• Naval Ravikant on AngelList’s 2015 Game Plan

    IMG_9776Last week, at StrictlyVC’s inaugural event, investor and founder Naval Ravikant joked about the trials and tribulations of entrepreneurship. He also gave those gathered a comprehensive look at the near-term future of AngelList, his fast-moving, 22-person, San Francisco-based company that’s perhaps become best-known for its pop-up venture funds called Syndicates that allow angel investors to syndicate investments themselves. Indeed, according to Ravikant, more than 243 companies raised $104 million through the platform last year, making AngelList the “largest seed fund in the world.” And AngelList is hoping to double or triple those numbers this year.

    More from our chat that evening, edited for length, here.

    You say of the $104 million that your 15-month-old Syndicates program funneled toward startups last year, $7 million, or just less than 7 percent, was from institutions. Are you happy with that number?

    No. [Laughs.] Obviously, institutional investors come later to the game. They need more certainty, more diligence. It takes more time.

    A few venture firms now actively use Syndicates, including Foundry Group, which did something like 40 deals last year on your platform. Have you also talked with big mutual funds that now make big bets on later-stage startups and that might diversify even more by getting into earlier-stage investing?

    They have no idea what this is. I’ve tried to explain it to them and it’s too bleeding edge for them. Sometimes we’re too far out ahead of the curve.

    Where are these angels coming from – the Bay Area primarily?

    A lot of them are [from the] Bay Area. A lot are entrepreneurs, angels, or maybe individual VC partners who are backing each other. We also have hedge fund managers, oil traders, people in the finance industry who have made some money but aren’t in Silicon Valley. There are definitely the dentists and radiologists, who the finance industry seems to hate – I don’t know why. And they do try and come on and we either reject them or we put them into [a new series of index funds] that are managed by us so they can invest in 100 startups at a time [and hedge their bets].

    You have Syndicates. You have these index funds and other products. What do people use the most at AngelList?

    Actually, [they mostly use] the recruiting site, which we started on a lark in early 2012 when we noticed that people were raiding failed companies on AngelList for employees. That’s by far the highest activity thing on the site, because everyone is looking to hire. We have around 7,000 companies recruiting on AngelList, of whom more than 3,000 log-in every single week and go through . . . 120,000 candidate profiles that are active.

    Are you ever going to make money off those listings?

    That’s the obvious source of cash. But it works because it’s free for the startups. If we do monetize that — and we’re running some experiments — it will be at the high end for people who have more money than time.

    Last year, angel investor Gil Penchina raised $2.8 million via Syndicates to invest in Beepi, a used car marketplace, alongside DST Global. Was that the biggest syndicate to date by far?

    We’ve had a couple of others that were over a million bucks. It’s relatively constrained because you’re gathering checks from individuals, so when you collect $2.8 million, that’s 90 different checks and wire transfers and so on, and we’re limited because we form a special purpose vehicle to invest in each company, and that SPV is limited to 99 unit holders by law. So I would not extrapolate and say, okay, $2.8 million today; tomorrow, it will be $10 million, then $20 million. It’s fun to think it could go to that range, but I don’t think so, not yet.

    Penchina recently told the WSJ that he has poured his entire life savings into AngelList. Does that concern you? What if things go south for him?

    That might have been an exaggeration. [Laughs.] But sure, it’s never good when someone loses their shirt, that’s true of any startup.

    Has anyone come after you over a deal that didn’t go as expected?

    No. In the entire history of AngelList, we’ve never had a single related case of fraud or a lawsuit threat. We follow the rules, we have a no-action letter from the SEC, we have disclaimers, we’re trying to deal only with sophisticated people. This is America, and anyone can sue you and someone eventually will. But so far so good.

    How do you keep people from getting in over their heads?

    We look at what angel investments they’ve done before, and if they don’t have a history of doing them, then we’ll run them through a questionnaire that asks them: What percentage of your net worth are you putting in, what kind of return do you expect, how liquid do you think these investments are, how big a basket of these do you think you need to assemble? And based on their responses, we’ll either reject them, we’ll cap the amount they can invest, or we’ll move them into one of the index funds and say, “You can put a small amount in here.” Or we’ll say, “Go offline, go to your local angel association and lose some money there, then come back to us.” The test we’re looking for is: have you lost money before.

    How much of someone’s net worth would you advise investing in nascent startups? Up to 10 percent?

    No, I would say anything more than 5 percent is probably silly. Obviously, I’m personally far more leveraged than that – I’m “all in” on startups — but that’s because I’m living in Silicon Valley and I’ve bought into the dream.

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    You talk a lot about the advantage of moving investing online.

    People like to think that it doesn’t create that much value, but we forget that when you move online, there are all kinds of things you cannot do offline. An example: By the end of this year, you’ll be able to go into Syndicates and say, “This person sourced the deal for me so I’m going to give this person carry. This is passive capital, so they’ll pay full freight. The pro rata will get gobbled up by following entities.” You can even start doing differential pricing. You can establish that the first $250,000 into a deal gets a 20 percent discount and the next $250,000 gets a 15 percent discount. It breaks that logjam of: Why should I be the first one to write a check into the company.

    Online would also seem to play into this notion of continuous fundraising or rolling closes. Do you think that’s a sustainable trend?

    We’re going to see a lot more of it. Companies are getting much better at raising money whenever it’s available and they’ll raise it in dribs and drabs until they get to the scale or product-market fit where a VC will come in and write a $10 million check. I think it’s a natural trend and I do think it’s easier online than offline. We already enable it to an extent in that Syndicated deals can stay open for months and keep collecting capital if you want it to . . . My guess is that by the end of next year, it’ll be a common thing.

    In the past, entrepreneurs had gotten a lot of advice from the venture side, which was kind of talking their own book, which was, “Get your ducks in a row and raise money once and get a good board member.” It’s all good advice, but it’s a little self-serving, whereas accelerators give almost the opposite advice, which is: “Go get the money right now, get it from anyone who will write you a check within reason, and keep taking money as long as you can and just don’t run out of cash.”

    I’ve also seen you mention getting into secondaries. How serious were you?

    Yes, they’re becoming very popular now because household names like Uber and Airbnb and Dropbox are staying private longer and people are running around trading in the companies’ stock on the side. But it’s very tricky because [secondaries are] regulated in a very different way. Insider trading laws apply to secondaries; the companies often don’t want there to be secondary trades, so they have a right of first refusal. A lot of the secondary trades that are going on are in violation of the companies’ bylaws. A lot of them have counterparty risk, where you don’t actually run it through the company; you just get an IOU from someone who could skip town.

    A lot of this going on right now. It’s possible that the amount of secondary trading going on in Silicon Valley under the covers is going to match the amount of primary financing soon. And if you look at the public markets like the Nasdaq or the NYSE, it’s almost all secondary. The IPOs are a tiny piece of the trades, and then it’s all secondary trading going back and forth. So it’s something that we’re looking at, but it’s very difficult, and because we’re so large and so watched, we have to do it by the book. We’re looking into it, but it’s a hard problem.

    [Update: The original version of this story was titled: “In Silicon Valley, Secondary Deals Quietly Reaching ‘Primary’ Funding Levels.” Ravikant asked that we change it, given that our choice in wording was more predictive and certain than his original comments or intent. Our apologies to Ravikant and to readers.]

    Connie

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  • Strava’s CEO on Community, Competition, and Love-Hate Industry Relationships

    gallery-mark-gainey (1)People love Strava, the 95-person, San Francisco-based company whose training app for cyclists and runners has garnered an almost fanatical following. The company keeps its number of “members” close to the vest, but among the passionate acts of its users was one recent job hopeful who employed the company’s mobile app to spell out “Hire Me” over the course of an 8.1-mile run that ended at Strava’s offices. Another user plotted out a bike ride in the shape of a turkey. In the U.K., where the company’s app has taken off (70 percent of Strava users are outside the U.S.), the press has even asked of its obsessed users: “Is Strava Destroying Your Marriage?”

    Last week, at a StrictlyVC event in San Francisco, Strava’s charismatic cofounder, Mark Gainey, talked at length about his business with Sigma West managing director Greg Gretsch, who wrote Strava one of its first checks. During the conversation, Gainey opened up about what he views as the biggest weak spot of the sporting goods goliath Under Armour, his “love-hate” relationship with the navigation equipment company Garmin, and the one thing that keeps him up at night. Some of that chat follows here, edited for length.

    When Strava started [in 2009], it had 5,000 users. How has it evolved into a global brand?

    It’s been a fascinating ride. [Cofounder] Michael Horvath and I . . .wanted to motivate and entertain the world’s athletes. At first, we were a web company that supported Garmin devices for cyclists. We basically tried to surprise and delight cyclists using the data they’d just uploaded. [Editor’s note: users had access to all of Strava up to five rides; afterward, they were asked to pay $6 a month, or $60 per year for the use of all of its features.]

    In 2011, in trying to figure out a cheaper way for people to participate in Strava, we launched a mobile app that put us on a completely different path. The good news was that wow did that create growth, domestically, internationally – everywhere. The bad news was that we had to completely reconstruct our team and rethink the way we were building ourselves out.

    What types of athletes are using Strava?

    We started with cycling and really focused on them; cyclists are data geeks who are used to [logging their data]. But now, almost half the activity coming in is from the running community, You can upload up to 28 different activities into Strava, though. We see everything from yoga to skiing to kite surfing. We want people to capture their athletic life on Strava.

    What’s the business model and how has it evolved?

    You can use Strava for free as long as you like, or you can upgrade to $6 a month or $60 a year. It’s a very straightforward model that has worked very well for us over the past five years. By going direct to athlete, we’ve been able to maintain that one-to-one relationship and really create long-term customer value.

    A year-and-a-half ago, we also began developing a second direct-to-athlete revenue model, with integrated commerce. We’re not trying to be the Amazon for athletes or create a shop where you can buy stuff but [rather] integrating opportunities into the Strava experience. You can sign up for a monthly “Gran Fondo” — we basically challenge for you to ride roughly 100 miles on a given Saturday — and if you finish, you get an email from us and you “unlock” the ability to buy a limited-edition jersey. We routinely get more than 100,000 people who sign up for these challenges, and it turns out that rewards for athletes is really powerful. We’re simply trying to keep them motivated.

    We also launched something six months ago called Strava Metro, which is an opportunity for us to begin working with urban planners and local governments, taking ride and run data in any given population and giving them an anonymized version of it so they can plan bike paths and pedestrian walkways. That’s something we’ve begun to license out and we think it’s another interesting part of our business going forward.

    What are the metrics that matter most for Strava?

    A long time ago, we placed a bet not to worry so much about the top of the funnel and user acquisition but [focus instead] on engagement. We were sort of fortunate in that athletes tend to network with each other anyway, so we let that kind of be the organic growth, and we focused attention on keeping people engaged.

    Where things have shifted over the last one-and-a-half years is that engagement [now means] something very specific; we call them SUMs, Strava uploading members who [port] their activity into Strava. It’s a powerful metric. We know that once we get them uploading a few times, they’re lifers. If you saw our cohorts, our members, our athletes –they don’t go away. They hibernate when it’s a polar vortex outside, but they’ll come right back.

    Under Amour has been busily acquiring companies. It bought MyFitnessPal and Endomondo last week for $475 million and $85 million, respectively. Over a year ago, it acquired MapMyFitness [for $150 million]. Can you comment on what’s going on, and how you see the market evolving?

    We’re pretty excited about our future. We did a Series D [last fall] led by Sequoia. We didn’t need the capital; we’ve been pretty efficient with our capital. But we were sending a clear signal to the market that we intend to go and grow a global brand. We think there’s a great opportunity to build a sports brand using digital as the platform, so we’ve watched with interest as there has been some consolidation. Under Armour has been especially aggressive over the last year and a half. What we’re finding is that they’re just very different businesses.

    When you listen to Under Armour CEO Kevin Plank, he’s very clear. His business is selling apparel and shoes, and he needs channels to do so. And he has figured out that he can get 100 million email addresses when he pulls together these sites.

    At Strava, though, we have a strict definition of community. Community is about getting our customers to interact with one another. That’s when community happens, [that’s] when you have network effect. I’m not judging. Under Armour has a loyal customer base, Nike has a loyal customer base, Apple has a loyal customer base. I’m not saying that community is the way to go, but in our case, we’re a community-based business. We’re akin to a LinkedIn or a Facebook, and our business is very much predicated on the way the network interacts. And when you look at things like MyFitnessPal and Endomondo, the challenge they’ve had is there’s tremendous churn with them because there isn’t network effect. So it’ll be interesting to watch how it plays out.

    Will we see Strava make any acquisitions?

    Part of the reason to do the raise [last fall] and put ourselves in a position of strength [for that possibility]. It sure feels like it’s a market that’s ripe for consolidation, and we’d rather be on the aggressor’s side.

    What would you be acquiring for?

    We’re always looking at other services that would benefit our athletic community. Areas around nutrition are interesting, around training. The event marketplace is fascinating for Strava. The challenge is the noise of opportunity. There are so many things we could do for our athletes and frankly we’re a team of about 95 people, so we’re trying to be careful about what we do and don’t do.

    Which companies are always on your radar?

    Under Armour has always been on my radar [particularly after they acquired MapMyFitness last year]. Nike is always on my radar; we talk to them all the time and think there are opportunities for interesting partnerships, but they have Nike Plus, so I monitor that one closely. Another would be Garmin, [a company] that everyone thinks that we’re in bed with and that we’ve had this close relationship with since day one because we sell all their devices and support all their users. But the truth is it has been a love-hate relationship for the better part of five years. We think there are amazing things to do together, so we’re hoping it’s more the cooperation part but . . .

    What I actually lose sleep over is the startup I haven’t seen yet. I understand those big businesses and what they’re trying to do. I worry that there’s someone else who has figured out how to something really cool with mobile and apps and that we don’t have time to do. The guys who make me nervous are the companies that [venture capitalists] are probably funding right now.

    Connie

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  • Keith Rabois on the Tricky Business of Multi-Stage Investing

    IMG_9740Last week, at a StrictlyVC event in San Francisco, investor-writer Semil Shah interviewed Keith Rabois of the Sand Hill Road firm Khosla Ventures. There, he asked Rabois how Khosla manages its multi-stage approach, and whether Rabois anticipates that more firms will raise different-stage funds to capitalize on today’s go-go market.

    Rabois — who speaks at a rapid-fire clip that keeps listeners on their toes — made several interesting observations, most notably that investing across stages is a very tricky business that, done properly, involves different teams, different skills, different compensation, and different bets.

    Perhaps unsurprisingly, he thinks Khosla Ventures has the model down.

    Noting that the firm has a seed fund (“a very large seed fund, [at] $300 million plus,” he said), as well as a “main” fund that has historically been roughly $1 billion in size, he went on to explain that Khosla’s seed fund “isn’t necessarily designed to do the same things the main fund is designed to do. The seed fund is designed to take risky experiments and provide capital to entrepreneurs who want to prove things and validate that something is technically feasible . . .” Meanwhile, he said, the main fund is “not a growth fund,” but rather a “standard venture fund” that invests in standard Series A and B deals.

    It’s an important distinction, he implied. It minimizes the potential for the conflicts of interest that can arise with the new breed of growth funds to be raised in recent years by Union Square Ventures, Foundry Group, Spark Capital, and Greycroft Partners, among others.

    Said Rabois: “What I detect from other funds is everyone is trying to raise a growth fund. Everybody who is a good Series A or Series B investor is like, ‘Wow, we have great asymmetric information about how well these companies are doing. Wouldn’t it be great if we could invest more money and take advantage of that information and of that relationship with the entrepreneur?’”

    It’s an understandable impulse, he said. Investors have long resorted to special purposes vehicles, which are time consuming and can be “painful” for the entrepreneur left managing his or her increasingly complicated cap table. But Rabois also warned of conflicts of interest, pointing to the storied firm Sequoia Capital to illustrate his point.

    Sequoia “fundamentally [does] Series A and Series B [rounds], and they do Series A better than anybody else and have for a very long time,” Rabois said. But Sequoia’s growth-stage fund, which typically invests between $10 million and $100 million in companies, has “now cherry-picked a couple of those [early-stage] investments,” including, most famously, the messaging app WhatsApp.

    That investment proved highly lucrative for Sequoia and its limited partners. In fact, WhatsApp’s exit last year was the largest ever for a still-private venture-backed company. (Sequoia invested $8 million in the company in 2011, then elbowed aside other investors to sink another $50 million into the company in 2013.)

    Still, “if you do that too often,” Rabois continued, “no one wants to fund your companies because they see your selection bias. It’s the same signaling problem [that can plague earlier-stage companies] just applied [to maturing companies]. It’s very challenging to run a true growth fund and a Series A fund and fund some [of your startups] but not all, or fund X percent but not Y percent, without people reading into it.”

    Obviously, said Rabois, “If Sequoia thinks a company is amazing, they’ll proactively offer from their growth fund to double down on it,” he continued. But “if they don’t, maybe I should be reading into that when I get an introduction from them to a Series B [deal]. Maybe I should be cynical about what’s going on at this company [laughs]. Why are you sending it to me? Why aren’t you funding it yourself?”

    Before moving on to another topic, Shah asked Rabois if it were any less dangerous for larger funds to “move down the stack” and invest in younger companies than they’ve traditionally funded. The hedge fund Tiger Global Management, for example, has recently led a number of Series A deals, including, most recently, in the India-based news aggregation startup News In Shorts.

    Rabois’s take: “I’m not sure it’s going to turn out that well. Early stage is just a very different skill set. Later stage is more science and early stage is more . . . I don’t think you can use metrics to assess most seed and Series A investments. The [metrics] just don’t exist, and you’re kidding yourself if you think that they do in any statistically valid way. You might be able to tease out something from some cohort, but [that’s it].”

    Connie

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  • At Venture Firms, Balancing Brands Within Brands

    size-500x500There was a time in venture capital when it was almost unthinkable for investing professionals to make personal bets on startups outside their firms. That seemingly began to change about a decade ago. For example, after Accel Partners made an early bet on Facebook that would prove among the most lucrative in venture history, the high-profile partner who’d taken a seat on Facebook’s board, Jim Breyer, began backing a variety of companies through a personal fund, Breyer Capital. Tim Draper, a cofounder of DFJ, similarly began making investments unrelated to DFJ long before leaving an active investing role at the firm in late 2013.

    Whether VCs are doing more angel investing today is an open question; no one yet tracks their collective personal investments. But it’s a rare week when at least some funding announcements don’t feature VCs who are backing startups with their own checks.

    It’s easy to appreciate why. Sometimes, the investments being made are too small for a fund, or they fall outside a firm’s wheelhouse. In a crowded landscape, the brand of an individual VC can also help a firm win competitive deals; allowing the VC’s involvement in as many promising companies as possible is a means toward that end.

    But there are pitfalls. For one thing, conflicts can arise. If a VC has a personal stake in a new productivity app, what happens if another partner brings a different, competing productivity app into the firm? An employee’s headspace can be taken up by a company that’s not part of the firm’s portfolio. You could probably also argue that every side deal a VC makes undermines the decision-making process of his or her partners — especially in cases where those angel investments turn into home runs.

    The last is a particularly thorny issue for a firm’s LPs. Says one San Francisco-based institutional investor: “If an investor funds a company that hits it big, and the firm isn’t in it, the LPs are going to be mad. They’re going to ask why the hell wasn’t the fund in that deal.”

    Still, done right, the trend can be a win for everyone involved. First, side deals can become portfolio companies. Bill Pescatello, a partner at Lightbank in Chicago, has made three angel investments outside his firm, all startups where he “had a direct connection with the founders and/or a very specific connection to the business through my own interests.”

    Pescatello adds that in each case, he ran the investment opportunity by Lightbank, which passed on two of the startups but has funded the third.

    Niko Bonatsos, a principal at General Catalyst Partners in Palo Alto, Ca., has similarly made two “unique” investments that he first ran past his partners. One of of his checks went to Raise, a Chicago-based gift card marketplace that has since attracted $81.2 million from investors, including $56 million that the company announced just last month. New Enterprise Associates led the deal.

    Bonatsos also personally invested in the 2.5-year-old, Atlanta, Ga.-based anonymous messaging startup Yik Yak. When Bonatsos wrote a check to Yik Yak – he was its first angel investor — it was barely a speck on anyone’s radar. Last November, the company announced $62 million in funding led by Sequoia Capital. (The company has raised $73 million altogether.)

    Bonatsos — who scans roughly 30 newsletters and outlets before he starts his day each morning – notes that both were risks, particularly given that principals don’t necessarily have the same bank balance as more established VCs.

    He is also quick to add that his firm’s “interests always come first. I’m first and foremost a General Catalyst team member.” Sometimes, he explains, “a founder doesn’t want to raise capital from a venture capital firm right away, and in order for the firm to maintain a relationship with that entrepreneur, it makes sense for someone at the firm to write a personal check.”

    In fact, says Bonatsos, if General Catalyst opts to invest in either company down the road, he’ll sell the firm his stake at cost, per a standard arrangement with the firm.

    Of course, General Catalyst could also pass again. Yik Yak was the sixth most popular social networking app in the world three months ago, according to the analytics firm App Annie. Right now, it’s the 24th most popular social networking app.

    “If the VC firm doesn’t [acquire an employee’s stake later], you’re stuck with the angel investment,” says Bonatsos, acknowledging the possibility.

    “If things work out, it’s great for you. But there’s also a good chance you’ll lose your money.”

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

    Connie

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  • Venture Gets Liquid, But Top Jobs Remain Scarce, Says Recruiter

    Liquid-GoldLast year was a great time for venture capitalists and their investors. According to the deal database Pitchbook, U.S. venture firms saw a record $78.4 billion in exits across 845 companies, up from $39.5 billion in 2013. In fact, compared with the industry’s most recent nadir in 2009, when VCs saw just $14 billion in exits, it was a flat-out bonanza.

    Don’t expect all that liquidity to transform into more venture jobs, though — so says Jon Holman, an executive recruiter who has specialized in CEO and GP searches for more than 30 years, including for firms such as Accel Partners and Sequoia Capital.

    Here’s why: While all this recent liquidity has goosed the industry’s returns, its overall numbers are still nothing to crow about, particularly given the outperformance that VCs promise their investors. According to the National Venture Capital Association and Cambridge Associates, venture capital bested the DJIA, Nasdaq Composite, and S&P 500 during the last year, but it has tied or been beaten by the indices over the last three and five years.

    Venture has more powerfully outperformed some of those same indices over the last 10 and 15 years. But because the public pension funds, endowments, and foundations that pay the industry’s tab aren’t keen to wait for meaningful returns, many are pressuring firms to at least lower their fees (which are typically 2 percent on committed capital and 20 percent carry on any profits).

    Says Holman: “It may not be happening to Sequoia, but damn near everybody else is under pressure in terms of their fees and carry.”

    That kind of pressure means there’s less money to pass around, raising a question that isn’t difficult for most firms to answer. “They ask: Do we have the same number of partners and everyone makes less money, or do we make do with fewer partners so we can make as much as we used to? The trend over the last 15 years has been to make do with fewer partners.”

    Holman says that he does “have the vague sense that there are more associates and [other junior employees] than they’re used to be.” But he says he doesn’t expect that many or most will eventually become general partners, as was once the case at venture firms. “I think now there are more associates who don’t get any share of the carry; that’s how some firms are [maintaining some of their former staffing levels].”

    Certainly, it’s worth drawing a distinction between traditional venture firms and other, newer types of firms, including many seed-stage firms that have launched in recent years and are typically run by a former entrepreneur or operator with some help from more junior staffers.

    The number of corporate venture firms has mushroomed, too. According to the media company Global Corporate Venturing, over the past four years, more than 475 corporate venture funds have sprung into being, bringing the worldwide total to more than 1,100.

    Still, firms that have been around a cycle or two are not hiring aggressively, and that’s not likely to change, suggests Holman.

    “Yes, some investors are having nice returns because of these ‘unicorns,’ but that won’t keep up,” he says. “Only crazy people think it will keep up. This is an asset class, and all asset classes wax and wane.”

    Connie

  • At StartX Demo Day, a Wide Assortment of Startups

    Box-of-ChocolatesLittle about the accelerator program StartX is conventional. On the one hand, the 5.5-year-old, Palo Alto, Ca.-based outfit is a nonprofit that helps founders affiliated with Stanford University to build peer groups, as well as their confidence. Specifically, it provides companies with 10 weeks of free educational programming about everything from setting goals to launching products.

    But StartX is also becoming a power player, owing largely to a deal it struck in September 2013 with Stanford University and Stanford Health Care, which asked it to manage a for-profit vehicle on their behalf — uncapped capital that StartX now uses to invest in up to 10 percent of its founders’ rounds.

    You can actually see StartX’s growing influence. Not only does the 16-person outfit now operate out of 13,000 square feet of office space, but at a demo day yesterday, on the heels of one of StartX’s three yearly sessions, roughly 200 investors stood elbow-to-elbow in a nook of that space to hear 20 of its companies ask them for funding.

    Perhaps unsurprisingly, the companies were a tad unconventional, too.

    One presenting company, Summer Technologies, a sustainable agriculture startup, is hoping to transform the cattle industry by bringing analytics to grazing management. Currently, says CEO Christine Su, farmers aren’t making the most of their land. They allow their cows to graze too long in one place, when moving them around more frequently would keep the grass and soil healthier. Summer’s software, currently being piloted at 30 ranches across five states, pulls in rain, soil and other data that can help those farmers boost their productivity.

    Another company, Payjoy, aims to bring consumer finance to hundreds of millions of people in India and elsewhere by embedding technology in smartphones and TVs that allows them to pay for the products as they’re used, instead of in up-front cash. Striking the right relationships would seem to be a big hurdle for Payjoy, but founder Doug Ricket, a former Google engineer, has spent the last six years selling technologies into the developing world; presumably, he has a network to leverage.

    Vouch, a third startup, also has an unusual approach to what’s an increasingly crowded space. It intends to use the creditworthiness of a borrower’s personal network, as well as their own individual data, to tailor personal loans for its users. Think friends, uncles, cousins. It sounds a little out there, but online lending is obviously a huge and growing market, and the team includes former alums of PayPal and Prosper, among other companies.

    How far these companies will go is anyone’s guess. But the portfolio of StartX appears to hold promise. Since launching its fund with Stanford’s capital — it’s called the Stanford-StartX Fund — StartX has invested $31.4 million across 82 companies, 9.2 percent of which have already been acquired.

    At least one company, six-year-old, San Francisco-based Life360, looks like a breakout success story, too. Right now, two million families are signing up for its family communication app each month — traction that investors have noticed. (The company has raised $76 million to date.)

    Of course, the organization has also seen its flops. Though 88.5 percent of its companies are still up and running, StartX readily admits that another 11.4 percent have gone out of business.

    If press reports are to be believed, one of its highest-profile portfolio companies – the payment startup Clinkle – may be headed in the same direction.

    For a full list of the companies that presented yesterday/are looking for funding, click here.

    Connie

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  • Thirteen Virtual Reality Companies Head to San Francisco

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

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

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

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

    How far along are they?

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

    Have these companies raised capital in the past?

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

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

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

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

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

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

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

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

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

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

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

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

    Connie

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  • AngelPad Elbows 13 Young Startups Into the World

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

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

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

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

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

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

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

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

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

    Connie

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  • Fast Chat with the Inimitable Howard Lindzon

    Howard LindzonBy Semil Shah

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    Connie

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  • There’s Something About Abie Katz

    abie katzAbie Katz, 24, is halfway through his second week as an associate at the tony Sand Hill Road firm August Capital. Why is that notable? Well, for one thing, the 20-year-old venture firm doesn’t really hire associates. Also, despite his age, this isn’t Katz’s big break into the venture world. He has already spent more than two years at the associate level, having joined the seed-stage firm CrunchFund in 2012.

    Katz has also managed to attract profiles in Wired, which likened him to Mark Zuckerberg in 2008 just two months after he’d cofounded a company, and TheNextWeb, which later reported on his decision to leave college to become a venture intern. (That’s a feat. No offense to interns, but who write about interns?)

    What is it about Katz? We talked with him last week to find out. Our chat has been edited for length.

    How does a 17-year-old student with a fledgling company get compared to Mark Zuckerberg in Wired?

    That was the greatest fluke of my life. The business that [reporter Brian Chen] wrote about never ended up launching. We just hit it off and he decided to interview me and gave [the story] an inflammatory headline that was very positive — though undeserved. I thought the press might be helpful. It was so many years ago now, it’s more of an artifact.

    Nothing relating to you is an artifact yet. But what is it about you that so enchants reporters? Why did TheNextWeb care that you were leaving college? Why am I interviewing you right now?

    [Polite laughter.] I met [TheNextWeb] reporter at [TechCrunch] Disrupt. I asked for directions and we ended up getting dinner in a group and she thought that I had an interesting story.

    For the most part, I like to be more behind the scenes in venture capital. I’m still new to my career and realize I have a lot to learn. I also think entrepreneurs should really be the center point for mass media. But I’m glad that things like StrictlyVC are out there because I think it’s a really interesting industry.

    How did you break into VC as a college drop-out?

    I went to college for a one-and-a-half years at Claremont McKenna College, then took some time off to intern at a [San Diego startup]. I’d find small business initiatives that weren’t in anyone’s purview and [try making something happen]. I [later] reached out [Merus Capital cofounder] Sean Dempsey, a Claremont alum, and offered to do free diligence work up in San Francisco. He had me look at three companies, I worked as hard as I could and tapped into whatever network I had at the time, and Merus decided to bring me on as an intern.

    Did you think about finishing up your degree?

    After about six months, Merus encouraged me to go back to school but the next semester, I heard that CrunchFund was looking to hire an intern. I’d met [CrunchFund cofounder] Pat Gallagher while at Merus; he and [partner] Mike Arrington are also Claremont alums, so I came back to San Francisco for the summer to work for them. I thought I’d be with the firm through the end of 2012 as an intern . . . Thankfully, they thought it was a good idea to bring me on full-time.

    How does one start drumming up deal flow from scratch?

    It really helped [to have] the network and reputation of CrunchFund. I was able to tap into the partners’ networks and, over time, build my own. I also relied on a combination of AngelList and working with accelerators and going to demo days. The rest was a hodgepodge of more thesis-driven research, where I’d do a deep dive into an industry to learn about specific white spaces and just read a lot.

    You say you sourced 21 investments for CrunchFund over two-plus years, including the startup Kinnek. Now you’ve been recruited into August, a very different firm.

    Yes, and I’m taking in as much information as possible and trying to get familiarized it. There are definitely differences between the firms in terms of the style of investments they make and their size. CrunchFund has a model similar to SV Angel: a small team making about 40 investments a year through checks that are typically between $100,000 and $250,000 and occasionally as much as $1 million. August is more traditional, with a long history of leading rounds and being very hands on. It’s a different style.

    It’s a very different career arc.

    In the venture business, especially coming from a nontraditional background, you need to find that unorthodox foot in the door. From there, things can kind of snowball.

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

    Connie

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