• VC Jim Scheinman Has Business Ideas for Days; Here’s His Latest

    Jim Scheinman.photoMicro VC Jim Scheinman of Maven Ventures is usually noodling on a new business idea, he tells me over coffee at The Battery, a private social club in San Francisco where various tanned VCs are seated opposite pale entrepreneurs in spacious black leather booths.

    One of these ideas was “a payment platform for the social web” that Scheinman dreamed up in 2007, but because he doesn’t code, he “found two guys who were basically going to build it with me.” Scheinman says he became the company’s acting COO and first seed investor. That startup, Jambool, was acquired by Google in 2010 for a reported $70 million. (It had raised $6 million.)

    Tango, a messaging company with more than 200 million users and roughly $367 million in venture backing, was also “in part, kind of my idea,” says Scheinman, an early investor in the company who says that, among other things, he came up with Tango’s name, its viral marketing strategy, and some of its early employees.

    Scheinman’s newest notion is turning his current “sub $10 million fund” into a new $50 million to $100 million second fund in the next year or so with his same LPs plus an institutional investor or two. The question is whether Silicon Valley is ready for this particular idea.

    A native New Yorker, Scheinman traces his investment background back the baseball cards he sold with his brother in high school. Within a few years, the two were running a multimillion-dollar business that employed 50 people, but Scheinman wanted more out of life, so not long after graduating from college at Duke University, he headed to UC Davis for a law degree, and afterward, to one startup and then another.

    It was at his second startup — San Francisco-based Friendster, one of the earliest social networks — that he met married programmers Michael and Xochi Birch. As Scheinman tells it, he was looking for acquisition targets for Friendster, but he was so impressed with the Birches that he instead convinced them to make him their third employee — first at their startup BirthdayAlarm and then at Bebo.com, a social network that AOL acquired for $850 million in cash in 2008.

    The sale made both Birches wealthy. (Indeed, they own and operate The Battery.) It also gave Scheinman the freedom to become an angel investor as well as raise a small fund once his angel investments began to pan out. “I’m happy to make people money and get a dinner or a thank you, but I thought, ‘Why not pool some of that money and take 20 percent?’”

    Scheinman has plainly taken his role as a VC seriously. He currently backs about six companies each year, writing checks to nascent startups ranging between $100,000 and $150,000 and very occasionally investing in a Series A or B round, such as with the investing platform AngelList and Banjo, a real-time content discovery company.

    Scheinman has also created a low-flying incubator that works with up to six startups that each receive a $250,000 convertible note, six to nine months of office space, ongoing help from Scheinman, and access to 20 mentors, including startup CEO coach Dave Kashen and Andy Johns, who has been a user growth manager at Quora, Twitter, Facebook and now Wealthfront. (Scheinman says the idea is to create or identify nascent consumer startups and help them scale massively. The mentors and Scheinman’s LPs receive a collective 3 percent in each startup; Scheinman gets another 3 percent.)

    Scheinman claims his formula is working. On the VC side, he says he was able to take “70x” his original investment off the table earlier this year when Alibaba led a $280 million round in Tango. (He claims he still maintains most of his ownership in the company, too.)

    Meanwhile, a company he incubated, Epic, a year-old, all-you-can-read e-book service for kids, has raised $1.4 million from investors, including TomorrowVentures, Webb Investment Network and Menlo Ventures.

    Scheinman says the Epic concept was his, adding that he’s always happy to share his ideas, particularly if they can turn into high-growth businesses. “The way I work is I talk with everyone about an idea, because you never know who it will resonate with or who is doing something similar.”

    (When I reach out to a couple of entrepreneurs who Scheinman has worked with in the past, one doesn’t respond to a Memorial Day email; another characterizes Scheinman as very helpful in the early days of his company and says Scheinman has a great consumer touch but differs with his portrayal of some of his specific contributions.)

    I ask Scheinman how he would scale his operation to fit the demands of a bigger fund. In addition to bringing aboard a second GP and two associates, he says he’d lead more deals, rather than hand so many off to his network. “Most of the companies [Maven] has incubated have gone on to raise $1 million to $1.5 million. Maybe I do that check or do $1 million and bring in one other syndicate.”

    Scheinman adds that he’s “not running these businesses. But I know the problems they’re going to face and I can help them avoid some of them.”

    “My value proposition is simple,” he continues. “If you want to build a hyper-growth consumer business and you think I can be helpful to you, you should let me in.”

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  • With $150 Million in Fresh Funding, Can the Amazon of Russia Deliver?

    maelle-gavetDipping into a flourless cake at a French bistro in San Francisco, Maelle Gavet has reason to be in a celebratory mood. The French-born CEO of Ozon, considered the Amazon of Russia, has in the last few weeks sealed up $150 million in fresh backing from investors — money that helped Ozon secure a minority stake last week in LitRes, the leader in Russia’s small but fast-growing e-book market.

    The achievements aren’t minor for the company, which Gavet has been leading for the last three years, after a Boston Consulting Group job led her to it. Founded in 1998 as an online bookstore, Ozon had barely issued a press release about its first $3 million round, from the Moscow-based PE firm Baring Vostock, when the dot.com industry imploded. Over the next decade, the company churned through employees, including CEOs, managing to survive but barely until Index Ventures stepped in to lead an $18 million round in the company in 2007. It gave Ozon a needed lifeline. But Ozon has really begun to click on Gavet’s watch.

    Gavet’s biggest, and likely smartest, gamble to date has been to invest heavily in Ozon’s own private shipping company, O-Courier, which is making it possible not only for Ozon to fulfill its orders but also to serve as a back-end provider for a growing number of third parties that now rely on its increasingly sophisticated logistics network to deliver their own goods.

    She has also been pouring resources into other subsidiaries, including a travel business, Ozon.travel; a shoe business à la Zappos called Sapato.ru; and Ozon Solutions, which offers turnkey solutions to brands that want to sell online but don’t want to pull together retail storefronts themselves.

    Ozon, which employs 2,300, is far from profitable because of how much it’s investing in growth. But with roughly half of Russia’s 140 million inhabitants now online, and 20 percent of those 70 million shopping online, the company’s efforts are beginning to pay off. Last year, revenue hit $750 million, up from roughly $500 million in 2012 (which was itself up from $165 million in 2010).

    Of course, Ozon still has its share of obstacles, some of which must seem insurmountable to American investors, who passed on Ozon’s newest round of funding. Ozon’s newest backers instead are Sistema and Mobile TeleSystems, two of Russia’s largest publicly traded holding companies, which invested in Ozon last month at a $700 million valuation. (They now own a 20 percent stake in the business.)

    Not only are there the obvious geographic, cultural, and economic challenges to navigate (enormous country, terrible roads, cash culture, fewer people than Nigeria and a relatively tiny urban elite with money to spend), but business is utterly entangled with politics, too.

    There’s the Ukranian crisis, for one thing, a situation that Gavet says has impacted Ozon indirectly but meaningfully. First, the Russian ruble devalued fairly quickly, making its import contracts far more expensive. Worried banks proceeded to cut customers’ credit lines, and “with retailers everywhere,” notes Gavet, “a lot of your working capital is through credit lines with the banks.” Soon, some European and American investors who Ozon had been talking with about its fundraising “stopped returning our calls,” Gavet tells me with a shrug.

    There’s also the little problem of Pavel Durov, the country’s most visible Internet founder, who just fled the country because of the Kremlin’s steady inroads into the ownership of his company, VKontakte, Russia’s leading social network. How could investors not worry that some oligarch will steal her company, too, I ask her over lunch.

    “If you look at Yandex [the Russia-based search engine that went public in 2011 on Nasdaq], it’s doing fine,” she says. The Russian Internet company Mail.ru., which went public on the London Stock Exchange in 2010, “is also doing fine. You have a lot of American investors in both of these companies,” she adds, noting that Ozon’s earlier shareholders include some U.S. investors, as well, including Cisco and Intel. (Ozon has raised $271 million altogether, including a $100 million round led by Japan’s Rakuten in 2011.)

    “You can always [hypothesize] over whether the government is going to be interested at some point. But if you look at the facts, there is no issue,” she says. “I do think there are industries that are considered to be strategic by any government; I’m not sure that online retail has ever been one of them,” she adds with a laugh.

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  • Battery Ventures and Venrock Back 6Sense with $12 Million

    Amanda Kahlow. photoA lot of bets are being made these days on the thesis that most enterprise products don’t make users’ lives easier or help them do their jobs better. “I doubt you could find a single sales rep who really enjoys using Salesforce,” says Roger Lee, a general partner of Battery Ventures. “What a [customer-relationship management] product should do is tell you which leads are likely to close this quarter, what products they’ll buy, how much they’ll spend, and whether they’re candidates for upsell opportunities.”

    Lee — who likens Salesforce’s offering to “basically a filing cabinet” — is putting his money where his mouth is with 6Sense, a year-old, 15-person company that helps enterprise customers like Cisco and Pure Storage to determine an account’s overall propensity to buy, help them predict where their prospects are in the buying cycle, and surface new prospects. In fact, this morning, 6Sense is announcing a $12 million Series A round led by Battery and Venrock. I talked with its CEO and cofounder, Amanda Kahlow, late last week to learn more.

    You say you figured out the market fit for 6Sense at your last company – a Web analytics consultancy – but had to figure out the technology piece.

    A lot of really smart technical founders build [a technology] in search of a business case. We were the opposite. We were a business case looking for a platform. Thankfully, at one meeting with a venture firm, a firm’s CTO [pointed me to] GrepData, a [big data analytics startup that went through the Y Combinator incubator program in late 2012], and when we came together, it was a match made in heaven. I couldn’t be blessed with a better technical cofounder [than GrepData cofounder Premal Shah].

    You have lots of competition. How do you differentiate 6Sense from the many other startups doing predictive analytics?

    We live in a world where people leave behind a digital footprint, and in the consumer world, that helps companies like Amazon know what you want, likely before you know you want it. But in the [business-to-business] world, [no one has yet] solved the problem because of the complexity and irregularity of the data coming in. What everyone else is doing right now is asking: Is this the profile of the right buyer? But they aren’t asking: Is she going to buy now? Our magic is in taking time-sensitive data [and combining it with unstructured data, like activity on thousands of B2B publishers sites] along with [structured] behavioral data to create a behavioral catalogue to make sense of data across the Web.

    Why isn’t Salesforce doing what you do?

    The focus of companies like Salesforce has been around the efficiencies of workflow. Which email should you send next? How do you manage the buyer’s process? I do think Salesforce will want to do [what we’re doing], but it’s not trivial. It isn’t something a smart engineer can do tomorrow.

    This is your second company. You started your first about a dozen years ago, soon after you’d graduated from college. Why not work for someone else?

    I come from a family of entrepreneurs. My dad has been a lifelong entrepreneur, trying to make a go of different software technologies. One of my brothers runs an [e-learning company]; another brother runs a company in the B2B marketing space. [I credit] our dad’s entrepreneurial spirit. We also have a mom who told all of us — almost ad nauseam [laughs] — that we could be anything we wanted to be.

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  • VC Josh Felser: Small Steps are Better Than None

    bio-joshfelser (1)This week, a new study found that tropical cyclones worldwide are moving out of the tropics and more toward populations of people, especially in the Northern Hemisphere. It’s the kind of news about which we should be more aware, and concerned. But in the land of social media, it commanded about as much attention as a new software update from Blackberry — which is to say it went largely unnoticed.

    Josh Felser isn’t okay with that. Which explains why the successful entrepreneur turned venture capitalist is trying to change the conversation through #climate, a new nonprofit that has enticed a small but growing number of people to download its app.

    Here’s how the process works, loosely: The months-old organization researches and produces information on hundreds of climate-oriented nonprofits. It then produces shareable “actions” based on users’ interests. If I were predominately focused on the Amazon rainforest, for example, I might be pointed to the Rainforest Trust organization, along with a tweetable link about saving the cotton-top tamarin. My Facebook friends or Twitter followers could then click on that link to learn more about why these small primates are endangered and, hopefully, donate to Rainforest Trust.

    It’s a tall order, of course — getting people to use the app, as well as ensuring the prompts are so compelling that social media users, despite their short attention spans, take the time to click on them.

    Felser argues that he had to start somewhere. “You can’t look at this as a viral media app,” he told me during a chat last week. “Getting people to focus or take action on a negative [like global warming] is hard. But we know that in the last three weeks, we’ve driven 35,000 unique visitors to various nonprofits’ sites. That’s hard to do and I feel really good about it.” (Asked if his team can track how many donations have resulted from those visits, he says the technology exists, but that getting nonprofits to change their code is “a bit of a challenge.”)

    So far, certain sports and entertainment figures have had the most impact on social media, including the band Guns N’ Roses, which has been asking fans to help save the Amazon, and the NBA, which has been promoting green initiatives and sustainability.

    Felser would like to see many more of his colleagues in tech take an interest, though. Tweets of congratulation on his efforts have been nice, he suggests, but as far as he’s concerned, the Silicon Valley startup community needs to get more visibly involved in amplifying the work of climate organizations.

    “We’ve created climate change and we have to fix it or it will destroy us,” says Felser, alluding to drought in the Middle East and Africa and rising sea levels that are putting people at risk in coastal regions like eastern India and and the Mekong Delta in Vietnam. “It makes poverty worse, it makes malaria worse, it makes everything worse.”

    Felser says not everyone has to get behind climate change, though he thinks they should. Eventually, his organization will broaden its mandate to include many other causes.

    Either way, he persuasively argues that the tech industry is missing an easy opportunity to be helpful. “I’m not sure that people in tech understand the impact they can have, with their knowledge, expertise, and reach. All are underutilized resources. They’re so passionate about entrepreneurship and tech that many forget the substantial impact they could have on the world if only they’d apply [themselves] to a cause.”

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  • A New Startup by Orkut Buyukkokten (Yes, that Orkut)

    Orkut Buyukkokten. photoOrkut Buyukkokten, the Turkish engineer who is best known for building Google’s early social network, also named Orkut, has left the company after nearly 12 years to co-found Hello, a still-stealth social network that’s been flying under the radar for the last three months — though likely not for much longer.

    Buyukkokten hasn’t yet responded to an interview request sent yesterday afternoon, but Hello’s site describes Hello as a “one-of-a-kind community of users who celebrate friendship, imagination, self-expression, and authentic engagement in a safe environment.” It goes on to encourage users to “[e]ngage in targeted social exploration and content sharing with fascinating connections that relate to the diverse parts of your personality.”

    StrictlyVC is still trying to learn more, including who has funded Hello, but its ties to Google run strong. Apart from Buyukkokten, the startup’s domain, Hello.com, was long owned by Google, which had used it for an early, Snapchat-like photo sharing service called Hello that it shuttered in 2008. Google held on to the domain until last month, when it reportedly transferred Hello.com to John Murphy, Hello’s co-founder and chief technology officer. Murphy, like Buyukkokten, also spent roughly a dozen years as a software engineer and manager at Google. (One of the only other employees listed on LinkedIn as working at Hello, Benjamin Douglass, is also a former Google engineer.)

    Meanwhile, in January, a San Francisco-based company called Hello quietly raised $10.5 million from 44 investors, according to an SEC filing that shows a target of $18.2 million. The one individual listed on the filing is James Proud, a South London native who arrived in San Francisco several years ago by way of the Thiel Fellowship program, a two-year fellowship for applicants under age 20. As a Thiel Fellow, Proud developed and sold his startup, GigLocator, which aggregated live music listings, for an undisclosed amount in 2012.

    Is it just a coincidence that two companies with ties to powerful Silicon Valley nodes would both be operating in stealth mode less than fifty miles away from each other? Perhaps. After all, this is Silicon Valley, where entrepreneurs routinely operate in their own little worlds. And more to the point, StrictlyVC can’t tie them together as of this writing. (We reached out to Proud and Murphy for comment, but to no avail.)

    Whether these companies are connected or not, one thing is certain: Buyukkokten’s Hello seems ready to raise its public profile. This past Saturday night, sources tell me that Buyukkokten bused 200 people from San Francisco down to Hello’s Palo Alto headquarters for a launch party. If it was anything like Buyukkokten’s past affairs, we may be reading about it soon on Gawker, too.

    Connie

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  • The Itinerant Investor: Boris Wertz

    Boris Wertz photoBoris Wertz made headlines last week when he joined Andreessen Horowitz as a board partner, a role the powerhouse venture firm has extended to half a dozen outside investors who sit on select boards on its behalf and share some of their deal flow. (Others of the firm’s board partners include former Microsoft executive Steven Sinofsky, investor Shana Fisher of High Line Venture Partners in New York, and Zillow CEO Spencer Rascoff.)

    Wertz isn’t the kind of person you see in TechCrunch every day, but top investors know him well. The German-born Vancouver resident founded Version One Ventures, a $20 million early-stage venture firm, and Wertz is forever traversing North America to find deals. Over the last two years, he has invested in 18 companies, including the crowdfunding platform Indiegogo; Tindie, often described as an Etsy for electronics; and the venture capital data platform Mattermark. To learn where he might shop next (digital healthcare, government 2.0, bitcoin) and more, I sat down with Wertz earlier this week. Our chat has been edited for length.

    You’re a former entrepreneur who sold your company to another company that sold to Amazon. How did you then break into venture investing?

    [By] doing a little angel investing — in New York, in Vancouver. I did 35 angel deals on my own. I also spent a month with Union Square Ventures [in New York] and another month with First Round Capital in San Francisco and learned from those guys.

    Just two startups in your portfolio are from Vancouver, where you live. Why?

    In Vancouver, there were a lot of interesting companies [coming out of the area] three or four years ago, including Clio (which makes Web-based tools for law firms), Indochino (which makes custom-made clothes for men), and Hootsuite (the social media management platform), but it isn’t consistent. Sometimes, we’ll see a lot of interesting companies emerge over a year or two, then maybe not much.

    How do you explain the inconsistency?

    I think you lose a lot of the most ambitious people to the Valley.

    Where else are you scouting out deals primarily?

    San Francisco, New York, Toronto, and Waterloo feel like the four big markets [to watch] and are where I spend most of my time.

    Waterloo seems to be taking off. How would you describe what’s happening there?

    [University of Waterloo] has always been a very strong engineering university. When you look at where the top tech companies hire outside of the Valley, Waterloo is always one of the top [destinations]. But now, people are becoming more entrepreneurial, too. In the last Y Combinator batch, for example, I think four or five startups came from Waterloo.

    What was the tipping point?

    A lot of people says its [Research in Motion, based in Waterloo], but I don’t think anchor companies alone can do that. Think about Amazon, where there’s a very entrepreneurial culture, along with lots of people with money and great technical talent, yet where you haven’t seen so many startups come out of the company.

    I think sometimes it’s just a phase, where you get lucky for three or four years. There’s just no ecosystem [that reinforces entrepreneurship] like the Valley.

    Do you think Canadian VC will ever rebound? The industry is so much smaller than 10 years ago.

    I don’t think of it so much as Canada versus the U.S. as I do the Valley versus second-tier ecosystems. Seattle and Portland share the same challenges as Vancouver and Toronto, which is that for any VC that’s regionally focused, subpar returns [are inevitable]. Every VC needs to be thesis driven.

    Have you changed your thesis at all? And when will you be in the market again?

    Overall, things are going really well. Any changes would involve optimizing around the edges, so having a little more [to invest] in follow on rounds and [to write bigger] initial checks now that a seed round under $1.5 million is almost unheard of. And there will be a second fund – hopefully! – in 2015.

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  • In Accelerator Wars, the Teacher Becomes the Student

    Dave McClureDave McClure once followed Y Combinator’s moves closely, looking to emulate parts of its structure. Now, the famed, nine-year-old tech accelerator looks to be playing catch-up with Dave McClure.

    This week, for example, Y Combinator announced it would start running its Startup School, a one-day networking event, in New York and London. Y Combinator, which will continue to run its three-month sessions from its headquarters in Mountain View, Ca., is casting a wider net because “if we focus on the U.S., we miss maybe 95 percent of the best founders,” said the outfit’s new president, Sam Altman, at a TechCrunch conference in New York.

    Y Combinator also announced its intentions this year to “get bigger,” with Altman handed the reins by cofounder Paul Graham to grow it. Toward that end, the incubator has recently added six people to its roster of partners, and Altman says Y Combinator’s upcoming class could have upwards of 95 companies, making it the biggest in the program’s history.

    Y Combinator’s new initiatives have received a fair amount of attention. But they look oddly familiar to McClure, founder of the four-year-old venture fund and accelerator program, 500 Startups. Indeed, 500 Startups was premised on the idea that venture investing is far more scalable than widely believed, and that to really nab the best deals, an outfit has to go global.

    Each year, 500 Startups backs roughly 300 startups. Half of them pass through the firm’s three-month-long accelerator program, where they’re hosted at 500 Startup’s offices in San Francisco or Mountain View. (The outfit accepts roughly 30 startups each quarter, alternating between the two places.) 500 Startups also invests in another 150 seed-stage firms outside its accelerator program each year. About 20 percent of all of those companies are international, says McClure; 80 percent are U.S.-based companies, with roughly half coming from the Bay Area.

    Part of what makes 500 Startups work at its scale, seemingly, is that it’s investing in far more than ideas. Most of the startups it funds have a functional prototype. Most have customers at some scale. Some even have million-dollar-per-month revenue run rates

    It also believes in “failing on a budget, and failing quickly,” says McClure. (500 Startups invests a net $75,000 in each of its accelerator companies for a 7 percent stake.) And 500 Startups thinks investing is something that can be taught in little time to other people, who now represent the outfit’s interests around the world, including Brazil, India, Southeast Asia, China, and Mexico. “Some say it takes 10 years to become a great investor. We think it takes 20 decisions,” says McClure.

    We’ll see what happens. 500 Startups has yet to land an Airbnb or Dropbox – companies that have pushed the value of Y Combinator-backed startups into the tens of billions of dollars, at least on paper.

    Then again, 500 Startups is younger and has a promising portfolio, along with several big exits under its belt. Among them: the 3D printing company Makerbot (acquired for roughly $600 $400 million), the social marketing company Wildfire (acquired by Google for $350 million), and the video site Viki (acquired by Japan’s Rakuten for $200 million).

    500 Startups has closed two funds totaling $73 million so far and is now investing out of a third fund that’s targeting $100 million, shows an SEC filing.

    I ask McClure what he thinks of Y Combinator’s newest moves, and he says, laughing: “Welcome to the party, Sam.” But he also notes that, “We’ll have to work harder. We were hoping to have the international stage to ourselves for five years and it now it looks like it might have been four.”

    In the meantime, McClure takes some pleasure in noting that “we were the first out of the gate on a number of things that Y Combinator is just now paying attention to. I’m a huge fan of [Paul Graham] and Y Combinator itself,” he adds. “But I think we probably influenced their strategy.”

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  • Mike Abbott of Kleiner Perkins on Snapchat, Box, and the Inherent Danger of High Valuations

    Mike Abbott high resMike Abbott has only been a general partner at Kleiner Perkins Caufield & Byers for two-and-half years, but he’s a grizzled veteran of the startup industry nonetheless. Abbott previously served as Twitter’s VP of Engineering, for example, and as an SVP at Palm. In 2002, he also founded the data virtualization startup Composite Software, which was acquired by Cisco last year for $180 million in cash. (Composite had raised at least $38 million, including from Apax Partners, Palomar Ventures, and Clearstone Venture Partners.)

    Little wonder that Abbott has a pretty strong perspective on many things startup related. The other day, we talked about a few of them, including attractive places to shop right now, why some transition on a startup’s board can be good, and what companies can do about spiraling valuations.

    How would you characterize what you’re looking for right now?

    Predominantly, I spend time [considering] applications that are driven from large data processing . . . And I probably have a little more of a bias toward either design-centric and engineering-centric companies. That sounds generic, I realize, but that’s what I’ve done operationally. So . . looking at novel things around mining email in the enterprise, or what the implications are for sales forecasting, or mining digital health data for consumers or insurance providers.

    I’ve also spent some time looking into the ephemeral content space.

    That’s interesting. Ephemeral content seems afield from your other interests.

    I do office hours at Stanford and every time I meet with a student, I ask what’s on their phone’s home screen and take a peek. And over the last few years, [it’s gone from] students using Facebook to not using Facebook to not having it on their phones to the rise of Snapchat [and the idea that] not having content on your phone is a cool thing.

    What does that mean for Twitter’s prospects? The Atlantic has already pronounced it a dead duck, as you likely know.

    It’s funny, because [reporters] write these articles, then use Twitter to spread the word about them. A number of pieces have said that it’s dying, only to report six months later, “Oh, it’s back!” No one can doubt that Twitter is a meaningful information network that’s changing the world. Is everyone on it? No. And I think the company needs to evolve the product to make it easier for the masses to use. But there isn’t a clear number two, and it’s continuing to grow. I’m very bullish on the company.

    Kleiner has gone through a transition and is a much smaller operation going forward. Have you taken on any of your colleagues’ board seats?

    I haven’t and for the most part, we’ve hoped to have partners stay on those boards on behalf of KP even if they’re [transitioning out of the firm].

    Speaking generally, do you think there’s a particularly good way to transfer board seats?

    We always look at companies and ask if we have the right person on that board to help the company. So there may be changes in the future, depending on [partners’] different strengths and the different stages of a company. When I joined Kleiner, for example, I took over a seat at InMobi, the private ad network, where it happened to be that my background specifically at Twitter was helpful and they were excited. I do think it has to be a conversation between the company and the firm to get the right person.

    There’s been a lot of talk this week about the impact of high valuations when the market turns less hospitable. How sensitive is Kleiner to price, and is that changing in this increasingly unpredictable environment?

    For those of us who saw of this firsthand in 1999 and 2000, you [know that] you have to be cautious when you’re doing this higher-altitude fundraising because the market can change . . . I do think it’s going to be tough for some of these companies that have raised at these upper bounds to weather the storm.

    Does the correction we’re seeing make you nervous?

    It’s not that much of a surprise, I guess. Also, at the early stage, it hasn’t impacted us too much. The venture world lags the public markets by six months typically. I do think for certain companies, there’s a new question being asked, which is: If the economy changes, will this service or product still be in demand. I won’t name any specific companies, but if you have a service that’s in higher demand along with higher disposable incomes when the economy is doing really well, what happens when it changes? I don’t necessarily know that that question would have been asked nine months ago. You could argue that it should have been.

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  • Trusted Insight, the Social Network For LPs, Looks to Next Round

    Trusted Insight LogoTrusted Insight is a four-year-old, New York-based platform that has made itself valuable to institutional investors – 100,000 of them and counting – by giving them a place to research one another, scout out new deals and trends, and connect on due diligence — all with the help of advanced algorithms and semantic analysis.

    Now the 16-person company is gearing up for its next phase, suggests cofounder Alex Bangash, who previously founded Rumson Group, an advisory firm that specialized in private equity and venture investments.

    Most notably, the company will be unleashing some financial products of its own, though Bangash won’t be more specific than that today, citing competitors that are copying Trusted Insight down to “features we want to throw away.” He merely says to “think of us as the Netflix of investment management. Netflix can create ‘House of Cards.’ We can [create our own offerings] in this business, too.”

    Trusted Insight is also preparing to open its doors a bit wider to “different tribes,” says Bangash, who cites fund managers, companies, and “high net worths” who are accredited but don’t necessarily have a billion dollars behind them. (The platform will “still retain its exclusivity,” he insists.)

    Trusted Insight also has numerous new features up its sleeve, including “certifications” that help to highlight who is truly expert in what, regardless of their academic credentials.

    As for how it achieves what’s on its road map, Bangash says the company has three options, including organic growth. To wit, Bangash says Trusted Insight is poised to double or even triple its user base in the next year, as well as to increase the data it’s managing by five times. Considering that a “small but meaningful portion” of its 100,000 members already pay for one of Trusted Insight’s varying tiers of service, which range in price from $99 to $499 per month, the platform could “be a very large business on [its software-as-a-service fees] alone,” he says.

    A second option includes partnering with another outfit (Bangash says Trusted Insight is “talking with two or three players”) or raising a big fat round of funding, which seems like the most likely scenario. Already, Data Collective, Founders Fund, RRE Ventures, Morado Ventures, Real Ventures, and 500 Startups are among those that have invested an undisclosed amount of money in Trusted Insight. And Bangash says he’s been receiving “inbound interest from prestigious investors” anew.

    Either way, Bangash sounds confident in the network effects that Trusted Insight now enjoys, noting that “someone could develop a nicer LinkedIn, too, but people probably wouldn’t use it.” The trick going forward is turning Trusted Insight from a “transformational company,” as he calls it, into a transactional one.

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

    Connie

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  • In Supreme Court Rulings, Startups Win

    Supreme CourtYesterday, the Supreme Court made life a lot better for venture-backed startups, whether they know it yet or not.

    In a case called Octane, the justices ruled 9-0 that the U.S. Circuit Court for the Federal Circuit — where every patent appeal in the country eventually winds up — had imposed overly restrictive standards for companies looking to recoup legal fees in cases brought against them by patent holders.

    In a second, related case, Highmark, the justices also limited the ability of an appeals court to overturn a lower court judge’s decision in such cases.

    To learn more, StrictlyVC talked last night with intellectual property attorney Rudy Telscher, who argued on behalf of the petitioners in the Octane case.

    First, congratulations. Was this your first time, arguing a case before the Supreme Court?

    It was. I’ve been there a couple of times on unrelated matters, but it was my first time to argue, and it was a pretty amazing experience, from walking into the courtroom to opening [the] case in front of the justices to handling their barrage of very smart questions. I’m lucky to have been able to argue such an important issue before them.

    What part of the experience was most surprising?

    Well, a protester stood up during my rebuttal and was removed by Secret Service. That was a surprise. [Laughs.] I handle of lot of appellate arguments, but the experience was very different in that you have nine justices coming at you from different angles. You’re facing the brightest legal minds in the country, and you know that as one is asking a question, the others are thinking up eight more. Some [of their questions], I hadn’t thought up [during my preparation], but when you handle a case for eight years, you have a good sense of law.

    Wow, eight years. For those just tuning in to the case, can you explain its importance, particularly to VCs and the founders they back?

    An entrepreneur or smaller company builds a successful product and a larger competitor wants to come after them . . . And even though the larger competitor’s position is weak, it’s expensive to fight. [These suits] used to be an occasional thing, but now small and large companies alike are getting hit by patent trolls that buy up broadly worded patents from the ‘90s that have nothing to do with what’s going on today. And they call these companies and say, “It will cost you $2 million to $3 million to defend yourself. You might as well pay us $500,000 to settle.”

    Now there will be more companies that stand up to these claims, because their odds of getting [repaid for their] their attorneys’ fees are pretty good.

    How much has your client, Octane Fitness, spent on attorneys’ fees? And will those fees now be fully reimbursed by the opposing side?

    They’ve spent $2.5 million, which might sound like a large sum but is probably about $3 million less than the national average. Now, the case goes back down to district court.

    Is there any chance you’ll be ruled against there?

    There are no guarantees, but I’d like to think the odds of that are low. The Supreme Court altered the standard a lot, saying it was rigid and very difficult to meet. It’s a big deal.

    Connie

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