• Homebrew Separates Itself from the Pack

    Hunter WalkThis summer, yet another San Francisco-based, seed-stage venture fund was formed. Called Homebrew, the firm’s cofounders are Hunter Walk, who spent much of the previous decade working as a product manager at Google, and Satya Patel, who has bounded between operating and investing roles over the last 15 years, including most recently at Twitter, Battery Ventures, and Google, where he met Walk. The two began fundraising in January; they closed the fund with $35 million in late April and made the news official in July.

    Whether the firm can compete in what is an increasingly crowded part of the startup ecosystem is another story. Not only does Homebrew have many hundreds of angel investors and dozens of other seed-stage firms as competitors on deals, but it also has to contend with AngelList’s month-old Syndicates program, which enables angel investors to quickly mobilize a group of investors to back a deal.

    Homebrew’s timing might look lousy, but it will make sense over time, suggests Walk, who argues that there are still unexploited niches in seed funding.

    For starters, Homebrew is looking to lead or co-lead syndicates with initial checks of $500,000 to $800,000 as a part of an institutional round that’s between $1.25 million to $2.5 million. “There’s a lot of money from talented people who want to invest between $50,000 and $250,000 in companies, but a small number who want to step up and lead these rounds before there’s much data to crunch,” says Walk.

    Homebrew expects to back 20 to 25 startups with its first fund, and it intends to own 10 to 15 percent of each company for its efforts.

    Walk says Homebrew’s investment principles also set the firm apart. One of these is its focus on startups that level the playing field for individuals and small businesses. As an example, Walk points to Twilio, a service that helps developers build apps for text messaging and other services on phones. (Homebrew is not an investor.) Walk also highlights Plaid, a startup whose goal is to make it easier for developers to build financial applications. (Plaid recently raised $2.8 million from Spark Capital, Google Ventures, NEA, Felicis Ventures and Homebrew.)

    I ask Walk about the far bigger need in the market for Series B funding. After all, it often seems that there are too few funds to accommodate the many seed- and early-stage companies that are looking for follow-on investments. Does Homebrew risk watching its seed-stage deals fall off a cliff?

    Walk says Homebrew raised money from four institutional investors partly with that issue in mind. If Homebrew needs to raise more money to support its existing portfolio (à la the new Clover Fund of Felicis Ventures), it already has relationships with people in the business of writing big checks.

    Another point of differentiation with other seed funds? Walk says Homebrew’s startups (it has backed six so far) have solid business models involving monthly recurring subscriptions and transaction-based fees. While no guarantee of success, Walk figures this focus on revenue might help his companies’ chances of raising money from Series A and B investors when they go to market.

    “We didn’t pick ‘revenue-first businesses’ to time the market, or because we think they’re more fundable,” adds Walk. “But the type of companies we back do have clearer investment and exit paths.”

    Photo of Hunter Walk courtesy of Pinar Ozger.

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

    Related articles

    Connie

    ,
    , ,

  • Singapore Sling: Entrepreneurs Head In – and Out – of Tiny Island Nation

    Singapore_Skyline_Panorama

    Murli Ravi is the head of South Asia investments for JAFCO Asia, and from his perch in Singapore, he’s never seen so much cross-border activity as in the last 12 months. Ravi joined JAFCO in 2008, after studying the regional venture community as a senior analyst with INSEAD. “Let’s just say I’ve made three trips the U.S. in 2013. I made zero trips to the U.S. in the four years prior,” he observes.

    Late yesterday, we Skyped with Ravi to learn more.

    Globalization is an ongoing trend. What are you seeing?

    I cover a lot of territory – Southeast Asia, India, Australia – and I’m seeing a preponderance of people not just coming to Singapore and staying here, including U.S. companies, but I’m seeing startups in Singapore whose attitude is to quickly expand. I see many more of them looking to enter China and India, which are both about five hours away [from Singapore] by plane, and even sometimes Japan and Europe and the U.S.

    What’s changed in the last 12 months?

    I think Southeast Asia as a whole just has a much larger pool of talent coming online now for startups to harness. Also, historically, broadband penetration wasn’t high. Incomes were low. The smart guys would typically leave. All of those patterns are reversing.

    What types of companies are coming to Singapore from the U.S.?

    Broadly, you have a lot of small U.S companies and Australian companies and even Japanese companies that are realizing that Southeast Asia is an interesting market. If you just look at the English-speaking countries across the region – India, Australia, Singapore, Malaysia, the Philippines, and almost all the others have some English in a business context – that’s close to two billion people, or roughly 30 percent of humanity.

    You also see companies move here because [their product is better suited to the market in Asia]. I sit on the board of a company called Bubbly , formerly Bubble Motion, that was founded in the Valley but moved to Singapore.

    I remember reading about that move and thinking that it boiled down to lower costs for the company.

    Well, Bubbly is a social messaging service like Twitter, except that instead of read and tweet, you speak and listen, which also appeals to the markets here. Unlike on Twitter, where you’re talking to the world and hoping someone will talk back, with Bubbly, it feels like someone is talking to you because you hear them in your ear, whether it’s a friend or a celebrity who has recorded a message about picking up her kids or an upcoming show. Unlike on Twitter, by the way, consumers here are also willing to pay to listen to celebrities. Right now, the biggest markets for Bubbly are India, Japan, Indonesia, Philippines – all of which have their own celebrities.

    Do other recent transplants jump to mind?

    A couple of other companies that have taken the same route are Vuclip — which hasn’t quite moved its headquarters to Asia, but does focus mostly on Asian and especially Indian audiences — and Mig33 — which did move and has seen success in Indonesia in particular.

    You also have companies like Line and Kakaotalk that didn’t originate in Southeast Asia but now have a huge user base in this region. Coincidentally or otherwise, these messaging companies have a lot of similarities with Bubbly.

    What about enterprise companies?

    It’s so far been a little less common for enterprise companies to move here, and I see that as a major untapped opportunity. There are lots of inefficiencies in the way big business is done in some of the countries here, which gives more competitive firms from elsewhere a potential advantage if they choose to come here. Equally, some startups from this region who are able to thrive here have shown that they are quite capable of stepping onto the world stage, because the historical lack of resources available to small companies is a sort of trial by fire.

    Corrections: The original version of this story featured news of a particular celebrity on Bubbly; while the celebrity is expected on the platform soon, he isn’t yet “live” on the network, we were told after this piece was published.

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

    Related articles

    Connie

    ,
    , , , , ,

  • Jim Robinson of RRE Ventures on Square, Bitcoin, and Its Sixth Fund

    privcap-deal-story-vocera-communicationsJim Robinson, cofounder of 19-year-old RRE Ventures, is a veritable sage of the New York venture scene, having arrived earlier — and stayed longer — than many of his industry peers.

    I caught up with Robinson yesterday to talk about what’s happening in New York, as well as to learn more about what’s happening specifically at RRE, a firm that now invests 75 percent of its capital in New York-based companies. Our conversation has been edited for length.

    RRE has raised five funds to date. Will you be raising a sixth soon and if so, how much will you be targeting?

    We’re still investing our fifth [$230 million] fund; we’re mostly through that. And we’ll raise a new fund shortly in the same, $250 million range.

    Would we ever see RRE raise a bigger fund?

    Fund sizes go in an out of vogue, but you go bigger either to do bigger deals or hire more people. Bigger deals have never been our business model, and we’ve always liked our size and shape: five or six partners, a couple of principals, a couple of associates. During the dot.com era, we’d gotten bigger and we sort of concluded that we didn’t want to grow our practice, [because] we felt a little more disconnected, both from our partners and the companies we were funding. When you have 10 VCs standing in a field, they’ll argue about the weather.

    There’s obviously a lot going on in New York. Is there too much going on?

    Are there too many startups right now? Probably. When you start hearing about whether you should bother with college or start a company instead, it’s probably [a bad sign], but these things [sort themselves out]. I think it’s probably more acute out there [in California]. Most people would rather do a little more following than leading in life, which is a normal human condition, and you don’t get to do that in a startup.

    RRE has enjoyed some nice exits, including, most recently, the sale of payments company Braintree to eBay for $800 million in cash last month. I understand you had a chance to invest in the seed round of Square, too, but didn’t. Is that your biggest miss?

    Hah, no, not even close. We’ve been around 20 years. We have a bunch of those. We didn’t do Priceline and should have. We didn’t do PayPal and should have. Long ago, we’d invested in Apriva [a point-of-sale dongle made to work with once-ubiquitous PalmPilot handhelds] and barely gotten our money back, so we were leery of incumbents in the payments processing world. We also worried about [Square’s] price. It seemed expensive to us at the time.

    Many VCs argue that it’s worth paying up for the right deal. How do you feel about being price sensitive?

    If you pay up and it works out great, you say, “Great, this was sensible.” If you pay up and it doesn’t work out, you don’t talk about it. If I had a growth fund here, there’s no question that I’d say on occasion, “This is too big an opportunity.” Then again, price is a function of supply and demand. We disregard it at our own peril.

    What do you think about the digital currency bitcoin?

    We’ve been looking at bitcoin technology for over a year. We’ve probably looked at 20 [bitcoin-related] companies seriously and we’ve made very small seed investments in two, but we’ve been reticent to place a major bet on one to date. It gets down to regulatory issues, which seem to indicate that if you’re an institutional investor in a digital currency company, there’s some legal liability. If there are problems in the system, [the liability] doesn’t just stop at the company but can go through investors and even, potentially, investors’ investors. It’s just not field-tested yet.

    No doubt we’ll have a major investment in a [bitcoin] company, whether it’s in one year or three years. But we’re watching what’s happening on the federal and state and international level right now. We’re still in studying mode.

    Photo courtesy of Privcap.

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

    Related articles

    Connie

    , ,

  • Marc Andreessen: Stories About Silicon Valley “Crack Me Up”

    006_mark_andreessenSilicon Valley has been receiving a lot of unfavorable media attention in recent months, from Valleywag to New York Magazine to The New Yorker. Last week, during a sit-down with Marc Andreessen at the Sand Hill Road offices of his firm, Andreessen Horowitz, we discussed some of that coverage, and what he makes of it. Part of our conversation, lightly edited for length, follows. 

    There’s a lot of hand-wringing in the media lately over whether or not Silicon Valley takes into mind the broader economy. Do you think some of those criticisms are valid?

    The stories crack me up. There’s sort of two criticisms. One is that Silicon Valley is the new elite, the new one percent, the new oligarchy, and that all the billionaires don’t give a shit about society and [welcome a] Mad Max dystopian wasteland of no jobs [as] technology takes everything over.

    The other argument is that technology produces nothing of value; it’s all just Snapchat apps so 14-year-old girls can send selfies to each other. I have a hard time reconciling the two arguments.

    What of the argument that the Valley is building technologies that are primarily of value to a subset of people who can afford to use them?

    That I don’t agree with. I think that’s almost just Uber, or the early-delivery services.

    If you’re a journalist and come to Silicon Valley and you want to find three startups [whose services] only 25-year-olds and single people with discretionary income are ever going to use, you can do that, congratulations. If you want to come to Silicon Valley and find companies that are really going to open up access to transportation or education or financial services to people who haven’t had access to those things before, you can also do that.

    These stories are very well-written and they’re entertaining, but they’re typically written by someone outside the Valley who wants to reach a certain conclusion to make them and their readers – in my view – feel better. I think it’s very reassuring, especially to people in New York right now, to think the Valley is just a bunch of kids farting around. But it’s only one slice.

    Another widespread criticism is that tech entrepreneurs don’t give back enough. As a philanthropist, what do you think?

    With tech — and you see this with a lot of these new entrepreneurs — they’re 25, 30, 35 years old, and they’re working to the limit of their physical capability. And from the outside, these companies look like they’re huge successes. On the inside, when you’re running one of these things, it always feels like you’re on the verge of failure; it always feels like it’s so close to slipping away. And people are quitting and competitors are attacking and the press is writing all these nasty articles about you, and you’re kind of on the ragged edge all the time. So to try and figure out how to find the time to intelligently allocate philanthropic capital, like, it just does not compute. It’s a timing issue.

    Many founders I know, including a lot of really young founders, fully plan to give the vast majority away. They just plan to do it when they have time to do it properly. You could make the reasonable argument that the world would be better off if they gave the money away faster; it just begs the question of how, which is a harder question to answer. Even Warren Buffett couldn’t figure out how to do it without just giving it to Bill Gates. Maybe the answer is just give all the money to Bill Gates!

    Photo courtesy of BusinessWeek.

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

    Related articles

    Connie

    ,
    , , ,

  • Andreessen Horowitz Backs Out of Seed Investing

    A16zThere’s been a lot of back and forth in recent weeks about whether or not the venture firm Andreessen Horowitz is dialing back on certain types of Series A investments. But cofounder Marc Andreessen suggests a bigger shift is the firm’s decision to get out of seed investing, except when presented with “fringe” opportunities. 

    Andreessen explained the firm’s thinking during a sit-down last week at his Sand Hill Road office. Our conversation — which we’ll run more of this week — has been edited slightly for clarity.

    You think companies have to compete against themselves to stay innovative. How is Andreessen Horowitz continuing to innovate?

    Probably the biggest change is that we’re pulling back significantly on the number of seed investments we’re making. We’ve had this policy, which all [venture] investors have, which is that if we invest in the [Series A or later] stage, we’re not going to invest in a competitive company, because that’s very damaging to an entrepreneur. For seed, we’ve always been explicit that if we’re putting in $50,000 to $100,000 [we can invest in competing companies, too].

    Which can still create signaling issues, of course. Isn’t that why you’d launched a scouting program, using entrepreneurs to quietly seek out seed deals on your behalf?

    We tried for a while to minimize [signaling damage] through the scout program; that was one potential layer of interaction that we thought would help. We also tried briefly to have this A16z seed brand and under that program, we could make multiple bets in one category.

    Nobody can really do seed investing with a conflict policy because it’s all so uncertain at that point. You don’t have any idea what these companies are going to be doing in a year, much less whether you’re investing in the right one. And you’re putting very small amounts of money to work, so if you can only invest in one [startup per] category, you could never make many investments.

    So what changed?

    What we tell everybody is we don’t take the conflict policy with seed investments. But [entrepreneurs] don’t necessarily hear us, and it causes them problems anyway and makes them feel bad.

    Also, the outside world doesn’t necessarily understand the difference. So we think there are more and more entrepreneurs at the seed stage who don’t want to talk with us because they think we’re already invested in a competitor. They think we’re conflicted out of the category. And they don’t differentiate between the seed and venture category. So we’re backing off of the number of seed investments we make basically to prevent that problem from getting worse.

    What will happen instead?

    One, we’re going to work even more closely with a bunch of the top-tier seed firms to be an even better source of deal flow for them. There’s also stuff we’ll do with seed companies to help them out without actually having investment stakes. We’ll kind of do favors, build a relationship [with them].

    What we will back is fringe, where you couldn’t even conceive that there will be a competitor. So something that looks really nuts becomes very attractive for that program, which, arguably, is the best thing to invest in at the seed stage, because the whole point of the seed investments is to learn. ‘Here’s a brand new idea: Is it going to work. Is it not going to work? Is this person for real or are they crazy?’ You kind of want to figure that out before you write the big check.

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

    Connie

    , ,

  • Marc Andreessen: We’ve “Kicked Around” Doing a Hedge Fund, Too

    marc-andreessenThis week, I headed to Sand Hill Road to sit down with venture capitalist Marc Andreessen of Andreessen Horowitz, who is expert in keeping the media on its toes. His willingness to engage with the press – which has probably generated more public interest in venture capital than ever existed previously – is meant to crush the competition. As he told me years ago in a separate sit-down, “We like counter-programming. If there are three networks showing cop drama shows on Thursday at 9 pm, then what you want to do is put on a comedy.”

    Next week, I’ll feature excerpts from our hour-long chat in which Andreessen touched on other ways Andreessen Horowitz is trying to out-innovate its venture peers, so be sure to tune in. In the meantime, here are two quick snippets from our conversation. In the first, Andreessen and I chat briefly about Twitter, a company that will make Andreessen money both personally and professionally. (Andreessen was among Twitter’s earliest individual investors, participating in the company’s $5 million Series A. As a firm, Andreessen Horowitz elbowed its way into Twitter in early 2011 by purchasing $80 million worth of secondary shares; Twitter was valued at roughly $3.7 billion at the time.)

    Andreessen Horowitz prides itself on being fairly transparent. Yet you’ve tweeted twice – once, more than six years ago, to write “Twittering,” and about three years later to add, “I’m back – did anything happen while I was gone?” Why don’t you use it?

    [Laughs.] I don’t know that I even have a good reason for it. I was a very active blogger at one point. I’m actually very active on Hacker News. I was very active on Quora for a while. So I just kind of bounce around, do different things.

    At this point, at this firm, it’s more interesting for the other people to become more well-known, rather than me becoming more well-known. So it’s not a big priority for me to elevate my own brand. Plus, I’ve always thought it’s kind of funny.

    Funny in what way?

    [Laughs.] I don’t know. It’s just really funny. I was one of the first investors. And then I tweeted. And then I didn’t tweet. [And 900 days later], I tweeted again.

    You have something like 18,000 people following you, waiting for your next tweet.

    18,000 people. Two tweets. [Laughs again.] It’s just kind of funny.

    In this next snippet, Andreessen shares that his firm has more recently contemplated starting a hedge fund.

    You’re managing $2.7 billion at this point, but it’s been a couple of years since you raised your last fund. Will we see a new fund in 2014, and might we see a $2 billion or $3 billion fund?

    [We’ll probably raise a new fund] next year. [As for that range], I don’t think so. We’ve kicked around a couple of ideas. We’ve kicked around doing something on the public side like a hedge fund, but we’re not going to do it.

    Why contemplate it?

    First of all, there are public companies we greatly admire…that we feel are undervalued or misunderstood. Also, in the venture fund, we’re trying to go long in the future, and so the other side of that would be to go short in the past, or to short the people who are not long in the future. So if we’re doing e-commerce in a category and think there’s a retailer that will suffer as a consequence of e-commerce becoming bigger, there’s another trade you could do on the hedge fund side if you’re private.

    But…

    There are two really big issues with a firm like ours doing anything public. One, we think the insider trading risk is just off the charts. I saw that Mark Cuban just got off for the Mamma.com trade, and I’m very happy for him, but it’s a good illustration of how dangerous an environment it is for people who are kind of in the middle of things to take stock positions right now. There are just tons of prosecutions – the whole SEC thing – there’s just tons of scrutiny.

    The other issue is we have this whole corporate briefing program, where you have 1,200 management teams from big companies coming through here every year and we run these big conferences. We just held our big CIO/CMO conference last week, with 150 top CIOs [and] CMOs, and it’s an amazing program and they’re really open with us about what their challenges are and what they’re working on and trying to do, and so, if we started to short their stocks…[laughs]…right? We’d basically blow that program up. So we decided we can’t do a hedge fund.

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

    Related articles

    Connie

    ,
    ,

  • Med-Tech in the Midwest: Are the Coasts Missing Out?

    223625v2-max-250x250As a Cleveland native, I often find myself reading about some advanced medical technology that’s bubbling out of Northeast Ohio. To learn more about what’s really happening in the Midwest, I recently caught up with Mike Stubler, the Pittsburgh-based managing director and the cofounder of Draper Triangle Ventures, who nicely answered my very broad questions.

    You focus on healthcare in the Midwest, right?

    About 25 to 40 percent of what we do is med-tech. The balance is generally information technology, enterprise and cloud computing. But we’ve had great success with med-tech companies and frankly, we can’t ignore them; we live in a very rich environment for it. The Cleveland Clinic is arguably one of the world’s most renowned research institutions and a pioneer in coronary care. Meanwhile, here in Pittsburgh, the University of Pittsburgh Medical Center is a great research institution.

    What’s changing in the industry? My understanding is that the focus used to be on licensing technology to big pharmaceutical companies, but now there are more development groups helping to commercialize these technologies.

    A lot of different efforts come into play now: Universities, government-backed venture development groups, other combined programs. Many more people are now focused on getting this research commercialized rather than just licensing the technology to somebody. [The Cleveland-based, early-stage support organization] JumpStart has probably made 60 or 70 investments at this point. Innovation Works [an equivalent program focused on Southwestern Pennsylvania’s startup ecosystem] has made dozens of investments to which we pay very close attention, to see what’s coming through.

    We’ve also seen more companies getting funded with super angel kinds of rounds. You didn’t see that five or six years ago.

    Do you have more or less venture competition than you did, say, five years ago?

    Well, you see some big coastal firms coming in, especially once you see a company gain some traction. Sequoia Capital just did a bio deal in Cincinnati last year. Drive Capital [newly cofounded by former Sequoia investors Mark Kvamme and Chris Olson, who are investing in Midwestern startups] has closed on $180 million of a $300 million target. I think when Mark Kwamme came from Silicon Valley, he was probably cynical but quickly saw the opportunities here.

    Unfortunately, the contraction that’s taking place throughout the industry is also taking place in the Midwest, so there are fewer firms. We’ve always been more collaborative than cutthroat, as in the Valley, where every one is fighting for the same great deal. But those that are here are really trying  to work together more so than ever.

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

    Connie

    ,
    ,

  • A Global VC on Outsiders’ View of the U.S. Right Now: “Speechless”

    027-20120712-KS026-Edit-2-324x324Mathias Schilling is the cofounder and managing partner of e.ventures, an early-stage venture firm that invests out of dedicated funds in five geographies: the U.S., Russia, Germany, Asia, and Brazil. The vantage point gives Schilling a unique perspective on how the world sees the U.S. debt crisis. During a quick chat yesterday, he told me his partners are, in a word, “confused.” We also talked about what he’s seeing around the globe.

    You have these dedicated funds where you share carry. Do you sign off on deals as individual firms?

    We look at every region very locally, but we [employ] different structures for different deals. Sometimes, we’ll have an investment committee where I’ll participate in the decision-making. Sometimes, we don’t get involved at all. Our mantra is to keep local teams to two to three partners so we can make decisions quickly.

    Last year, you and Redpoint Ventures joined forces for your Brazil-focused venture fund, raising $130 million. What are you seeing there in late 2013?

    Brazil has had many lost decades, including after 2000. So many basic [online] categories still haven’t been created and funded. There’s also a lack of capital, and entrepreneurship culture, and there’s a difficult regulatory environment. But I’m very positive on Brazil. We’re not only seeing copycats, which obviously makes sense, as large categories need to be created; we’re also seeing a lot of very high quality entrepreneurs. We’ve [backed]10 companies in the last 18 months or so, in e-commerce, financial services, advertising, travel.

    Right now, it’s cooled off on a macro level, in terms of investors going there, because if you aren’t local and make a commitment to stay, it’s very difficult. It puts us in a good position there.

    What can you share about the other markets you’ve entered?

    Japan is an interesting market. It’s traditionally been a tough venture market – people are very hierarchical and risk averse, which is also true of Brazil and, to some extent, Germany. But on the mobile side, we’re seeing a lot of advanced things happening. Half of Android’s revenue is coming from apps being made in Japan and South Korea.

    Berlin is building great critical mass; it’s cheap, exciting, and innovative. Russia is more technology driven, with a lot of very strong engineering. But it lacks general management skills.

    Each is distinct, but I believe you have to go into these markets and build a commitment there and stay for the long run, because I don’t think you can stop the trend. We are globalizing.

    Is entrepreneurship as widely celebrated in other parts of the world?

    I think it’s cool to be an entrepreneur in most countries at this point. Everyone knows some fantastic success story of some guy who really did it. And some of these people really had to pull through to be the first [success story], so they’re great role models.

    Culturally and psychologically, people don’t want to work for big companies anymore.

    I gather the rest of the world is very concerned by the U.S. government right now. What are you hearing from your far-flung partners about this mess?

    I think people are speechless. Honestly, they’re shrugging their shoulders. They don’t get what’s happening and why. And to some extent, it is a bigger deal elsewhere than it is here. They think it will be resolved. It has to be resolved.

    Related articles

    Connie

    ,
    , , , ,

  • The Rise (and Rise) of Old-Fashioned IVP

    Reading-Ticker-Tape-ManWhen Twitter goes public shortly, you can bet it will be a proud moment for Institutional Venture Partners. But it will be icing on the cake for its investors. Already, 95 of IVP’s 300 portfolio companies have gone public. Already, IVP’s 32-year internal rate of return, dating back to its 1980 founding, is a stunning 43.2 percent. 

    IVP has pulled off this hat trick by operating in as proudly an old-fashioned way as possible.

    Unlike many of its peers on Sand Hill Road, for example, IVP’s walls aren’t filled with contemporary art but rather dotted by the same, framed antique prints and maps of Santa Clara County that have hung there for years.

    By design, IVP doesn’t have celebrity investors. Its oldest partner is Norm Fogelsong, a former programmer at Hewlett Packard who joined IVP in 1989 and has remained virtually unknown outside of venture capital circles ever since.

    IVP also eschews the popular wisdom that operators make the best venture capitalists. In a recent sit-down, Fogelsong calls venture an “apprenticeship business that you learn over time.” In fact, unlike many firms that cycle their associates out the door after a few years, IVP sends them off to business school, then brings them back and promotes them.

    “Assembling a multi-generational team is one of the secrets to our success,” says Todd Chaffee, the IVP general partner who has largely assembled IVP’s current team of six general partners — along with its bench of associates, principals and vice presidents. “It gives us different eyes on every deal and combines the energy and hustle from the younger team with the experience and insights of the older people.”

    Yet there are other ways that IVP has distinguished itself from the pack.

    Though its investments used to run the gamut, the firm decided in 2000 to focus on one area almost exclusively: later-stage companies with between $10 million and $100 million in revenue. Likely, the move has paid off better than the firm could have imagined. During the go-go dot com era, emerging companies with between $10 million and $30 million in revenue could go public with the help of a boutique bank. But today’s companies need revenue in the $100 million range to go public, meaning they often need late-stage capital from firms like IVP.

    More, unlike some industry peers that have collected billions of dollars from their limited partners in recent years, IVP has grown steadily, its fund sizes slowly expanding as its commitments to later-stage companies have grown. Over its last five funds, IVP has raised $225 million, $300 million, $600 million, $750 million, and $1 billion, a sum it closed on last year.

    The money still adds up. Three billion dollars of the $4 billion that IVP has raised in its entire history has poured in over the last 13 years. But Fogelsong shrugs off any suggestion that it could jeopardize IVP’s continued ability to deliver big returns. “If you’re going to be a late-stage investor, investing $30 million at a time, you can’t do that with a $100 million fund.”

    Which raises one final point. IVP makes just 10 to 12 investments annually, each chosen from the pool of roughly 2,000 companies it sees each year. Pacing itself means turning down some attractive deals. But sounding every bit the Stanford engineering student he once was, Fogelsong says the “idea is to make three to five times our money in three to five years, for a 41 percent internal rate of return. We don’t care how much of a company we own. What we want is to get our capital deployed properly in the best companies at a proper valuation.”

    Fogelsong shoots me a confident smile. “We have a very tight, well-defined investment strategy,” he says.

    It’s not not flashy. It’s not novel. Very plainly, though, it works.

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

    Related articles

    Connie

    , , ,

  • Todd Chaffee on IVP’s Twitter Stake: Fred Wilson Was “Instrumental”

    todd_chaffee_largeAny day now, it’s expected that Twitter will make its IPO filing public, revealing exactly who owns what.

    No one yet knows Institutional Venture Partners’s stake in Twitter, but based on the $35 million Series C round for the company that IVP led in January 2009, it’s clear the Sand Hill Road firm will generate a world-class return on its investment.

    Yesterday, as part of a longer conversation, Chaffee shared the story of how that Twitter funding came together. It’s a good reminder of the importance of relationships in this business:

    “One of the things we’re always doing is surveying the landscape for breakout companies, where they’re starting to gain traction…and their users and other metrics are starting to track up.  Twitter was classic case of company just starting to break out. 

    One variable for us is: What could this be in terms of potential? An early-stage company can be interesting and getting some traction, but when you run the profile, [you realize it has the potential] of making 3x to 5x your return, [which isn’t a compelling enough exception for IVP, which specializes in later-stage companies that already have meaningful revenue]. 

    Twitter fit our criteria [of being able to deliver a much bigger return]. And we had a view into that, so we called [early Twitter investor] Fred [Wilson] and asked if the Twitter guys would see us. 

    ‘We’re not raising money right now,’ Fred told us. ‘Go away.’ But we’re co-investors [with Union Square Ventures] in Comscore [which tracks Web and mobile usage]. And so [after another plea or two] Fred asked if the Twitter guys would see us, telling them, ‘Just meet with them, and when you’re ready to raise, [IVP] will be there.’ 

    So we had them come in [to our office] on a Monday in early January 2009, and when we heard them describe the company as the ‘pulse of the planet’ — those were their words — we could see this was much more than a microblogging service. Ev Williams and Biz Stone are sharp guys. Some entrepreneurs have a vision that’s clearly infectious and much bigger than everyone realizes, and [that was the case here], so it was pretty straightforward. In fact, you could see everyone around the table, thinking, This one could really go. Meanwhile, they [thought] IVP was asking all the right questions, [that we could] see opportunities and threats more clearly than anyone else, and they told Fred that they could see IVP as a partner.

    It was a hot deal for us, so we scrambled the jets and the next day I went up there [to San Francisco from Menlo Park] with [IVP colleagues] Dennis [Phelps] and Jules [Maltz] for a day of due diligence. This was a Tuesday. Wednesday night, I had dinner with Ev Williams. On Thursday, he was calling our CEOs to see what it’s like to work with IVP. And by Friday, we had a term sheet.

    Eventually, that news broke, and it brought everyone out of the weeds to outbid us. We asked [Williams and Stone], ‘Who do you like best of these groups?’ and they said Benchmark [Capital], so we dialed Benchmark into the deal.

    Fred was absolutely instrumental. Because Ev and Biz hadn’t done this many times, I [feel] like Fred was the one who really opened the door for us and said [to them], ‘Let’s do the IVP deal.’”

    (Look for the inside story behind IVP’s rise to the top — and how the firm plans to stay on top — on Friday. And if you haven’t signed up yet for StrictlyVC, you can that that right here.)

    Related articles

    Connie

    ,
    , ,

StrictlyVC on Twitter