• Hardware Incubator Highway1 Readies for New Applicants

    Brady ForrestCreating a hardware device is hard; making it in large quantities is exponentially harder. A reminder of this hard truth appeared on Friday on the Indiegogo page of Scanadu, a medical device startup that began shipping its long-awaited Scout product to its backers last week, then stopped, saying the device isn’t working as expected.

    It’s exactly the problem that Highway1, a nearly year-old incubator program in San Francisco, promises to solve. Here’s how it works: Twice a year, Highway1 invites 10 or so teams to work at its offices for four months. In exchange for 3 to 6 percent of their companies, it provides them with $20,000, access to $3 million in prototyping tools, and an education – including in Shenzhen, China — about how consumer electronics are made. Highway1 should know; it’s backed by PCH International, a 5,000-person, China-based company that handles manufacturing contracts, packaging, and shipping for major electronic brands, and which has strong relationships with Asian manufacturers as a result.

    Highway1’s program isn’t for everyone. To gain entry, a team has to have at least one working prototype (however crude), and it has to have enough financial muscle to pay for its production run. (The $20,000 it receives from Highway1 won’t cut it.) Late last week, I talked with the head of the program, Brady Forrest — who is an engineer, operator, and former VC — to learn more about his requirements and when Highway1 is accepting its next batch of companies. Our chat has been edited for length.

    You liken Highway1 to Amazon Web Services, which helps software companies scale.

    There’s a concept called the Smiling Curve [whose points are marked by “create,” then “make,” then “sell”]. And VCs don’t want to invest in the “make” part. They don’t want to spend a lot of money on you building out a line. So our thesis is: let PCH be that AWS with hardware. We’re a supply chain company; we have 500 engineers in Shenzhen who manage factories for companies of all size. We [can] design the line and build that NRE (for non-recurring engineering, which refers to the one-time cost to research, develop, design and test a new product). We can handle credit terms and take payment…

    You also help these teams pitch to investors at a demo day.

    Yes, 200 attendees came to our most recent demo day and seven of 11 companies presented: three that are public and four that are in stealth. Two others opted out and two didn’t get far enough along; maybe they’ll demo one day; I’m not sure.

    What types of companies are you most keen on helping? Are wearables overdone? Reportedly, people don’t wear their wearables for very long — at least, not their Galaxy smartwatches.

    Wearables are totally of interest. That piece, reporting on the Galaxy, was like picking on the weak kid in the litter. If you bought a Galaxy Note [smart phone], it came free with purchase. In other words, people have been trying to sell something they received for free on eBay, so that’s not quite fair [to hold up as evidence that wearables are troubled]. Either way, if people aren’t happy with their wearables, it means there’s an opportunity to do it right.

    I’m also bullish on the connected kitchen, and we’re always looking for more enterprise-type companies. I’m not afraid of teams that say, “We’re not a hardware company.” That means they’re looking beyond just hardware to the services and data set behind the hardware, and that’s really how you make hardware more useful and something that people need and love.

    When do people need to apply for your next class?

    We start accepting applications on April 17 and the program will start anew in September, though some companies are already coming in to talk with us. One team that has $800,000 in funding was just here and [the founder] and I were chatting and he told me they were going to go to tooling in two months. I had to run into another meeting but I had one of our engineers chat with him. [The engineer] told him, “You’re doing this out of order. If you go to tooling, you’re going to waste $50,000. You first need to do a prototype that takes these two factors into account, then do a 3D printing of this initial run.” And so on. And you could kind of see them saying, “Oh, sh_t. We just got schooled.”

    Photo of Brady Forrest courtesy of Geekwire.

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    Connie

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  • Orphaned Entrepreneurs

    left-behind-dvd-front-coverWhen the news broke that Jonathan Teo and Justin Caldbeck were leaving their respective venture firms to create a new firm called Binary, their peers cheered them on, maybe wondering if they might also spin off on their own someday. After all, Teo and Caldbeck are just the latest in a growing string of investors — Tim Connors, Aileen Lee and Kent Goldman among them — to fly the coop.

    For Siqi Chen, though, the development presented worrying questions. Chen is a serial entrepreneur who sold his company Serious Games to Zynga in 2010 and today runs Heyday, a two-year-old startup that puts out a personal journal iPhone app. To date, Heyday has attracted $5.5 million from top funds, among them General Catalyst Partners. The concern for Chen was that Teo — Heyday’s board member — was now leaving General Catalyst. Who would be Heyday’s advocate at the firm?

    Chen soon learned he needn’t fret: Teo could remain on his board, General Catalyst told him. But Chen knows that plenty of entrepreneurs lose cherished board members in such transitions and that for them, a venture industry in flux isn’t always good news. We chatted about these orphaned entrepreneurs yesterday afternoon. Our conversation has been edited for length.

    How did you meet Jonathan Teo?

    I met him through an introduction. [After Serious Games was acquired by Zynga], I worked with Andy Tian, who was GM of Zynga’s China business, for about a year. After I left, Jonathan asked Andy to introduce him to interesting ex-Zynga people and Andy gave him my name. He tried our demo in 2012 and continued to use it and give us really useful feedback, and he finally made us an offer we couldn’t refuse.

    So he was one of your earliest champions.

    Definitely. A firm like Andreessen Horowitz can double down on traction. Then there are VCs who can smell something at the most nascent stages, before they gain traction. Jonathan has a really intuitive consumer nose. He sourced Twitter and Instagram [while a principal earlier in his career] at Benchmark. He also sourced Snapchat [for General Catalyst] and made a personal investment in the company. If you look at his track record, he’s made very few investments, and they’ve been spot on. He identifies opportunities early and [pursues them] aggressively, which is increasingly rare in institutional VC.

    Has he been as active on your board as he was before leaving General Catalyst?

    Yes. He’s still affiliated with General Catalyst in the role of venture advisor … and though he’s been gone for a few months now, and he still comes to every board meeting and is just as involved as before.

    What happens if they eventually transition him away from the company? It is General Catalyst’s board seat.

    We’ve received reassurances on both sides, so for the foreseeable future, he’ll be on our board. But it’s never easy; I can’t imagine any entrepreneur saying [that having a board member replaced] is a good thing. When entrepreneurs pitch VCs, part of [the allure] is the brand. But a large part of your decision is around the partner you’ll be working with. If that person leaves, it’s a big blow. I think any employee who has had a manager be fired or leave knows that feeling, and it’s an even bigger issue if you’re working with investors. You’re losing your biggest fan.

    Do you think there can be repercussions beyond personal disappointment?

    All things being equal, I think it can be a little harder for a venture firm to follow on [and invest more in a company whose lead investor has left], which can create signaling issues. It all depends on a company’s traction.

    What kind of courtesy would you expect a venture firm to give an entrepreneur who will be losing his or her board member? How much notice is fair, and should the entrepreneur have a say in who their new director will be?

    I’d expect at least two quarters of notice. [A change like that] could affect your fundraising plans or your timing.

    As for other expectations, I’m not sure there are any norms or expectations that a founder can interview the rest of the partners. But I’d want a say in it. I’d want it to be a conversation, at a minimum.

    (Update:  Teo was in touch this morning with some thoughts about Chen’s interpretation of his track record:

    I would like to give credit where credit is due, and with regards to Twitter and Instagram, though I was instrumental in getting those deals done … Peter [Fenton] and Matt [Cohler] had as much to do with finessing my thinking there as I did in bringing the deals into play.

    And with Snapchat, though I did source the deal that was done, the origination of the opportunity was from a wonderful associate (he’s now a principal) Niko Bonatsos at [General Catalyst], who in my opinion is one of the guys with the most hustle in the VC industry I’ve come across. If credit is due, I would not have gotten the chance to have my early conviction were it not for him.)

    Connie

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  • Despite an Abundance of VC, Lighter Capital Finds Takers

    lighter-capital-logo-300dpiLighter Capital emerged on the scene nearly four years ago when money was tight and its business — offering revenue-based financing to nascent, cash-strapped tech startups — seemed perfectly timed. Startups that didn’t want to agree to onerous venture terms yet weren’t candidates for small business loans suddenly had a third choice.

    Of course, times have changed. Not only are traditional VCs now looser with money and terms friendlier, but you can’t swing a cat without hitting an angel investor, a micro VC, or an accelerator program. To find out how the Seattle-based company — which last disclosed a $6 million Series A in 2010 — is faring, I called its CEO, B.J. Lackland, last week to learn more.

    Lighter Capital is kind of like an OnDeck but focused more exclusively on small software-as-a-service startups. Why?

    We really like things with recurring revenue. That’s what we see as the asset that we’re fundraising against.

    Explain how your service works to startups unfamiliar with revenue-based loans.

    We’ll [loan] a startup that has more than $200,000 in annual revenue and 50 percent in gross margins between $50,000 and $1 million. Say we give them $100,000. They’ll pay us a set percentage of monthly cash receipts — maybe it’s 5 percent — until they’ve paid us a multiple of the $100,000 that we loaned them [depending on the business, its team, and its revenue]. Our interest rates vary from 1 to 10 percent, and we cap the [final payout] at 2.5x.

    How long do you give companies to pay you in full?

    As long as it takes, though if we can help accelerate [the time it takes to get paid in full], we get a better IRR out of it, so we’re happy to help them if we can. The way we interact [with our customers] is halfway between a bank and a VC.

    What’s your pacing like, and what types of entrepreneurs are turning to you?

    We’re doing three deals a month, though we’re staring to accelerate the volume. We’re targeting 8 to 10 deals a month now that we’ve really nailed down the instrument and the target. Our entire shtick is that can we use technology to make capital available faster; we can go from loan application to deal in one month.

    There’s a lot of interest in the gap we’re filling between banks, VCs and angels. VC are shooting for 10x to 100x. Banks are just looking to not lose their money [so won’t always lend to our targets]. And angels want to own more of a startup, while a lot of our entrepreneurs own their entire businesses or else they’ve raised angel funding already but don’t want to become even more diluted [including as they work their way toward a Series A round].

    Your product is money, which begs the question: Are you raising another round this year?

    Actually, we just completed a financing — a larger, involved deal — that probably won’t be public for a while.

    Will you expand beyond lending to software, Saas, and technology companies? OnDeck seems to be doing pretty well by lending to a range of businesses.

    We’ll expand eventually, though we want to focus on our beachhead market and really refine the investing strategy and all that. We also intend to bring out new financial products. We think there’s still a huge gulf between us and banks, and that there’s an opportunity to create more lending offerings to companies — either more money or by lending money to slightly larger entities. There’s still very much a need for that.

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    Connie

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  • Accel Partners Backs Father-Son Team in Sookasa

    SookasaSookasa, a 2.5-year-old, 12-person startup in San Mateo, Ca., is taking the wraps off its business today, as well as unveiling $5 million in Series A funding led by Accel Partners, which it closed on last August.

    No doubt Accel was attracted to the startup’s technology, which promises to dramatically simplify the protection of sensitive files across popular cloud applications and mobile devices. As services like Dropbox and Box become increasingly ubiquitous and more employees use them to share files with each other and people outside their companies, businesses in particular need a better way to manage and protect that data. Sookasa, a cloud-based offering, says it make the process of encryption so easy that even a sole practitioner can get up and running as easily as he or she can sign up for Dropbox itself.

    Yet Sookasa is interesting for another reason. In addition to cofounders Madan Gopal and Chandra Shetty — both senior engineers from Cisco, formerly — Sookasa’s founders are a father and son who serve as CTO and CEO, respectively. Israel Cidon was long a professor at Technion in Israel; he also founded four prior companies, including Actona Technologies, acquired in 2004 by Cisco. Asaf Cidon, a PhD candidate at Stanford, spent a year working in R&D at Google after spending three years in the intelligence section of the Israel Defense Forces.

    Asaf Cidon talked with StrictlyVC the other day about the company and what it’s like to work with his dad.

    You want to allow professionals in regulated industries, like health care, finance and legal, to use their favorite cloud services in a secure way. How is your service different from what already exists?

    The issue with other types of solutions is that they’re only good as long as you’re accessing the cloud through a company computer or company network. If you’re sharing with someone outside of company, they can’t access the files. We encrypt files anywhere they go.

    What was the impetus for the company?

    Dad and I are both geeks who’ve been mucking around for years on crazy ideas and we were [storing] a lot of our documents on Dropbox. And we asked ourselves: Where is our data? Where are all the copies of these files and who can access them? What we found was those are really hard questions to answer. These services keep a lot of different copies and it isn’t clear who can access them. It’s an interesting problem to address for consumers, but even more so for businesses, where you can get fined $5 million for a HIPAA breach, for example.

    Not many entrepreneurs launch companies with their fathers. What it’s like?

    There probably aren’t many cases where founders have started a tech business with family members — though Mendel Rosenblum cofounded VMWare with his wife [Diane Greene], which is an even more precarious situation. [Laughs.] My dad and I really get along, though. We’re also very different. He’s a professor who’s really interested in hard problems; he’ll obsess for a week over [some aspect of] encryption architecture. I love the business side and how we find the right business positioning and sales, which I didn’t always know I would.

    You raised $5 million in Series A funding in August, after raising $1.7 million in seed funding in 2012. Why announce it now?

    First, we had to go through extensive security and HIPAA audits by [the audit firm] Praetorian, to [ensure we meet all the technical safeguard requirements]. We also wanted to wait until the product was simple enough for the public to use. We have customers, but an encryption product isn’t necessarily easy to explain to a doctor or nurse or even a lawyer. Now the product is in a state where you put your folder in Dropbox and it’s encrypted, it’s done. You don’t even know it’s there.

    For inquiring minds, will be you be in the market for more funding this year?

    We’re not right now looking for a Series B, but we’ll need funding to expand. We’ll probably need inside sales [staff] pretty soon. With our ambitions, we’ll be going through at least one more round — to put it mildly.

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    Connie

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  • Recommind Bets Big on Big Data Components

    165114_Recommind_logo_webRecommind isn’t a household name, but it looks likely to join the ranks of other business software companies that have gone public in recent years.

    The San Francisco-based company uses machine learning and advanced analytics to identify patterns in email, online documents, voicemail and social media — helping law firms, corporations and the U.S. government tackle one of their biggest headaches, which is their massive and growing piles of unstructured data. One of Recommind’s clients is the SEC, for example, which began testing Recommind’s software two years ago, and six months later signed up its roughly 1,200 employees to the service.

    Recommind prides itself on having raised just $22.5 million from investors, much of it last fall. As a result, its CEO, Bob Tennant, insists Recommind is in no rush to do anything other than perfect its newest offerings. Still, the company is nearly 14 years old. And with over $70 million in 2012 revenue (the company’s 2013 revenues are still with the auditors), it’s hard not to wonder what’s next for the company, so I asked Tennant. Our chat has been edited for length.

    You’re excited about a new platform that makes building cloud-based applications for big data technologies really easy. On the most basic level, how does it work?

    A typical enterprise app might have million lines of code, which is a lot to [write] from scratch. It’s a little like cooking a meal. You start with some ingredients and put them together in a particular way and, voila, you have an outcome. Now, maybe you cooked everything from scratch, including grounding the flour yourself, but most of us prefer to buy ingredients that are semi or fully prepared. That’s what we’re doing here. One way is to write code from scratch; another is to snap together components. And there’s been a big set of components missing, and we think we’ve got the stuff to fill the hole.

    You’ve traditionally specialized in e-discovery but say this new platform extends to a host of other applications. Can you elaborate, and what industries are you targeting?

    One broader set of applications we call information governance, which is the migration of data and the legally defensible deletion of data. For example, we’re about to close a big deal with a big bank that needs to deal with the e-discovery process, but whose IT department also wants to be able to get rid of data — just delete it, and you can’t do that; you have to [first] satisfy the SEC and the Department of Justice and anyone who might have claims to it.

    Other verticals we’re focused on include insurance, healthcare, technology and energy, so with regard to tech, we do a lot of work for Google and Cisco. Another client is TransCanada [the company seeking to build the Keystone XL pipeline]. Seven of the top 10 banks also use some version of our software, as does the SEC …[and] FINRA, the self-regulatory body, which uses us as its primary investigative tool.

    Why haven’t you gone public yet? Reports suggested that you might go out in 2013.

    We’ve never said that. We’re putting the infrastructure in place to be ready to go public, but we’re not committed to doing that. We don’t have a ton of VC backers [to satisfy] and we’re not burning through cash such that we need to raised bigger and bigger amounts of money.

    Are you open then to another private financing round?

    Yes. We won’t go [public] unless we think we’re completely ready to go out [and] there may well be investment needs prior to the point at which we have all our ducks in a row.

    In the meantime, how does a 14-year-old company keep its engineering talent engaged? Have you allowed employees to cash out some of their holdings on the secondary market?

    We haven’t, but we also don’t have a lot of the same pressure that Silicon Valley companies do, partly because a lot of our engineering work is done in Germany, and those folks aren’t being called every day to go to Twitter. We don’t have trouble attracting talent here, either, because the technology we’re developing is really cool in terms of what it will do from an architectural perspective. It’s unique, no one else is doing it, and that’s even more attractive to engineers than popping [a] stock [the day of its IPO].

    Connie

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  • Chamath Palihapitiya: Don’t Be Left Behind (Again); Buy Bitcoin

    Chamath PalihapitiyaChamath Palihapitiya, a former Facebook executive who opened his own investment firm, Social+Capital Partnership, in 2011, wants all of us to get rich on bitcoin. Such was his repeated message yesterday during a sit-down with reporter Brad Stone at a packed bitcoin conference in San Francisco. In fact, he argued that everyone should have “1 percent” of their assets in the digital currency, so that when it appreciates even more wildly, most people won’t be left further behind economically.

    Of course, Palihapitiya has plenty of reasons to be evangelizing the importance of bitcoin. In fact, he has around 100,000 of them. (That’s roughly how many bitcoin Palihapitiya said he controls, and at a cost basis of less than $100. One bitcoin is worth $522 as of this morning.)

    For readers who might have missed the discussion and want a better idea of Palihapitiya’s thinking, below are some of the arguments he made yesterday.

    On investing directly in the currency, versus investing in mining hardware companies and the like:

    “My background is in [electrical engineering], [some of the mining entrepreneurs I’d met with] didn’t even know what the [term] ‘tape out’ was…you know, I didn’t want to spend $20 million to $40 million to tape out a chip that could be obsolete by the time they got it out of the fab.

    All along, I’ve been specific that I think bitcoin as a store of value has immense more ability to appreciate than any company necessarily. It doesn’t mean that investing in a company is bad; it just means that, if given the choice – and I have that flexibility [with Social+Capital] – I chose to just invest in the bitcoin.”

    On how owning bitcoin “effects change,” which is partly the mission, Palihapitiya has said, of Social+Capital:

    “It’s progressing a set of financial changes that fundamentally empower a distributed class and disadvantages entrenched interests, and from that perspective, I think we should absolutely want that type of thing to win. So when I specifically buy bitcoin, what I’m thinking to myself is: I’m using my own personal capital to hopefully prop up and support something that would rip apart the existing financial system, and if it does, God bless it.

    What will happen is [that] individuals on the right side of history, on the right side of justice, will benefit. Individuals will be able to get access to capital easier…to transact cheaper..and not get cheated. Example: for those of us who are not white and weren’t born here, who send money back to a third world country, you will know there are thugs who stand outside these money depots and will basically charge you like a cover charge to go inside and get your [cash]. So when I send money to Sri Lanka, my uncle or my cousin may only get $70 because he has to [pay] just to get through the front door. And that’s bulls__t.”

    On whether he’s optimistic about alternatives to bitcoin, like the payment service Ripple:

    “No. That’s kind of like saying, ‘You’ve had a taste of the Internet; [now] I’d like you to go back to these AOL chat rooms.’ It’s like, who cares. Let’s focus our energy on the thing that’s [most likely to make it] …Fundamentally, people are just arbitraging a trend. I think it’s fine if some people can speculate and make some money off it. Whatever. But the overwhelming majority of our money and time and intellectual horsepower should be allocated to bitcoin … because it has the chance.”

    On whether there were growth patterns at Facebook that Palihapitiya is seeing replicated with bitcoin:

    “Absolutely. One of the projects I worked on very early on [at Facebook] was our platform, and we had a way of looking at our platform API usage to kind of think about what was happening in the ecosystem as a corollary to what would happen to our user growth. And [at Social + Capital] we’ve been doing a lot of that same analysis here, and we see a lot of similar patterns [with bitcoin], and we think that’s really constructive. When you look at bitcoin and its distributed use [and the numbers of developers writing to it], it’s really impressive.”

    On future plans:

    “I’d like to buy more…Honestly, it’s probably the single biggest high beta investment opportunity of all. That’s why I really think it should be owned by as many people as possible, because if we look back, 30 years [from now] and these things are a million [dollars] a coin, I think it would be better if many people had shared in that appreciation instead of a few. That’s why I’m evangelical about it … We should all participate in this upside. Because I think it’s going to happen, and what shouldn’t happen is that a few should control all [of it].”

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    Connie

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  • Riding the Hardware Wave, Lemnos Labs Raises $20 Million Fund

    Lemnos teamLemnos Labs, a hardware accelerator in San Francisco, is taking the wraps off a new, $20 million fund this morning. It’s quite an accomplishment. Three years ago, when founders Jeremy Conrad and Helen Zelman pitched investors on the idea of a hardware incubator, they were brushed off time and again.

    Then the pair, both M.I.T.-trained mechanical engineers, sat down with AngelList’s Naval Ravikant. “We got in front of him, and he said, ‘I love this, and I’m going to introduce you to other people,’” recalls Conrad. “And of course, because it’s Naval, it was like a 15-minute long discussion so he could get to another meeting.”

    It was long enough. After raising $1.85 million from investors to launch Lemnos Labs, Conrad and Zelman have spent the last two years investing $50,000 to $100,000 in promising teams, the first 10 of which have gone on to raise over $35 million in funding. One is Airware, which makes logic boards, sensors and actuators for drones; another is Local Motion, a company whose device helps enterprises manage their fleet of vehicles. Andreessen Horowitz led the funding of both.

    I recently stopped by Lemnos’ new 8,000-square warehouse — a former fish factory — to learn from Conrad what’s next.

    You have a new fund, and a new partner, Eric Klein, a former entrepreneur-in-residence who you promoted in February. Have the three of you begun investing the new fund?

    We started investing a few months ago, and we’ve made three investments, one of which is still stealth. The first, Ceres, is a drone company that monitors crops. The other is 6Sensor, which is building a handheld device that you can use to test food for gluten and that will eventually test dairy, shellfish, and peanuts.

    You’ll be writing bigger checks, in the range of $100,000 to $250,000. What kinds of companies will you back?

    We focus on five areas. About 20 percent is in aerospace: we’ve already [backed] three drone-related companies and a satellite company. Watching the growth in those areas over the last two years has been phenomenal. Robotics is also a big focus area for us, as is the “Internet of things,” transportation, and general consumer electronics.

    Is there any hardware sector you’d actively avoid investing in because it’s overdone?

    One area that’s pretty overheated right now is wearables, and wearables that are narrowly focused. Also, fashion tech. There’s some stuff that’s interesting, but we’ve seen a bunch of applications for things like clothes that light up.

    A couple of years into this, what patterns are you starting to see? What’s a common mistake young hardware startups make?

    One mistake centers on brand, interestingly. This is [advice dating back to] Proctor & Gamble, but brand is everything, and if you pick the wrong brand, and it’s too small of a target market, you can’t get the traction you need to get further funding.

    Take Jawbone, which is almost a meaningless brand but [has come to represent] quality. It has this huge market because basically everybody can buy from it. But startups often make branding choices early on that limit their market size. If you go to a venture capitalist and say, “Every skater in the world want this,” the investor’s question is going to be: “Okay, but are there enough skaters in the world to [rationalize this investment]?

    Also, there’s almost this mythology that you do this prototype, and it goes to China and gets manufactured. People always undervalue how much on-the-ground work you need to do in China to ensure your product meets your quality standards and that you’ve done the right testing.

    How are you helping them solve those issues?

    We have a set of contract manufacturers who we feel work well with startups. We also make [our startups] do a product requirements document, which gets really into the details of not just design for manufacturability but also design for usability. We have a company, Bia, that does a sports watch for female triathletes, and at the end of the day, it has to go into salt water and to survive cold and heat. It’s very different than 6Sensors, which will go in a pocket or purse. There’s no expectation that I can dunk [its product] in salt water for 45 minutes and that it will still work.

    How have you gone about forming the kinds of relationships with investors that help ensure your companies get seen?

    It’s just good old-fashioned hustle. I spent a year going to every event I could possibly attend and hustling everyone and convincing them that we’re interesting enough to visit. After you get traction, you get more introductions. And after Airware’s funding happened, a couple of VCs who hadn’t responded to emails were definitely like, “I don’t know how I missed [your note], I’d love to come by.” [Laughs.]

    (Image of Helen Zelman, Eric Klein, and Jeremy Conrad, pictured left to right, courtesy of Lemnos Labs.)

    Connie

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  • A Small Entrepreneur Takes on, Gulp, Uber

    GoGreenRideAcross the U.S., new car-sharing services Lyft and Sidecar are spreading fast, while Uber, which now manages a ride-share service as well as connects passengers with career drivers, seems destined for world domination.

    In short, it doesn’t sound like a great time to launch a new car service. Yet that’s exactly what Yamandou Alexander has done with GoGreenRide, a New York-based startup that Alexander has bootstrapped with $2.5 million of his own capital. (GoGreenRide is currently halfway through raising a new, $5 million outside round of fundraising.)

    Oddly, Alexander may have had the idea of an alternative transportation fleet first. As the French-born entrepreneur tells it, he moved to New York City at 19, bussing tables at famed Upper East Side restaurant Daniel and selling Motorola Startacs to his coworkers, many of them fellow immigrants. He eventually began exporting the handsets to Africa, creating one telecom company and selling a second for enough money in 2012 to bring to life a concept he wanted, but couldn’t afford, to pursue in 2006 – a nicer, greener, more affordable version of a black car service.

    We chatted recently about how that vision is coming together and why GoGreenRide makes sense now, even in a ride-sharing economy.

    Your business differentiates itself in two key ways. For one thing, GoGreenRide owns or leases dozens of Prius cars. You also have 40 full-time employees, rather than contractors. You’re like the anti-Uber, except that Uber is so profitable precisely because it has so little overhead. Why does your strategy make sense?

    With contractors, there’s a lack of control in presentation, quality, and customer service. We want our drivers to wear a uniform; to work on a schedule, rather than when they feel like it; to open doors; and to understand when it isn’t time to talk. We want to provide good, consistent customer service. We’re also concerned with Uber’s model from a liability standpoint.

    As for the cars, based on plans to increase our fleet to 50 cars by summer, the company should reach break-even by December. Next year, the car should see a 13 percent EBITDA…and by 2018, 26 percent EBITDA.

    Where are you turning to fund those plans?

    We’re talking with VCs. Investors on the West Coast are more interested in less capital-intensive businesses, but we’re getting good traction with East Coast people who know and live the experience of trying to find transportation in New York. We’re also going out to AngelList for additional investment, and inviting GoGreenRide members to participate.

    Uber gets a lot of flack for its surge pricing. Is your pricing flexible, too?

    Pricing does fluctuate based on traffic conditions. But you always know how much you’ll pay before you get in a car via our mobile app, which sends you detailed information about your trip, including when the driver will arrive. Our metering is calculated based on the estimated time [it will take to transport a passenger from A to B], which we know based on historical data about traffic patterns.

    As an alternative to black car service, what percent of your business comes from corporate partnerships?

    About 40 percent. We cater to both customers taking long trips, who might otherwise take a black car service to the airport, and short trips, where we’re competing more directly with taxis. Our average fare is $34, which is the same as a yellow cab, but you’re getting a much nicer experience with GoGreenRide.

    Beyond expanding your fleet, what’s on your road map, so to speak?

    The short-term growth opportunity is for us to grow our model in New York, then move into L.A. or San Francisco. We’re also starting a franchising program, including [helping launch] a GoGreenRide in China.

    We glad for Uber’s success and the acceptance it has gained in New York. But we also see a lot of people coming to us from them because of pricing, level of service, reliability, and safety.

    Connie

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  • At Six Months, Syndicates is Maturing, Without Some Big Names

    AngelList.logoWhen AngelList launched its “syndicates” program last September, AllThingsD anointed one investor, Kevin Rose, as its “million dollar man.” The reason: within a week of AngelList making it possible for backers to put their money behind one individual, Rose collected more than $1.1 million in commitments.

    Rose, a Google Ventures partner, told his 245 backers that he planned to participate in five seed investments per year on the platform. But six months later, he hasn’t invested in any. Both MG Siegler of Google Ventures and Path cofounder Dave Morin, who also quickly attracted hundreds of thousands of dollars to syndicate deals, haven’t pulled the trigger on anything, either.

    Neither Google Ventures nor Morin responded to a request for comment. But AngelList cofounder Naval Ravikant has a theory based on his own investing experience. “I think some [investors] assembled syndicates but didn’t know what to do with them. I think some are scared because the platform is very transparent. [An investment] is going to be tracked. People will see the deal in detail. There’s no hiding anything, and it causes people to freeze up a bit.”

    Some have painted another picture of why Rose may not be syndicating deals on the platform. One source cites a low volume of high-quality deals, while another says that if there’s enough demand for a startup’s seed round, there’s no reason to include a syndicate.

    It seems entirely possible, too, that it’s harder for full-time VCs to justify their involvement with the platform until it’s better understood. Google Ventures, as a single LP fund, might also be struggling with whether to essentially create a separate management company around one of its partners.

    Perhaps unsurprisingly, Ravikant rejects each one of these ideas, noting that both venture firms and LPs are showing increased interest in syndicates, including Maiden Lane, a new fund backed institutional investors that will invest both directly in syndicates and in direct investment opportunities found elsewhere on AngelList’s platform.

    Ravikant further insists the quality of the deals being syndicated is “actually quite good.” He points to AltSchool, a year-old, San Francisco-based company that’s creating a brand-new network of schools. On Tuesday, the company announced that it has raised $33 million in Series A funding led by Founders Fund and Andreessen Horowitz. Among AltSchool’s other, earlier investors is former Wikia CEO Gil Penchina, who syndicated the investment on AngelList.

    Ravikant also notes that syndicate leads can choose whether information about a deal will be made available to the general AngelList investor community or to specific backers only, suggesting that some of the program’s best startups are being funded under the radar. He highlights Ben Davenport, whose mobile messaging startup, Beluga, was acquired by Facebook and turned into Facebook Messenger. Davenport recently syndicated an investment in NYBX, a New York-based company focused on cryptocurrencies. By design, his backers are serious Bitcoin investors only, and “unless you were one of Ben’s LPs,” says Ravikant, you didn’t see it.

    I ask Hunter Walk of the venture firm Homebrew about his experience with the platform. Last September, his firm led a $2.1 million investment in the shipping startup Shyp, some of which came from a syndicate led by entrepreneur-author Tim Ferriss. It created a lot of press at the time for Shyp, but in retrospect, was it worth it? Walk says it was. “Tim was able to assemble a great set of angels – some known, some new to investing – but we saw his participation as strategic.”

    AngelList’s syndicates program is “still very much in beta, so going slow,” says Ravikant. “I don’t think [the program] will be hitting its stride until next year.”

    In the meantime, he says, there’s “a lot more demand than we can run. Fundamentally, something is working.”

    Connie

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  • Google Glass Meets Healthcare in Augmedix

    Ian ShakilIt’s early days for Google Glass, and an almost absurd minefield of challenges lie ahead of it. But that’s not stopping a small number of startups from springing up around healthcare-related applications that can arguably cut costs, provide doctors more time with patients, and improve health outcomes.

    Augmedix — a 20-month-old, San Francisco-based startup that’s announcing this morning that it has raised $3.2 million led by DCM and Emergence Capital Partners — calls itself the “first and largest Google Glass startup” focused on healthcare. Its complicated task put simply: It beams electronic health record information to doctors while they’re meeting with patients, so doctors can, say, query someone’s white blood cell counts in real-time without having to traipse back to their computers in the middle of that patient’s visit or in between patient visits.

    Whether or not Augmedix is the biggest company focused on turning Glass into a physician’s tool “by every metric,” as its CEO, Ian Shakil tell me, its claims can’t be far off. According to the research firm Datafox, only a handful of startups are dabbling in any kind of Glass-related healthcare applications at the moment, partly because there’s still too much uncertainty about Glass’s widespread uptake, and largely because Glass isn’t protected under federal information privacy rules, meaning that each patient has to give his or her written consent – an effective but inelegant workaround.

    So why is Augmedix treading where few startups are ready to go yet? Shakil, who cofounded Augmedix a few weeks after graduating from Stanford Business School (which is also where he met his cofounders), talked with me about it the other day.

    You’re announcing new funding but you closed it in August. Why share the news now?

    We just wanted to be out of the media’s eye and focus on execution and on hitting more milestones and making more progress before talking to media.

    What sorts of milestones can you share? How many doctors are using Augmedix?

    We’re selling to large groups of doctors, rather than doctor to doctor, and so far we have several health systems and doctors groups [as customers] and we’re generating revenue. As healthcare continues to consolidate, our job becomes easier because there are fewer people to sell to. Enterprise sales is also the bread and butter of Emergence Capital, so it’s great to have them [as an investor].

    How do you address privacy concerns?

    Patients don’t walk in the door to see their doctor wearing Google Glass. They’re handed a laminated FAQ and are educated about [the process] and can opt out of having the doctor wear it.

    We’ve also created an entirely separate [from Google] cloud-based service that’s on pipes that we control, and we’ve signed business associate agreements with customers, saying, “We’re doing all the [protected health care information] just like other electronic healthcare companies.” We’ve hardened the device in lots of ways, too, such that it’s even more secure than a smart phone in a health care environment.

    As a third-party developer, you’re always at the mercy of the platform. How do you mitigate that risk?

    I don’t think the risk is as great as some people think. Also, though our materials are all about Google Glass, we’re hardware agnostic; [our tech] also runs on [the Android-based] Vuzix M100. And there are many other smart glass technologies out there, some operating in stealth mode; it’s becoming a competitive space.

    I think Glass is the best right now and that it has the best software environment and hardware, so it’s our go-to. But over the long run, I think we’ll be protected no matter what happens.

    You have 36 employees working on creating this technology and getting it into physician offices. Is it safe to say you’ll be raising money again soon?

    Yes, actually, we’ll look to raise another round, bigger than the amount we’ve raised thus far, later this year.

    Connie

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