• Scale Venture Partners Raises New, $335 Million Fund

    _header-contact-B-v1This morning, the Bay Area venture firm Scale Venture Partners is announcing the close of its newest fund,  Scale Venture Partners V, L.P., with $335 million, up from the $300 million fund it closed in May 2013.

    Scale, once the venture arm of Bank of America (it split off from the bank 10 years ago), says its capital came from a wide array of pension funds, foundations, funds of funds, financial investors and family offices worldwide, including previous and new investors. (BofA is no longer an LP.)

    The firm, which focuses primarily on enterprise investments, is run by longtime colleagues Stacey Bishop, Kate Mitchell, Rory O’Driscoll, and Andy Vitus, along with their newest partner, Ariel Tseitlin, a former director of cloud solutions at Netflix who was promoted from venture partner in 2014. It also recently announced the promotion of former tech banker Susan Liu to vice president from senior associate.

    Like a lot of other firms able to raise funds right now, Scale has had a string of exits in recent years, including the IPOs of the online storage provider Box. We talked via email with several partners of the firm earlier this week to get a better handle on where it might be shopping next (among other things).

    More here.

    Connie

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  • The Unicorns Hiring, and Losing Employees, the Fastest

    unicornEvery day, we in the media are starting to hear about startups laying off employees – sizable percentages of them, too. Last week, it was Mixpanel, Maker Media, and SOLS.

    A recruiter who asked not to be named separately tells us that Instacart has parted ways with numerous recruiters in anticipation of a hiring slowdown.

    Instacart’s VP of People, Matt Caldwell, confirms that the company is no longer using contract recruiters and is slowing down its total number of full-time hires, but says that’s a reflection of the company’s earlier and aggressive growth plans. He notes that company grew from 91 full-time employees in January 2015 to 300 full-time employees today.

    Either way, not everyone sees major changes up ahead. Josh Withers, cofounder of the nationwide startup search firm True, tells us that it’s business as usual as far as he can tell. “Burn rates are being closely scrutinized. We haven’t seen a pull back in terms of hiring, though.” Though Withers half expected to return to work after the holiday to find companies wanting to do more with less, he says that instead, “We came back from break and got a ton of inbounds from private equity firms, VCs looking for help with their startups, and other companies of all stages.”It could be that companies have “already raised the money and need to put it to work,” he observes. “Maybe [what we’re seeing] lags the macro markets because the way the money was raised. But it doesn’t feel at all like 2009.”

    Because it’s so hard to know what’s really going on right now, we worked earlier this week with a set of data scientists with fancy degrees, poring over publicly available data to come up with a list of which U.S.-based, privately held, non-biotech-related “unicorn” companies are hiring the fastest, and which are seeing the most employees leave.

    More here.

    Connie

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  • A Visit with Chelsea Handler, and a Nervous Wait Afterward

    Cheslea HandlerAs you may have heard, brash comic Chelsea Handler is set to host a new series on Netflix entitled “Chelsea Does…” in which she’ll explore a range of issues, including a universe still foreign to many outside of it: Silicon Valley.

    Now, as the series debut approaches on Saturday, January 23rd, at least one venture firm –- Foundation Capital — is waiting on pins and needles. The reason? Foundation somewhat bravely agreed to let Handler and crew into their offices so she could pitch them on an mobile app while the show was being filmed.

    On Friday, we talked with general partner Paul Holland and Foundation’s marketing partner, Meg Sloan, about what went down.

    How did it come to pass that you’re in this new show?

    MS: [Foundation entrepreneur-in-residence] RJ Jain was working with [Handler’s] development team on her app. We’re also early investors in Netflix, so I think we were on the radar of the production team.

    I used to work at Facebook, where we have posters that say: “What would you do if you weren’t afraid?” I joked [to the team here] that the answer was to say yes to being in a Chelsea Handler documentary.

    What was the idea exactly?

    MS: That she would pitch us her app. We also talked with the producers, who asked for our help with some locations, and we put together a happy hour for Chelsea in Palo Alto with a cross section of folks we know. I think she was super interested in the social scene here in Silicon Valley, to the degree that there is any. [Laughs.]

    Was the pitch straightforward?

    PH: She came in with an entourage – not her entourage from [her long-running E! Online show, “Chelsea Lately”], but she’d encountered a young kid along the way, a 10-year-old, Silicon Valley kid who has [his own] app and she was fascinated by him. She also brought her dog, Chunk.

    More here.

    Connie

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  • The Landlord VC

    AspectYou might be hearing talk of depressed valuations, but that message certainly isn’t reaching commercial real estate owners in the Bay Area. The median price per square foot to rent office space in the city has shot up 33.7 percent in just the last three months alone, says Loopnet, an online real estate resource. Over the last 12 months, San Francisco rents have soared 106 percent.

    It’s easy to throw up one’s hands at that the situation. Aspect Ventures, a year-old, early-stage venture firm founded by longtime VCs Jennifer Fonstad and Theresia Gouw, is instead using the trend to its advantage by renting up to 20 desks in its own, 2,600-square-foot headquarters in San Francisco. It’s charging market rates, too.

    It’s a smart move on a number of levels. First and most obviously, it helps Aspect defray its own costs, which can’t be inexpensive given current prices. According to real estate specialist Jones Lang LaSalle, average office rent in San Francisco has hit a whopping $70 per square foot.

    Aspect, which closed its debut fund with $150 million last year, is also willing to rent the desks to both startups it has backed and those it might fund in the future, which allows it to see more young companies up close.

    That’s harder to do than you might think.

    More here.

    (Photo courtesy of Aspect Ventures. From left: cofounder Theresia Gouw, principal Lauren Kolodny, cofounder Jennifer Fonstad, and associate Kamil Saeid.)

    Connie

  • Randy Glein of DFJ Growth on Today’s Crazy Late-Stage Market

    117 - imgl3791DFJ, the renowned Sand Hill Road Firm, is celebrating its 30th anniversary this year. At the same time, its low-flying, later-stage offshoot, DFJ Growth, is turning 10.

    This week, we caught up with DFJ Growth cofounder Randy Glein to understand how closely related or not the two remain, how the firm is feeling about the shaky late-stage market, and whether his team of five general partners is ready to raise their own, third, fund from investors. Our chat has been edited for length.

    Quickly, what are you looking for when you’re writing checks? How mature does a company need to be?

    We pick up where venture funds leave off. We’re invest in the scaling phase of businesses, so we’re looking for that inflection point where the company has found its product market fit and customers who are paying for its products. We come in when companies are generating low tens of millions of dollars in annual bookings, growing more than 100 percent a year, and playing in a market that’s big enough to support a large company. That can be $1 billion to $100 billion dollars, depending on the market opportunity.

    Can you invest in a company regardless of whether or not DFJ’s venture team has made an earlier investment in it?

    Many companies we’ve co-invested in with DFJ and not followed. It just depends on the stage of the business. Also, as we’ve raised bigger funds – our first fund closed with $290 million in 2007 and our second closed with $470 million in 2013 — there’s been less overlap. I’d say 25 to 30 percent of our first fund was invested in companies backed by DFJ; in the second fund, it’s less than 10 percent. Our charter is to invest in the most exciting growth-stage companies on the planet, and to go anywhere to find them.

    Do you share the same investors?

    Again, there was more overlap in first fund; with the second fund, less than half the capital is coming from [DFJ’s same investors]. Some LPs want to invest in venture. Some want to invest in growth stage companies because they have a different risk tolerance profile or need to take a different size bite. Some want both and see us as sister funds.

    Are you raising another fund in 2016?

    More here.

    Connie

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  • Never Mind Those Markdowns: An LP Plans for Next Year

    raining_moneyEarlier this year, FLAG Capital Management — an asset manager that has backed a long list of top venture firms, including Accel Partners, Andreessen Horowitz, Redpoint Ventures, Spark Capital and Union Square Ventures — wasacquired by the British fund manager Aberdeen Asset Management.

    The terms of the deal weren’t disclosed. But the union created a giant that manages $15 billion in private equity assets – money that many venture firms will invariably be competing to attract when they hit the fundraising trail next year.

    To get a sense for how Aberdeen views the market right now, and who’s liable to see a check from the firm in the coming months, we chatted yesterday with its head of global venture capital, Peter Denious. Our conversation has been edited for length.

    It’s a little choppy out there. Meanwhile, your job is to fund venture capital firms. Are you nervous? Are you planning to pull back a bit in 2016?

    As it relates to venture, there won’t be any changes in our strategy. A lot of time was invested in this point [when we were being acquired by Aberdeen], and we plan to stay true to our model, which is to invest about $100 million per year in early-stage venture funds.

    So you aren’t troubled by private-company valuations trending downright now.

    I think it’s somewhat overdue. We aren’t interested in watching markets get overheated. I wouldn’t be surprised if we see more volatility in 2016, but I think it imposes more discipline on the private market.

    What about interest rates? Would an expected rate hike impact your work?

    For all asset classes, there will be some ripple effects for sure, but it’s probably going to be most muted in the case of venture capital and it wouldn’t change how we approach the business. I suspect it will have more of a dampening effect on capital flowing into other alternatives, including the buyouts space.

    You sound so positive about venture capital.

    It’s been a banner year for distributions for the industry and certainly for FLAG, and now Aberdeen, where we’ve seen record-setting amounts of cash returned. That’s really a reflection of what happened very early this year and last year, when a lot of companies went public; VCs have to work off those lock-up periods, and that takes time. But we’ve had the good fortune of being able to send back a lot of money to our investors.

    Of course, IPOs are now down 50 percent year-to-date by dollar amount.

    Much more here.

    Connie

  • Venrock’s Bryan Roberts on What’s Up with Health Care IPOs

    broberts_pressBryan Roberts has seen plenty of market swings in his 18 years as a venture capitalist with Venrock, the venture firm that started as the venture arm of the Rockefeller family and has historically invested in early-stage technology and — Roberts’s specialty — health care start-ups.

    Roberts also has a thorough understanding of what’s happening on the U.S. public markets as the chairman of three Venrock portfolio companies that now trade on Nasdaq: Castlight Health, Ironwood Pharmaceuticals, and Achaogen.

    Given his background, we asked him recently what he’s expecting to see happen in the health care market next year. Our chat has been edited for length.

    Several months ago, the IPO market for health care companies suddenly tightened after a long run. What’s happening?

    Health care has tightened, but we could probably talk broadly about the financing market tightening. With the later-stage stuff getting dicier, I’ve been hearing about more IPOs getting pulled. People are either “risk on” or “risk off,” and we’re beginning to back off from full-throttle risk-on environment. I guess I feel like the last four or five months in both biotech and tech more broadly have been akin to what you might have considered “last licks” in a stickball game as the sun was going down, and that shift predates the mutual fund valuation stuff that came out.

    I don’t know that I have a good reason as to why biotech pulled back specifically other than pricing concerns mentioned by presidential candidates, some high-profile price gouging, and some clinical trials that read out negatively, though that always happens.

    What are you expecting in 2016 and how might it impact your approach?

    Well, for one thing, the changing environment may make me feel less out of step with everyone else. We don’t tend to focus on sectors or stages. I invest really broadly across health care, from genomics to diagnostics to therapeutics, so from a fundamental perspective, we don’t tend to follow the herd. In this bullish market environment, we haven’t been doing growth equity investing. We tend to avoid the party seed rounds done by 15 different people.

    [All that said,] in health care IT, we’ve moved to earlier stage. We’ve started a couple of companies. We’ve moved to pre-product market fit, which is different than how we’d invested in the space 10 years ago. When we invested in Athenahealth [the now publicly traded company that offers a suite of administrative services for medical practices], they had product market fit, but no one wanted to invest in that space. Now, once something has traction, it’s priced very fully. So earlier this year we started a business with [former Facebook CFO] David Ebersman called Lyra Health. We did the same with [former U.S. CTO], Todd Park at Castlight. We’ll continue doing that for some time.

    What does someone need to get a meeting with you?

    More here.

    Connie

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  • Sequoia’s Alfred Lin on Why Uber’s Valuation is Twice That of Airbnb

    Screen Shot 2015-12-01 at 3.40.12 PMToday, at the Post-Seed conference in San Francisco, Alfred Lin, the former COO and CFO of Zappos and now a Sequoia Capital partner, was asked a variety of on-stage questions about the current market.

    Among them was whether Lin thinks it’s a good time to start a fund. “Probably not,” he said. “Valuations are high. But it doesn’t matter if you’re [thinking] long term,” he said. “If you’re building something enduring, you’re going to face lots of ups and downs anyway and you might as well start today.” As he noted, “It only gets more competitive in this world” of investing.

    Lin was also asked about the changing landscape and talked about the slowdown he expects next year, prompted by rate changes that the Federal Reserve is expected to enact shortly. “With interest rates close to zero, you can’t make money in the bond market,” he said. “So the bond people now invest in stocks, and people who invest in stocks invest in private growth rounds . . . and VCs invest in seed deals.” That’ll all change when the Fed starts raising rates, which Lin anticipates it may do “maybe even once a quarter.” Once that happens, he said, “There will be less money chasing companies all the way down the spectrum.”

    Lin was also asked to take a look back and address some of Sequoia’s most impactful decisions in recent years. He was asked, for example, why Sequoia invested in the accommodations marketplace Airbnb but passed on the ride-sharing company Uber.

    More here.

    Connie

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  • AppDynamics Raises $158 Million at a $1.9 Billion Valuation

    Screen Shot 2015-11-30 at 4.50.06 PMLast month, based on an SEC filing, we told you that seven-year-old, San Francisco-based AppDynamics had raised a fresh $83.4 million in funding as part of a round that was targeting up to $150 million.

    Turns out the company met that target and then some. CEO David Wadhwani — who joined the firm in September after spending more than a decade as an executive at Adobe, including as its digital chief — says the company just closed on $158 million in a round led by General Atlantic and Altimeter Capital.

    Other participants in the round include Adage Capital, Industry Ventures, Goldman Sachs, and Cross Creek Advisors, as well as earlier backers Institutional Venture Partners, Greylock Partners and Lightspeed Venture Partners.

    AppDynamics makes software to monitor the performance of business applications, competing with some traditional firms like IBM, as well as younger outfits like New Relic, which went public last December and has seen relatively steady stock performance since. (New Relic, which raised $214 million in venture funding, has a current market cap of $1.8 billion.)

    AppDynamics had previously raised roughly $206 million in debt and equity, including a $120 million round — $70 million equity and $50 million of debt — that closed in July of last year.

    At the time of the funding announcement, the company told VentureBeat that the money represented “pre-IPO growth financing.” Asked yesterday what this new round means, Wadhwani said he “won’t speculate on the exact timing” of an IPO but added, “I was brought in to take this company public, and that’s what I intend to do.”

    More here.

    Connie

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  • A New Way to Fund Unicorns Starts to Look Less Magical

    unicornIf you haven’t heard of a fairly new twist on investing called special purpose vehicles (SPVs), you probably aren’t an institutional investor or a wealthy individual with direct ties to either a venture firm or a high-flying startup like Pinterest or Postmates.

    But don’t worry if you’ve missed the opportunity to invest in one. Investors may find they weren’t worth the risk if valuations of so-called unicorns — some given “haircuts” recently by their mutual fund investors — start to slip more broadly.

    The vehicles – essentially pop-up venture firms that come together quickly to make an investment in a single company – began surfacing around 2011, leading up to Facebook’s IPO, and they’ve been on the rise since. In April, the Wall Street Journal reported on several low-flying SPVs that have been used to connect investors with high-profile, still-private companies like the data analytics company Palantir Technologies and the grocery -delivery outfit Instacart.

    Another company that has raised money via numerous SPVs is the digital scrapbooking company Pinterest. When it set out to raise more than $500 million earlier this year, the venture firm FirstMark Capital raised a $200 million for a SPV to help fund it. In 2014, Pinterest separately raised $131.1 million through two SPVs organized as Palma Investments by SV Angel, the seed-stage fund founded by renowned investor Ron Conway.

    It’s no wonder that investors are drawn to the vehicles. In the case of Facebook, early access to the company produced big dividends for investors. Investor Chris Sacca similarly amassed an outsize stake in Twitter for investors Rizvi Traverse and J.P. Morgan by creating SPVs that paid off. (How richly depends on when they began cashing out. As of late September, Rizvi Traverse had sold more than 10 percent of the 15.6 percent of Twitter it owned at the time of its November 2013 IPO. Twitter’s shares peaked in January of 2014 at $69 per share; they’re now trading at roughly $26 apiece.)

    Whether investors in newer SPVs will see such rewards remains a question mark – and there a lot of investors in newer SPVs.

    More here.

    Connie

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