completely)

    Paul BricaultSince Y Combinator first swung open its doors nine years ago, hundreds of accelerator programs have sprung into existence, almost all modeled in similar fashion — holding classes at certain times of the year, accepting a pre-determined number of startup teams, and staging “demo days.”

    Paul Bricault, a founder the two-and-a-half-year-old accelerator Amplify.LA in Venice, Ca., thinks that’s a little, well, silly. In fact, Bricault and Amplify’s cofounder, Richard Wolpert, have basically ripped up that playbook and created a new one that in almost every way operates differently. Whether it works is another question that only time will answer.

    We chatted with Bricault, who is also a venture partner with Greycroft Partners, yesterday.

    You wear two hats. So does Richard, who’s a venture partner at Accel Partners. How do you divide your time?

    Amplify takes the bulk of my time. On an average week, it’s probably 70/30. But there are no normal weeks. [Laughs.]

    You’ve raised two small funds so far, a $4.5 million fund and an $8.1 million fund closed last November. Will you be in the market again soon?

    We’re not even a third of the way through fund two yet. My guess is that we’ll start fundraising early next year.

    How many companies have you funded?

    We’ve done 36 altogether and 31 have gone on to raise capital. Twenty-seven have raised seed rounds; four have raised Series A rounds, the smallest of which was $6 million. It’s a higher percentage than your average [accelerator] by a significant margin.

    You take pride in doing things — a lot of things — differently. Amplify.LA doesn’t do classes; you have a rolling start program instead. You don’t have set economics. You invest in follow-on rounds. Why take such a different approach, given the success of Y Combinator?

    Yes, we’re an accelerator in name but we do things differently. We have a rolling start program because we interviewed entrepreneurs from a dozen accelerator programs in the U.S and Israel and Canada and realized that classes benefit the accelerators but not entrepreneurs, who may have a different time frame than the accelerators. I don’t believe a class-based structure engenders cooperation, either; the founders feel like they’re in a Darwinian funnel leading up to their demo day. You see more collaboration between the SaaS company that has just raised a seed round and is working beside a younger company that needs help on its pricing model. Not last, classes create an artificial structure at most accelerators that have maybe 10 or 12 slots. We’ll go for a couple of months without admitting anyone, then admit four startups in a month.

    As for the economics?

    Not all companies are created equally. Some have traction and patents when they reach out; some have a brilliant idea and a PowerPoint. So it doesn’t make sense from an entrepreneur or investor standpoint to [present standard terms]. I will say that in general, we take between 5 and 10 percent and put in anywhere from $50,000 to $200,000, which is more than you typically see at accelerators.

    And we do follow-on financing, but not in every company. We’re so small that it’s not a huge negative signal [if we don’t participate in a company’s next round]. It’s not always because we like a company better but because of the economics of how we set up each deal. If we take four percent in one company and it’s raising a seed round, there’s a higher chance of our wanting to put more money in, versus the company where we already own more.

    Why have you dispensed with demo days?

    For similar reasons. As an investor, I’ve always disliked them; they force you to listen to pitches that aren’t necessarily in your areas of interest and pushes entrepreneurs into a truncated pitch structure, which causes all of the pitches to begin to sound the same. The whole thing is very impersonal. We do a showcase here instead, where investors who attend can preselect the companies they want to meet with and, rather than sit through pitch, they meet one on on with those teams to get a better sense of them, without 100 investors listening over their shoulder.

    Seed funding doesn’t seem to be an issue in L.A. as was once the case.

    There are a lot of seed funds here now: Crosscut Ventures, Double M Capital, Lowercase Capital, TenOneTen Ventures, Karlin Ventures, Wavemaker Partners, Baroda Ventures, A-Grade [Investments], QueensBridge [Venture Partners], TYLT Lab. There are probably 20 seed funds now, which is small by Silicon Valley measures but huge for L.A.

    What about early-stage VC?

    If there’s anything I worry about, it would be the lack of Series A and Series B and C capital in LA. There are two or three funds — Anthem [Venture Partners], Greycroft and Upfront [Ventures] — and other than that, there aren’t a lot of firms in a position to lead Series A rounds, so we have to attract external capital. Amplify.LA’s Series A rounds have been lead by Azure [Capital in San Francisco], Bessemer [Venture Partners, with offices in New York, Silicon Valley and Boston in the U.S.] and [Boston-based] Polaris Partners. Getting people to come down to L.A. or across the country is critical to the growth of ecosystem right now.

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

    Related articles

    Connie

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  • The Most-Funded Connected Home Startup You Haven’t Heard Of

    investments-leeoYou probably haven’t heard of Leeo, a 1.5-year-old, San Francisco-based maker of smart home products and services. But investors are well aware of it, along with a growing number of engineers. Indeed, the now 60-person company has quietly raised $37 million in financing, including from Formation 8; E.ON, one of the world’s largest investor-owned power and gas companies; and Visionnaire Ventures, the fund of billionaire Taizo Son, who is the youngest brother of Softbank magnate Masayoshi Son.

    The attraction isn’t surprising, given the murderer’s row of operators that Leeo has assembled. Cofounder Adam Gettings was cofounder and CTO of RoboteX, a maker of first responder robots that he launched with his brother Nathan, who also cofounded the data analysis company Palantir Technologies and is now Leeo’s chief data advisor.

    Adding product development smarts is chief operating officer Charles Huang, who with his brother founded RedOctane, publisher of the best-selling videogame franchise “Guitar Hero.” And on the form factor side, Leeo’s chief designer is Robert Brunner, who was Apple’s first design chief and most recently the chief designer at Beats Electronics.

    It sounds like a winner. Just don’t ask what the company is making. (It’s not saying yet.) I talked with Gettings and Huang last week about their secretive company.

    Why start Leeo?

    Gettings: It was largely inspired by a friend who saw a fire from a distance and realized it was her home. She wound up losing the house and all of her pets and it was tragic for our circle of friends to be so close to the situation. [Afterwards], we started wondering how we could create a connection between the home and people so people could be better linked to their homes when they’re away. Our first product coming out [will address the issue], then a series of other products [will follow].

    Is this a smoke detector? Is it something that exists in the market that you’re improving on or is this a new device entirely?

    Huang: It’s a product that takes advantage of existing infrastructure. It isn’t difficult for consumers to use in their homes yet uses the benefits of connected devices.

    That was quite a non-answer! Should Nest Labs be nervous?

    Gettings: I don’t know. I think our design chops are pretty good. It’s an interesting space and relatively early when you consider how long Nest Labs has been around. Every day there seems to be new entrants into the [Internet of Things] market. The space will be very big in the future – it’s the next big evolution of the Internet.

    Huang: One thing we’re excited about is getting enormous incumbents involved through strategic investors, like E.ON [for which we’ll create] custom-designed smart home products and services. [E.ON has roughly 35 million customers in more than 10 European countries.] We’re also working with Softbank, which owns Sprint and has more than 180 million mobile phone subscribers to which they want to provide more products and services, including through their Sprint stores in the U.S. and their Softbank stores in Asia.

    Why this staggered launch announcement, with details about your funding but not about your product?

    Gettings: We’re very excited about building the team and assembling the product and it’s a chance for us to say hello to the world.

    Huang: There are a lot of interesting parts to this story, so we’re trying to tell it chapter and chapter and not overload people with one massive press campaign.

    Okay, tell us this: You’ve both formed companies with your brothers. What’s it like to work with your sibling?

    Huang: Great. You have an instinctive trust. You can almost know what he’s thinking before he says it. But you do behave just like you did as kids. One of you will say something and the other will respond, “That’s just the stupidest thing I’ve ever heard,” like you’re eight years old. [Laughs.]

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

    Connie

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  • DataFox Aims to Disrupt Company Intelligence, Upset Michael Bloomberg

    Bastiaan JanmaatBloomberg and Thomson Reuters had better watch their backs – or else get out their checkbooks. The financial information giants suddenly face a spate of startups ready to take a big bite of their businesses, with DataFox, a year-old, nine-person team in Palo Alto, Ca., among the newest.

    So far the company, run by Stanford alums, has raised $1.78 million in seed funding from Google Ventures Ventures, Sherpalo Ventures, and Green Visor Capital, among others, for its subscription-based deal intelligence platform. The idea: replace expensive and sometimes far-flung analysts with algorithms that can turn structured and unstructured data into real-time, competitive insights about companies.

    DataFox, which has three subscription tiers — $49 per month, $399 per month, and “call us,” essentially — says it isn’t ready for another round of funding just yet. At the moment, at least, it’s more focused on launching its beta product, having tested out its service over the past year with more than 2,000 trial users. Still, cofounder and CEO Bastiaan Janmaat says paying customers, including Box, Twitter and Bloomberg Beta, think the company is on the right path. In fact, he says of his company (only half-kiddingly): “This probably isn’t what ex-Mayor Bloomberg is looking for upon his return as CEO.” He shared more with us yesterday.

    DataFox mines all kinds of public information to do its job. Does it create new data, too, or might it?

    We do create new data, but we do it automatically. One example is competitors lists. Other databases suck at this. Human analysts at [the business data and analytics company] Dun & Bradstreet update their list just once a year. Our algorithms look at things such as co-mentions in news articles and similar press releases to automatically generate a list of similar companies, updated in real-time. The same is true of sector classifications. We invented our own sector taxonomy of more than 70,000 keywords . . . so now a company like Box is classified as “file sharing, web hosting, cloud computing, ftp replacement” plus 20 other terms, instead of just “file storage.”

    You “push” out information that you deem relevant to your customers, like a headcount mention deep in a news article. How is that information delivered?

    People get one weekly email. We’ll soon allow for opt-in daily alerts. Meanwhile, people login to DataFox for the real-time feed.

    A lot of your customers are interested primarily in private company information, but you also track public companies, correct?

    Yes, which is why our business is such a radical departure from the status quo, meaning CapIQ, Thomson Reuters, Bloomberg, and so forth. We’re building entity-agnostic algorithms that, over time, we can apply to any company, person or theme. We have around 7,000 public companies in our database currently. Whenever a customer requests that a company to be added, all we need is the URL, and we’ll auto-generate a one-pager in a matter of hours.

    What’s on your roadmap? What else will DataFox offer customers next year?

    Collaborative and team features. Expanded company coverage. We’re currently at 450,000, but I expect to cover more sectors within a year and more international companies. We’ll also be tracking more types of events. We have the pipes and parsers built, so we’ll continue to write more rules to identify more structured data points beyond the headcount, revenue, and valuation data we currently collect — like new major customers and new offices.

    You say you aren’t raising money again until some time next year. What milestones do you plan to reach before talking again with investors?

    We’re a subscription business, so we’re looking to continue growing revenues, but the one metric we care about most is engagement, meaning the frequency of logins and alert email opens, as well as the number of companies that [customers currently] follow, which is 35 per user. If we can continue to get daily engagement from analysts at Intuit, Bloomberg Beta, Google, Goldman Sachs, and the like, we’ll bolster our prognosis that we’re disrupting the large incumbents, and that data can’t be “pull” anymore. It needs to be predictive.

    Why are you so convinced that “push” is the way to go?

    The volume of communication and data is exploding, there are too many streams to pull from, so mathematically it’s necessarily becoming less likely that you are able to pull the right data point at the right time. Specifically for our customers, companies’ online footprints are expanding, so there’s more information out there, but they don’t have time to monitor a company’s employees on LinkedIn, their Twitter account, their Delaware filings, and the regional papers that cover them. Hence the need for push. I train my delivery pipe to understand my interests, schedule, and priorities. The pipe decides what’s important and surfaces that for me.

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    Connie

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  • Steve Blank: Washington Really Is Starting to Get It

    laboratorySteve Blank, a renowned serial entrepreneur who teaches at Stanford, U.C. Berkeley, and Columbia, used to groan that the government just didn’t understand entrepreneurship, particularly as it pertains to tech and life sciences startups.

    That’s quietly beginning to change, says Blank, who traces part of the shift to a surprise call in 2011 from the National Science Foundation, the second-largest research organization in the U.S., with a budget of $7 billion.

    Early that same year, Blank — incorporating some of the ideas of startup advisors Alexander Osterwalder and Eric Ries – had devised a course called the Lean Launchpad that dispenses with traditional business school teachings about business plans and instead pushes students out of the building. The idea is to get each student or team of students to write a business hypothesis; test that hypothesis in the real world by asking dozens of potential users, purchasers and partners for feedback; then iterate on their business idea based on that input.

    Initially, Blank wasn’t sure how the experiment would turn out. He blogged about the process each week, though, and while he was winning converts at Stanford where it was first introduced, the NSF was also quietly following along from Washington. Indeed, recalls Blank, seemingly out of the blue, “[Errol Arkilic, then head of the NSF’s SBIR program] called me and said, ‘You’ve invented the scientific method for entrepreneurship. This is now understandable. You’ve cracked the code,’ Then he said, ‘How quickly can you prototype a class?’”

    With the the help of numerous VCs and dozens of scientists, it took a year, Blank says. Since then, 400 teams of NSF-funded researchers have received nine weeks of training to help them evaluate their scientific discoveries for commercial potential. (Here’s one powerful testimonial by the chief of general surgery at UCSF, who says the course saved him from chasing down the wrong path.)

    Beginning next month, the National Institutes of Health — the country’s primary federal medical research agency, with an annual budget of $31 billion that it spreads across the country – will begin teaching eligible NIH grantees the exact same curriculum. And the Department of Energy is next in line, adds Blank.

    I ask Blank how he feels about his class beginning to figure into how tens of billions of dollars in research grants (potentially) become allocated. Blank, who is the son of immigrants and takes a teaching salary of $1 dollar a year (“I made a lot of money and teaching is how I give back to the country,” he says), sounds optimistic.

    “Instead of VCs having to guess about markets and channels and product market fit, and scientists who don’t know what the hell a customer is, these scientists can now articulate arguments based on layers of evidence. It’s much different than, ‘Let me tell you about my lab creation.’”

    Adds Blank, “It’s an enrichment program to get public investment matched with private capital more efficiently. How can you argue with that?”

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    Connie

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