• Index Ventures’ Mike Volpi on the Pitfalls of VC Marketing

    Mike VolpiIndex Ventures is widely perceived by other VCs to be a top-tier firm. Among its active investments are Sonos, the wireless music system company; Dropbox, the popular online storage service; and Hortonworks, a commercial vendor of Apache Hadoop.

    The goal for Index now is to raise its profile with U.S. entrepreneurs, many of whom still consider the firm — which launched in Geneva in 1996 and opened a London office in 2001 — to be a European venture fund.

    Step one involved opening an office in San Francisco in late 2011, where general partners Danny Rimer and Mike Volpi have been sewing up deals left and right. The second part of Index’s evolution involves giving the press a (slightly) better look into its thought processes. Indeed, I sat down with Volpi at Index’s sunny offices yesterday morning, where we talked about how the historically quiet firm plans to more visibly plant its flag in the U.S. and the Bay Area in particular.

    We’ve been sitting here, talking about the professionalization of venture marketing. What is Index’s philosophy when it comes to selling itself?

    Venture capital is changing. It’s different. And being good at marketing is an important asset today, when it just wasn’t 10 years ago.

    Index certainly isn’t as “out there” as some firms. Will that change?

    There’s an inherent conflict that exists in doing a lot of marketing for one’s own firm, because in one dimension, being out there helps attract people to you. In theory, saying, “So and so is backed by X Venture Capital” helps the company.

    But one of our key cultural tenets is that we’re supporting the entrepreneur and we want the entrepreneur to be the story, not us. So we’re not trying to take the light away from the entrepreneur. Inherently, we see a little bit of a cultural conflict. Who is in front of the parade? Is it the VC or the entrepreneur? I think if the VC firm gets too far ahead of the parade, the smart entrepreneurs might get uncomfortable with that, so we try to strike a balance.

    How exactly?

    Presumably, over time, [things will take their] natural course if we do our job properly. But we don’t want to put steroids on [our marketing strategy]; we don’t want to bang on every journalist’s door, saying, “Pay attention to us.”

    If you’re an entrepreneur, you want your own signature on the project you’re working on and you don’t want to be overshadowed. If you don’t have a signature to speak of, then you rely on somebody else’s. It’s a gray zone for sure, but I think it’s an important line to draw.

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  • Nick Hanauer on Why VCs Should Fight for a Higher Minimum Wage

    Nick HanauerFor at least the last six months, Seattle-based venture capitalist Nick Hanauer has been arguing for a higher minimum wage and citing stats that underscore the myriad ways that growing income inequality will bring everyone down.

    Hanauer was one of Amazon’s first investors and cofounded the ad tech company aQuantive, which sold to Microsoft for $6.4 billion in 2007. He’s also the chairman of Pacific Coast Feather Company, a privately held family business that produces down pillows and bedding for clients such as Sealy and Eddie Bauer.

    Although Hanauer clearly isn’t living paycheck to paycheck, he has turned his sights on raising the minimum wage to $15 and is pointedly criticizing Bay Area venture capitalists for their inaction, noting that if they don’t start doing more to stem the “rising inequality in our society,” they are “idiots.”

    “VCs have a huge stake in a thriving middle class,” Hanauer told me over the phone yesterday afternoon. “If workers don’t have enough money, they can’t buy from our companies.” Leading the charge for higher wages is an “easy lift” for technology companies and VCs “because we get none of the pain and all of the benefit. If you’re running or funding a venture-backed company, you aren’t paying anyone a minimum wage. On the other hand, you’re hoping to sell your products to everybody.”

    I raise the oft-cited argument that many Bay Area companies are making it easier and cheaper to do things, and I can practically see Hanauer rolling his eyes. “There’s this Valley-based libertarian idea that as long as we’re businesspeople, we’re doing enough for our community — which is self-aggrandizing and just utter horseshit,” he says.

    Asked for concrete advice on how VCs can take part in the minimum wage debate, Hanauer suggests that the Bay Area look north. In November, voters in the city of SeaTac, Washington, narrowly approved a labor-backed measure that would require a $15 minimum wage for approximately 6,300 workers in the airport, hotel, and rental car industries. Hanauer is himself now part of a working group organized by incoming Seattle mayor Ed Murray to implement a $15 minimum wage in Seattle, and “I think it will happen,” Hanauer says.

    In California, Hanauer says investors should also throw their support behind Ron Unz, publisher of the libertarian-leaning magazine The American Conservative, who has poured his own money into a ballot measure to increase the minimum wage in California to $10 an hour in 2015 and $12 in 2016. The initiative, which will be voted on in November, would make California’s minimum wage the highest in the nation. (California’s current minimum wage is $8.)

    “There are a lot of fine people in Silicon Valley,” says Hanauer, “but there’s this really creepy thing happening down there where people are making stratospheric amounts of money and leaving everyone else behind. We need to ensure the economy enfranchises as many people as possible, and we need more civic leadership coming out of the venture community.”

    If it takes seeing low-wage workers as potential customers, so be it. “A rising tide lifts all boats,” he says.

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  • Investing in Two Indias

    NikhilNikhil Khattau has spent most of his career both building and investing in India-based companies. In fact, in 2007, soon after selling a mutual fund he’d founded to a financial group, Khattau co-founded Mayfield India in Mumbai, where he continues to help the firm.

    It isn’t always easy, given that India’s 1.2 billion residents remain very much separated both culturally and economically. “You have to divide India into the country [that wants to be a great global power] and ‘Bharat’ … which is rural India, where 70 percent of people live,” says Khattau.

    Khattau tends to invest in non-tech companies that cater to the latter — outfits like Geodesic Techniques, a specialty construction company that creates buildings out of steel and glass. (“Most were made of concrete prior,” says Khattau.) But earlier this week, during a wide-ranging conversation, we discussed India’s metropolitan centers, too. Here’s part of that conversation, edited for length.

    I recently read an article positing that given the amount of gold held by people in India, there must be a way to unlock its value, possibly by renting it out. That struck me as an interesting proposition. Would it ever be possible culturally?

    Well, gold is used to show whether you’re wealthy or not. But women have also traditionally been given gold jewelry, so if ever they need money, they can pawn or sell their jewelry and have access to liquid cash. When a woman is married off, she’s given a lot of jewelry by her parents as her backstop, really. She then saves it to pass along to the next generation. So looking at gold and gold jewelry in that light, the sharing just doesn’t work.

    Still, I think in urban India, it could be interesting. We’re seeing [a lot of behaviors] that are more akin to what you’re seeing out West: young people living away from home, earning their own money, wanting to go out and dress up and not necessarily wanting to invest in the hot asset that gold is. It would be complicated, but it’s a non-trivial market. The four biggest metropolitan centers have 10 to 15 million people; the next four have between 5 million and 10 million people. Altogether, city populations [add up to] 350 million.

    Is this younger, urban demographic interested in shared transportation other than buses, or is that also premature?

    The public transportation system isn’t great. And not everybody can afford their own private transportation, so there’s a unique phenomenon in India where companies provide transportation – sort of like shared taxis. If you look at Google or Amazon or Infosy, for example, they’ll commission thousands of private taxis each month. The taxis are fairly sophisticated, too; they feature GPS systems, and employees have their own codes, all of which enable their employers to know where a cab is and how many people are in it and whether or not it’s running late. It’s sort of like an Uber system, but it’s enterprise-geared.

    Why are you focused exclusively on low-tech or no-tech business opportunities?

    India is so many generations behind that we’re seeing white spaces where you [in the U.S.] have had developed structures for 30, 50, even 100 years. We’re also able to realize venture-style returns without taking venture-style risk, because the model has been proven time and again. For example, we recently exited from a portfolio company called Fourcee Logistics, which transports liquids [from fatty acids to crude palm oil to molasses] in multi-modal containers. These containers have been around in the rest of the world since the 1950s; Fourcee was first to bring them here.

    It really seems like India is developing at two speeds.

    Absolutely. The twenty and thirtysomethings are looking for bleeding-edge technologies; they want free, perfect, and now. Then there’s the rest of the country.

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  • Why Andreessen Horowitz’s Fourth Fund is Likely Around the Corner

    moneymoneymoneyYesterday, in a WSJ series on venture capitalists’ predictions for 2014, Managing Partner Scott Kupor of Andreessen Horowitz was asked if “venture capital returns have improved enough to draw renewed limited-partner interest in 2014.”

    Kupor said the question was really “whether investment dollars will continue to be concentrated in the top firms that enable them to generate above-average returns.”

    Kupor shied from saying that fundraising for Andreessen Horowitz will be a walk in the park as always, but it’s a safe bet to make. In fact, it’s likely that Andreessen Horowitz will announce its next big fund in January or very soon after. (The firm declined to comment for this story.)

    Consider, for starters, that early last week, the firm announced a new general partner, Balaji Srinivasan, who cofounded a genetic-testing company that makes a saliva-based test for more than 100 serious inheritable diseases. VCs don’t always bring in fresh GPs before a new fund raise, but it’s a little cleaner that way. And Srinivasan gives Andreessen Horowitz an even stronger case to make to investors, given his background in consumer-facing healthcare — an increasingly attractive area of investment where he bolsters Andreessen Horowitz’s expertise.

    It’s been almost two years since Andreessen Horowitz debuted two funds totaling $1.5 billion. Most venture firms raise money every three years, but that’s never been the modus operandi of Andreessen Horowitz, whose biggest bets include Skype, Twitter, Facebook, and GitHub. (Readers might recall that Andreessen Horowitz collected $300 million for its first fund in 2009, $600 million for its second fund in 2010, and a $200 million co-investment fund in 2011, before announcing its biggest funds to date – a $900 million fund with a $600 million parallel fund — in January 2012.)

    A little basic math also points to a new fund in the very near future. When I sat down with firm cofounder Marc Andreessen in mid-October, he told me then that the firm’s third fund was “about 70 percent committed.” And if you’ve been following the news, you’ll notice the firm has led a string of very big investments since.

    Yesterday, Crowdtilt, a crowdfunding platform, announced it had raised $23 million in Series B funding led by Andreessen Horowitz. Last Friday, the startup Oculus VR revealed that it had raised $75 million to more broadly market its virtual reality headset. Its lead investor: Andreessen Horowitz. And last Wednesday, Andreessen Horowitz made a giant bet on Bitcoin, leading a $25 million investment in Coinbase, a company that makes it easier to buy and sell the digital currency.

    That’s saying nothing of the smaller deals that Andreessen Horowitz has helping to fund, including Koru, a young education startup, and Doctor on Demand, a new company behind a mobile app that connects users with physicians for a consultation fee.

    For a gun-slinging firm that likes to make outsize bets when it spies the chance, that doesn’t leave a lot dry powder — especially when taking into account reserves for follow-on fundings.

    “We’ll probably raise a new fund next year,” Andreessen had told me back in October. My guess: we can expect it much sooner than later.

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  • VCs Start Thinking More Creatively About AngelList

    The-ThinkerThis week, three-year-old Kima Ventures, a Paris-based seed fund that backs one to two startups a week, made headlines for a new way that it plans to use AngelList, the popular platform for startups and investors. As Kima’s cofounder Jeremie Berrebi told me, the firm will invest $150,000 a shot in up to 50 startups in exchange for a 15 percent equity stake in each company. Kima says the funds will be transferred to each winning startup within 15 days. Companies have to apply for the money on AngelList.

    Kima’s AngelList play may be the splashiest to date, but it’s one of a growing number of venture firms that’s looking for ways to work with AngelList in new and different ways.

    Indeed, AngelList’s months-old Syndicate’s platform, which allows a “lead investor” to syndicate investments on a deal-by-deal basis in exchange for carry, seems to be bringing out the creative side of many investors.

    Renowned VC Tim Draper, for example, told me recently via email that “I certainly plan to syndicate on AngelList.”  Draper wasn’t specific about a timeline or his plans, but he said it’s all part of the natural evolution of things. “I want launching a company to be a snap,” including the funding process, he wrote.

    Similarly Semil Shah, who manages a seed-fund called Haystack, recently voiced enthusiasm over Syndicates as we chatted over coffee in downtown San Francisco. “I’m not 100 percent sure how I’m going to use it,” he admitted, “but I’m definitely going to use it.”

    Jeff Fagnan, a partner at Atlas Venture, which has invested in AngelList, says Atlas has “identified a dozen very influential serial entrepreneurs and angels in Boston who we think could [further spur the growth of the startup] ecosystem [locally], and we’re telling them that anything they invest in as a lead [using the Syndicates platform], we’ll invest up to an additional $250,000 per any of their projects.”

    “I don’t think we know what kind of activity it will result in,” says Fagnan, but he says it beats “scout programs,” which he calls “archaic and wrong. It’s like, ‘You’re our scout. Bring us back some dealflow and we’ll throw you a few ducats.’” Atlas is open to anyone else joining a Syndicate that involves the firm. “We just want to promote as much early-stage innovation as possible,” he says.

    The firms won’t be the first to publicly embrace the platform; in October, Foundry Group, the Boulder, Colorado-based venture firm, said that it plans to start investing in startups using Syndicates. But they seem to signal that VCs would rather experiment with the platform than let it cannibalize their business.

    As Shah puts it, “After the noise of the launch of Syndicates, there’s going to long education process, and mistakes will be made. But we’ll definitely see a major venture capital firm” use the platform soon. “General frustration with [traditional] venture capital has been building up to the point that it’s inevitable,” he says.

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  • Meet the VC Who Single-Handedly Raised $150 Million from Investors

    Rami's photoIn all likelihood, you’ve never heard of Rami Elkhatib. He isn’t Twitter-famous. He seldom speaks with reporters. He hasn’t worked at a brand-name firm. Before launching Acero Capital on Sand Hill Road in 2010, Elkhatib quietly represented the Raleigh, N.C.-based venture firm Southeast Technology Funds, where he worked as a West Coast-based general partner for roughly eight years.

    But while Elkhatib may be a stranger to you, enough institutional investors know him — and apparently think quite highly of him – that they committed $150 million to his debut fund in 2010, where he was (and remains) the sole general partner. 

    Earlier this week, I caught up with Elkhatib, whose hits include the 2006 sale of Pixel Magic to Dai Nippon and the 2007 sale of the managed storage solution company Arsenal Digital to IBM. Our conversation has been edited for length.

    You’ve been investing this fund since 2010. What are you shopping for, and how many startups have you backed?

    The fund closed in 2010, but it’s still pretty early. We’ve made six investments, and the plan is to make 20 or so. As for focus, it’s on Enterprise IT broadly. We’ll probably invest in up to 18 [related] companies, along with a couple outside that space. Within Enterprise IT, the approach is to look at what enterprises are interested in, and for us, right now, that focus translates into analytics, mobility, infrastructure, and virtualization.

    How big are the bets that you’re making?

    We tend to be pretty agnostic: we’re focused more on the opportunity and the management team, but the investments we’ve made so far have been A or B rounds in the $4 million to $6 million range, with reserves set aside [for follow-on fundings].

    What themes are interesting to you right now?

    Enterprise mobility is an area I’m really interested in. There’s still a lot of room for innovation; I’m personally focused on finding mobility middleware – the equivalent of systems management companies from the traditional IT space.

    We’re also very interested in real-time data, meaning true real-time. When people talk about real-time in big data, they’re talking about minutes, but I think we’re moving to a world where real-time insights come in milliseconds, where data that’s going through the network hasn’t even been stored yet.

    You say “we.” Explain to readers how Acero works. You rely on “venture consultants,” which seems like a new twist on things.

    Well, I’m the sole GP, but I’m not the only person. We [including an associate and venture partner] have a corporate, enterprise-focused sourcing strategy, meaning that for every subsector, our approach is to cultivate very strong relationships with large public platform companies in that sector, and we use those relationships to decide [what themes to pursue]. Toward that end, we have venture consultants with us who happen to be senior VPs in product management at platform companies [who we] talk with about their needs or, if we are interested in, say, the storage space, we make it our job to talk with them about where they see the market headed.

    It’s not a casual effort. It’s the cornerstone of how we’ve been sourcing deals.

    Have you modeled these scouts after another firm?

    I’ve modeled it more on my own experience within Toyota and Procter & Gamble, where I spent the first third of my career as a software engineer focused on database design – an early ’90s version of big data. If anyone back then had wanted to talk about how you collect information about every [stock-keeping unit] in every store in the United States, and how you do trend analysis on that, there was probably no one better to talk with than my team.

    Are these consultants compensated?

    They are, though I’d rather not get into specifics. Ultimately, I hope that it will become a recruiting strategy. There are three to five people who have worked for us in that capacity, and I’m sure our next partner will be one of those people. It’s very challenging to add someone new to a team; I think [our way of interacting with these individuals] is a good way to get to know them.

    I’ve never heard of a single-GP firm managing so much money. Will you hire another GP shortly?

    We’ll be adding a principal and an associate … but I think it will take more time to add a GP. I don’t have it calendared. Partly, that’s because we just made our sixth investment [leading the $11 million Series B round of Gridstore, a startup that makes low-cost storage devices] the same week we sold one portfolio company [Bitzer Mobile, a company that makes mobile applications management software and that Oracle acquired in the middle of last month for undisclosed terms; Acero had led its lone, $4.83 round in 2011, joined by Chevron Technology Ventures]. So net net, my board commitments didn’t increase.

    If you start a fund with one or two or three GPs, it almost always takes a long time. Whoever starts the fund needs to establish its personality and approach and strategy. After that, you can add GPs.

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  • A Venture Firm Focused on — Wait — Youth Tournaments?

    thumb_csvWe’ve heard about startups backing professional sports athletes, including Fantex, which sells stocks designed to track athletes’ economic performance.

    Now, Capital Sports Ventures, an eight-month-old, Washington, D.C.-based venture firm, is targeting what it argues is a much bigger market: non-professional athletes. Specifically, the firm is targeting all manner of minor league and participatory sports opportunities, from youth tournaments to startups that enable people to track their performance during sports events.

    It may be far afield from the typical venture investment, but it’s a world that Capital Sports Ventures knows well. Firm founder Greg Bibb was previously EVP of business operations for the Washington Wizards NBA team and COO for the Washington Mystics WNBA team. Meanwhile, Bibb’s joint partner in the endeavor is SWaN & Legend Venture Partners, whose managing director, Fred Schaufeld, is also a partner in Monumental Sports and Entertainment, owner of the Washington Wizards; the Washington Mystics; the Washington Capitals NHL team; and the Verizon Center sports arena. 

    I talked with Bibb and Schaufeld recently to learn more about their plans. Our conversation has been edited for length.

    What’s so interesting to you about youth tournaments?

    FS: There are 10,000 professional athletes in the U.S, but hundreds of millions of sports fans out there and it’s a disjointed market.

    GB: That’s right; it’s a much bigger marketplace when you look at participatory sports. There are a lot of organizations that could be very successful, that are built on the relationships and expertise of folks who’ve spent the majority of their careers in that space. But while they’ve built these tournament businesses, perhaps they don’t have the expertise that professional sports teams enjoy including around sponsorships, licensing, ancillary event creation, and so forth. We’d make an investment, keep the operator in place, let them what they do best, and we’d bring capital and expertise to the equation.

    Are you disclosing how much money you’ll put to work? Have you raised a pool of capital, or will you be investing on a deal-by-deal basis?

    GB: SWaN & Legend is a $70 million fund and they are our anchor tenant, however they have multiple investments in addition to [us]. The precise amount that’ll ultimately be invested into [Capital Sports] from all sources is unclear and will be based on the opportunities we find.

    We have about 30 LPs altogether, most of whom are CEOs of companies [who add value to the firm]. Essentially, we’re looking for opportunities where our background can accelerate the ventures as much as money can. We run the gamut in terms of sports and entertainment experience. Ticket sales, branding, social media, event creation – there’s not an aspect of the sports entertainment space that we can’t speak to.

    Have you made any investments yet?

    GB: We haven’t but we’ve been close on a couple. It takes a while to go through the due diligence process. One particular case required a partnership to be created around certain regional entities around the country, but unless they could work out their partnership issues, we didn’t think we could bring the sport to the Nikes [and other major sponsors] of the world.

    FS: Getting to scale takes a while. I’m personally in the ownership of four pro sports team and these things take a while. But we’re patient. And Greg is very “trend right”; he knows what’s coming up next.

    What’s is coming up next, when it comes to youth sports?

    GB: LaCrosse right now seems to be a sport that’s on a significant rise; you’re really starting to see it spread west across the country. Another is girls’ volleyball, which is now one of the fastest-growing and lucrative sports in the country and is played more and more at the high school and middle school level, driven by club teams. Then, of course, soccer is the old “new.”  The sport was long ago established at the youth level, but it’s starting to [become popular with older kids], too, and it just expands as a generation of kids who had to educate their parents on the sport are now grown and beginning to educate their own children.

    What’s the exit strategy with these types of investments, and what’s your timeline?

    FS: We’ll see where the opportunities take us, but with professional leagues, some have sold to Providence Equity and people like that. Between myself and my partners, we’ve been involved with every kind of exit you can have — multiple times — and we feel comfortable letting the underlying businesses dictate [what happens].

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  • FirstMark Capital: Health Care Investor?

    stethoscope1FirstMark Capital, the early-stage, New York-based venture firm, is best-known for its consumer investments, including Pinterest, the mega-successful online bulletin-board network whose newest, $225 round of funding valued the company at $3.8 billion. (FirstMark participated in its $500,000 seed fund in early 2010.)

    Lesser known is FirstMark’s newer, self-imposed mandate to fund more healthcare IT companies, which its partners view as a giant opportunity that happens to be highly complementary to the firm’s existing skill set.

    Not only is the health care IT market “gigantic” and the “cost curves unsustainable,” as managing director Amish Jani recently noted to me, but thanks to numerous trends — like cloud platforms that connect practitioners and patients in new ways — it has also become accessible to investors who might not have PhDs but who know their way around platform technologies.

    For example, FirstMark has backed Gravie, a consumer marketplace for healthcare insurance; Greenphire, a company that makes Web-based payment software that’s marketed to the clinical trial industry; and Superior Access Insurance Services, an online insurance exchange that’s used to connect carriers with insurance agents.

    Its investment in BioDigital is another example of a health care company that FirstMark seems well-suited to help. The 11-year-old medical visualization firm already develops 3D animations of the human anatomy for drug makers and medical device makers; with the help of FirstMark — which led a $4 million Series A round for the company in September — BioDigital is working toward new, freemium models, too, including with consumer Web companies that want to augment their content with its technology.

    Still, not everyone thinks the strategy of FirstMark — or other Internet investors like Social+Capital Partnership that are suddenly focusing more on healthcare IT — makes sense. Bijan Salehizadeh, for one, a longtime PhD and managing director at NaviMed Capital in Washington, D.C., recently wrote a thoughtful piece about how easy it is to underestimate the complexities of healthcare investing, not least because healthcare is a “slow-to-evolve industry with powerful and durable relationships.”

    Domain expertise matters, Salehizadeh had argued.

    Maybe so. Then again, the right health care investment could reframe the way that FirstMark is viewed by entrepreneurs and investors alike. As Pinterest illustrates, sometimes it takes just one savvy bet to change everything.

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  • Yahoo Chairman Maynard Webb on His Giant, Low-Flying Investing Network

    Maynard_Webb_270x271Silicon Valley veteran Maynard Webb has a knack for winding up at the center of things. The former COO of eBay and CEO of LiveOps is the chairman of Yahoo’s board, a director on the board of Salesforce.com, and just yesterday was nominated for election to the board of Visa.

    Webb isn’t content to live in the world of public companies, however. On the contrary, since 2010, Webb has been quietly building one of the most sprawling, and lowest-profile, investment networks in Silicon Valley.  Called Webb Investment Network, the outfit, cofounded by Webb’s former LiveOps colleague Michael Neril, has now amassed a network of 90 “friends” who are invited into every deal that Webb is himself invited into — and he has backed 50 startups so far. 

    Webb calls giving these opportunities to invest alongside him “gifts.” I chatted with Webb yesterday to learn more. Our conversation has been edited for length.

    In 2010, you already had plenty going on. Why formalize your investments with this kind of firm?

    After I “retired” [in 2006] from eBay – eBay’s word for it – I was out running [the cloud-based call center service] LiveOps within just a couple of months. My wife asked how long I was going to do this and I said five years, thinking that would be a long time. But that five years came and went pretty quickly, and since I’d promised her that I wouldn’t operate companies any more [after LiveOps], as we started to come to late 2010, I thought, “Uh oh. What am I going to spend my time on?” I decided that I wanted to spend it helping entrepreneurs. Once I figured that out, I started looking at how to craft things in a way that I could provide help and also stay in touch with people I care about.

    How does the network function? A founder who is raising $1 million allocates $500,000 to you, and you then invite your friends to invest up to half that amount if they want to?

    That’s right, and that’s about our sweet spot, too.  I knew there was no way I could adequately provide advice to all the companies I might want to invest in. So I just thought, I’ll give gifts to my friends. So every time we find a deal, we get twice as much as we want to invest, and I ask a few of my friends if they want to invest. They can opt in or out. But if they opt in, they have to [be helpful to the founders].

    We thought we’d get 30 to 50 people [interested in the model] but we have 90, and there are usually a handful of people who invest, writing a check directly to the company. They’re like on-demand SWAT teams of executives [from every avenue of the startup world]. It’s been amazing.

    It’s early days, I know, but how is your performance so far?

    We’ve sold Rypple [a cloud-based social performance management company]; Saleforce bought that [in 2011] and that’s become Work.com. The [e-commerce startup] Fancy was also a very early deal for us and is one of our breakout companies. We have several companies in our portfolio that have raised four or five rounds, and more than half or our startups have raised additional rounds, so we’re feeling good.

    Do you subscribe to the theory that just 15 to 20 companies born in any given year become “breakout” companies?

    I think there are many more successful companies than just a few. [Companies like] Facebook – those are needle-in-the-haystack kinds of things. But a lot of companies that start with $3 million wind up getting sold for $50 million or even $500 million. It’s harder [to maintain a pro rata stake] in each of those tranches, but I’m very bullish about a wide number of entrepreneurs finding a way to make an impact.

    You’re investing up to $30 million of your own in this endeavor. Will you eventually take outside funding?

    We have a lot of people who want us to take their money – even affiliates who ask if they can just give us a bunch of cash. What I love about the way we’re doing it now is the only risk is my risk.

    As we look forward, I have to figure if I continue to self-fund this and for how long. I’d say the feedback we get is split down the middle: Half [my friends] say, “Don’t be an idiot. Make this a fund [with outside investors]”; others say, “I’d be thrilled to do it on my own.”

    As a member of the boards of Yahoo and Saleforce, two very acquisitive companies, do you help them decide where to shop, or is that beyond the scope of the job?

    We have firm policies at both companies that talk about investments and what you can invest in and when you need to notify them; we notify them every quarter of what we’re investing in.

    And the companies drive most of the acquisition decisions, at least until they reach certain [financial thresholds], and then the board gets involved. Those thresholds [which are publicly available] are very different at both companies. I’d rather not say more about either company, though, or I’ll get some [angry] emails in the morning. [Laughs.]

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  • Betaworks Closes a New $20 Million Round

    betaworks logoBetaworks, the six-year-old, New York City-based holding company that has collectively created and invested in more than a dozen startups focused on the “real time Web,” has raised $20 million in new funding, says cofounder John Borthwick, who tweeted in the wee hours of Friday morning: “Excited to bring a few new investors into betaworks. Approx. 20m total capital. The first time in 3 yrs+ that we have have done a raise.”

    A new SEC filing shows a partial list of the firms to participate in Betaworks’s newest round, including Lerer Ventures, RRE Ventures and White Star Capital in the U.K., all of which are existing investors.

    Also listed on the Form D are John Drzik, president and CEO of the management consulting company Oliver Wyman; Michael Buckley, a longtime managing director at Intel Capital who is now the head of finance and strategy at Nike Digital; and Paul Cappuccio, the chief legal officer at Time Warner.

     

    RRE Ventures, Lerer Ventures and White Star Capital were among the first firms to provide Betaworks with its first, $7.5 million round, announced in early 2008.

    Two years later, in 2010, Betaworks closed on a $20 million Series B round that was led by RRE Ventures and then-new investor Intel Capital, and which included DFJ Growth, AOL Ventures, The New York Times, Softbank Japan and Softbank NY, and Founder Collective.

    Betaworks both invests in, acquires, and helps create real-time media startups. One of its first big wins was with Summize, a search engine that Twitter acquired in a mostly stock deal in 2008. Betaworks is also the company behind the link-tracking analytics company bit.ly, the Web site monitoring service Chartbeat, and numerous other products.

    Recently, the company has made a big push into social reading, including acquiring Digg, which it nabbed at a fire-sale price last year, and  purchasing the bookmarking tool Instapaper for an undisclosed amount in April. Betaworks has since relaunched both products.

    Reached for comment on Saturday, Borthwick (nicely) declined to comment further, saying only that money was raised “recently.”

    Earlier this month, Betaworks hired former Huffington Post Media Group publisher Janet Balis as its very first chief revenue officer, a sign that it’s looking for more ways to earn money off its portfolio. As Borthwick told AllThingsD of Balis’s appointment: “Phase one of Betaworks was building great companies. ” Phase two is “really building Betaworks as an operating media company.”

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