At Fortune’s Brainstorm Tech conference yesterday, senior editor Dan Primack hosted a panel of investors who were asked to share their thoughts on the current – and future – state of the venture market.
The VCs covered a lot of ground. We happened to focus in on what Bill Maris of Google Ventures had to say. You can find some notes from the discussion here.
Image courtesy of Vanity Fair
Andrew Braccia of Accel Partners doesn’t tweet or write blog posts. He rarely talks with the media. But that doesn’t mean the 39-year-old isn’t working it. In fact, Braccia may have landed as big a deal for Accel as Facebook, whose $12.7 million Series A investment produced billions of dollars for its investors.
That company? Slack.
I had coffee with Braccia last week to ask about his early bet on the company, which Accel led with help from Andreessen Horowitz. It could become the defining deal of Braccia’s career, despite his other prescient bets, including on the high-profile Hadoop software company Cloudera (expected to go public sooner than later); Vox Media (owner of The Verge, SB Nation, Vox and Recode); and the 30-year-old, fast-growing online learning company Lynda.com, which had raised nearly $300 million from investors in recent years and announced in April that it was being acquired by LinkedIn for $1.5 billion.
Our chat, edited for length, here.
In July of last year, Eric Vishria, a longtime Opsware executive who became co-founder and CEO of the social browsing startup Rockmelt, joined the Sand Hill Road firm Benchmark as its fifth general partner. It’s an enviable position, given the reputation of the 20-year-old firm, which has backed Uber, Snapchat, and the publicly traded companies Twitter, Hortonworks and Zendesk, among many others.
At Benchmark, which famously sticks to its early-stage knitting, with recent funds all closing at $425 million, general partners also have an equal share in the firm. That’s rather unlike most venture firms, where older partners typically receive outsize economics (and younger partners often hightail it for greener pastures).
That’s not to say the work is easy, exactly. We talked with Vishria yesterday about his first year on the job. Our chat has been edited for length.
How’s it going one year in?
It’s been really amazing. Don’t tell entrepreneurs this, but it’s the best job ever. Every meeting you walk into, you’re learning something. You’re meeting with an entrepreneur, learning about a new space or idea . . . It’s just such an intellectually stimulating job. I find it very inspiring.
How do you keep from getting overly excited about the new ideas you’re seeing? We’d think that would be tricky at first.
I’ve now seen about 180 companies – I track it – and in the first few weeks, I was like, “Oh my God, all of these ideas are investable!” And they weren’t.
This morning, Spire, a nearly three-year-old, San Francisco-based maker of small, software-packed satellites, announced $40 million in fresh funding from investors, including Promus Ventures, which led the round, and Bessemer Venture Partners. (We wrote a piece for TechCrunch about the news here.)Late last week, we talked with Bessemer partner David Cowan about the deal, and why he’s intrigued by space startups more broadly. That conversation follows, edited for length and clarity.
How did you settle on your investment in Spire?
As an early investor in Skybox [a satellite imagery company acquired by Google last year], we were approached by pretty much every early-stage space startup out there. Back when Spire was called NanoSatisfi, [founder] Peter [Platzer] reached out to us, but the company looked as flaky as the rest of them, meaning, here was a smart guy with an ambitious idea that he was going to put up a big constellation. But after one-and-a-half years, he actually did all the things he said he was going to do. In fact, when we looked to find who might be taking advantage of Moore’s Law in space, Spire stood out as the company most likely to lead the trend. It’s pretty clear that by this time next year, Spire will have the largest constellation known to man [based on the number of satellites it has in space].
Right now, that honor belongs to Iridium, which has around 75 satellites up there. Give readers a sense of how different the two companies’ satellites are.
Iridium’s satellites are on the order of a metric ton, whereas satellites now being developed are basically 10-centimeter cubes, so maybe the size of a Kleenex tissue box. Spire’s satellites amount to three of those cubes [each].
How dramatically do they compare in terms of power?
It’s a different class. Iridium satellites are high-capacity and high-powered, but they cost a lot of money and time to build and launch. This new generation of satellites is so small and cheap that you can basically make them out of cell phone parts, with the camera and radios and GPS that goes into them. They aren’t space-hardened. Solar flares and other stuff in space [take a toll much faster]. But you aren’t looking to get 12 years out of them. You’re looking to get two or three. It’s a different attitude. You sprinkle them out there. You’re constantly changing them and tweaking them. It’s like comparing a network of mobile devices with a mainframe.
Who are Spire’s biggest customers?
The first two major applications that we’re addressing are marine craft tracking via the AIS beacons that ships have when they’re out in the open sea; the second is weather. Starting a year from now, it’s expected that the U.S. will be blind to the weather — that the [three] satellites [the government has been relying on] will no longer be functioning. As you can imagine, it’s imperative that we have weather data. It’s critical to agriculture, critical to national security, critical to understanding climate change.
To date, the government has had its own satellites to produce this data, but there’s generally a movement to outsource more and more in the industry. It’s why SpaceX has received a mandate to carry astronauts [encouraged by NASA]. Congress is saying the same about other formerly proprietary NASA activities, too, including authorizing the government to buy weather data.
It sounds like Spire has other ambitions, too.
We’re not satisfied to just do the weather. It’s a big market but there’s no reason that, once the satellites are out there, we can’t put more antennae on them and [wring more information] out them. There’s been a lot of awareness in the last couple of years that we have aircraft disappearing off the grid, for example. There are currently satellites in space that talk with airplanes when they’re underneath those satellites, but there aren’t satellites tracking flights going over the North Pole; a system with lots of little satellites that blanket the planet [could solve that problem].
Basically, there are no application-specific satellites any more. It’s like the internet, where the same pipes that are carrying this call also carry email and Netflix and so much more.
What other space companies has Bessemer backed?We have two other related investments, though only one is disclosed: Rocket Lab, which is building rockets to deliver this whole new class of nano satellites. Think of it as a low-end SpaceX.
What do you make a space tourism?
It interests me as a customer but not as an investor. I think it would be great. Ten years from now, I won’t have school-age children and it will be way safer, so I’m hoping I’ll be a customer.
There’s a lot to love about being a venture capitalist. You meet with smart people every day. You make money regardless of whether or not your investments work. People assume you have smart opinions about things.
Strange as it may seem, however, a growing number of illuminati are passing up the chance to work with established firms to do their own thing. Among the newest of them: Avidan Ross, a former private investment company CTO turned angel investor, who says he met with a number of firms about tie-ups before setting out to raise his own, $31.4 million fund from mostly high-net-worth individuals. (We reported on its closing earlier this month.)
Why would anyone pass up the chance to land a plum role with a venture firm that’s managing hundreds of millions, if not billions, of dollars? The overarching reason, of course, is that they can.
Often, such potential recruits have already made enough money to gamble on themselves. See Aydin Sekut of Felicis Ventures, Manu Kumar of K9 Ventures and dozens of other individuals who’ve turned themselves into venture capitalists over the last decade.
It’s also easier than ever for those who haven’t yet made their fortune to raise a fund, particularly given widening interest in getting into startup deals. Venture capitalist Niko Bonatsos works for General Catalyst Partners but sees many of his peers taking alternative paths. As he puts it, “If someone can [raise and] invest $30 million or $40 million themselves, why wouldn’t they do that? It’s like, ‘You’re a young guy, you know founders. Here’s $10 million. Go invest it.”
For more on our story this morning, check out it out here on TechCrunch.
L.A.’s startup ecosystem has more money today, thanks to Crosscut Ventures, a local, seven-year-old outfit that just closed its third fund with $75 million – considerably more than the $50 million was looking to raise when it hit the fundraising trail at the beginning of 2014.
Crosscut’s newest pool — whose investors include The James Irvine Foundation, Top Tier Capital, and numerous family offices — is also roughly five times the size of the firm’s second fund, which closed with $16 million in 2012. (The outfit collected just $5.1 million for its first, proof-of-concept, fund in 2008.)
Is it Crosscut, or L.A., or a combination of the two? We recently asked cofounder Brian Garrett, who cofounded Crosscut with fellow managing directors Rick Smith and Brett Brewer — all of whom are joined in the newest fund by managing director Clinton Foy, previously a venture partner. Our conversation has been been edited here for length.
You’ve just raised a lot of money, considering where you started seven years ago. How do you explain it?
A lot of it has to do with the general momentum of L.A. ecosystem. When [local VC] Mark Suster announced [his firm, Upfront Ventures’s] $280 million fund last year and hosted its [invite-only] Upfront Summit [in February], I think everyone became more aware of what’s happening here. I don’t think they’d thought it was a long-term or a sustainable [shift] until then.
There’s also a lack of competition relative to the opportunity here, and, more specific to us, there aren’t a lot of micro venture firms that have four managing directors – two of whom have 15 years of venture experience. [Editor’s note: Garrett and Smith were previously partners at Palomar Ventures.]
What are your biggest hits to date?
We’ve had seven exits out of 18 investments in our first fund, four of which produced 9x returns, including [the e-commerce site] ShoeDazzle. We sold our stake when late-stage investors were buying. We had local market knowledge about how competitive that market was getting. We also sold [the digital ad company] Pulpo Media to the public company Entravision for a 9x return; we sold [the e-document repository] Docstoc to Intuit for a 9x – we were the first money in. We also made another secondary sale that hasn’t yet been announced.
We’ve had two liquidity events in our second fund, too, with the sale of Lettuce to Intuit for a 4x, and the sale of Gradient X to Amobee [a mobile ad company acquired by SingTel in 2012] for 2x our investment.
You mention ShoeDazzle, which you’d funded when it was valued at less than $10 million. Sounds like you were smart to get out when you did, though did you the miss out on the chance to invest in founder Brian Lee’s next startup, The Honest Company?
We did. We were at the tail end of fund one and didn’t have a lot of money left, and some sharp-elbowed Silicon Valley VCs took the whole round. We definitely should have gotten money into Honest Company.
How do you view secondary sales generally?
We look at them on a deal-by-by deal basis to evaluate whether to hold or sell. We have a stake now in a company whose valuation is similar to where ShoeDazzle’s was when we decided to sell, but we’re holding because we think it will be a multibillion-dollar company.
We look at the market landscape and who the buying audience will be and whether the next plateau of value creation is worth the risk it will take to achieve.
Where do you think it’s not worth the risk?
In ad tech, for example, we think you’re either first in a new category and you get a big exit via an acquisition from Google or Yahoo, or you’re in the walking dead zone, along with tons of other good, profitable ad tech businesses that no one wants to buy because it’s become so hard to defend any particular intellectual property or sustain a differentiation.
You were long juggling Crosscut with a startup you’d cofounded, a fashion and media platform called StyleSaint. Meanwhile, Brett was a senior VP of corporate development at the company Adknowledge. Are you both still doing double-time?
Brett and I are now full-time with the fund. Brett [quit Adknowledge] six months ago; I’ve been full time since August of last year, when I set out to raise the fund. I quickly realized I couldn’t wear both hats.
You may have noticed: Hardware investing is in vogue. Andy Rubin, creator the mobile operating system Android, recently launched Playground Global to advise device makers in exchange for equity. Formation 8 is raising a $100 million hardware-focused venture fund. That’s saying nothing of the seed-stage fund Bolt, which raised $25 million a few months ago, and the numerous accelerators now focused on backing hardware startups, including Haxlr8r, Lemnos Labs, and Highway1, which is an offshoot of the custom design manufacturing company PCH International.
Now, the Bay Area has yet another entrant on the scene: San Francisco-based Root Ventures, which just closed its debut, hardware-focused fund with $31,415,927 (the first 10 digits of Pi), capital that it raised from a gaggle of high-net-worth investors along with the fund of funds manager Cendana Capital.
Root Ventures is a single-GP fund founded by Avidan Ross, a trained engineer who was previously CTO of the private equity firm CIM Group. Ross isn’t widely known (yet) in press circles, but a growing number of venture capitalists and entrepreneurs have grown acquainted with him through the roughly 10 bets he has placed in recent years with the help of his friends’ capital.
Some of Ross’s older bets include Wallaby Financial, a mobile finance company that was acquired by Bankrate in December for an undisclosed amount. Another is Skycatch, an aerial robotics platform that received its first check from Ross and which has gone on to raise $24.7 million altogether, including from Google Ventures. Ross also wrote the first check for Momentum Machines, a company whose robots turn raw ingredients into packaged hamburgers without human intervention. It just raised an undisclosed amount of follow-on financing from Founders Fund.
“I don’t think people were investing in me based on my individual track record as an angel,” says Ross. “Those investing in me know me from a previous life [as CTO] of a pretty large investment firm where I built a lot of great relationships with people who trust my ability to invest in great technology.”
Ross, who raised much of his new fund late last year, has made three newer investments on behalf of Root Ventures, where he plans to make concentrated bets, and to write first checks in the range of $500,000.
The most recent of its portfolio companies is operating in stealth mode, but it’s easy to see the appeal of the others. Mashgin — company Ross met through entrepreneur friends — has developed an automated checkout kiosk machine that employs computer vision to identify any object on a surface (down to the different-flavored Snapples, says Ross). The big idea: to create a far more seamless experience for shoppers.
The company graduated late last year from Y Combinator and is about to announce a “significant” amount of follow-on funding, says Ross, who wrote its first check.
Ross also invested in Prynt, which makes a smartphone case that prints out photos. He met the company during his honeymoon in China. The young company was operating out of the Haxlr8r accelerator in Shenzhen, “and I asked if I could take a three-hour break and visit with the companies. I immediately thought: ‘This is amazing.’”
If you don’t understand why a printing up a digital photo might be interesting, Ross says Prynt’s opportunity goes “above and beyond printing out a polaroid. When you print a photo, you’re basically printing up the last frame of a 10 second video. With Prynt photos, you hand them to someone else, they point their phone at the photo, and the photo becomes alive [by featuring those full 10 seconds]. It’s like a Vine that only that person can watch. It creates privileged access.”
Others must like it, too. Prynt recently raised $1.5 million in a Kickstarter campaign earlier this year.
Ross says the company also just raised a “sizable seed round that’s unannounced. An earlier SEC filing suggests the amount is $2 million.
Madrona Venture Group, the 20-year-old, Seattle-based early-stage venture capital firm whose bets include Redfin, Apptio, iSpot.TV and others, has closed its sixth fund with $300 million. Yesterday, we chatted briefly with longtime managing partner Matt McIlwain about the fund and the investing scene in the Pacific Northwest more generally.
Your new fund is the same size as its predecessor, closed in 2012.
Same size fund, same strategy. It’s all systems go.
Is the team the same?
One of our managing directors, Greg Gottesman, is transitioning to a venture partner role. [Gottesman, who joined Madrona in 1997 and was previously CEO of the dog-owner community Rover.com] will still be involved but he’s been kicking around some new entrepreneurial ideas that he wants to pursue and he’ll be talking about them later in the summer. We also added three strategic advisors [Isilon co-founder Sujal Patel; retiring F5 CEO John McAdam; and Concur CEO Steve Singh].
You’re obviously a big proponent of the Pacific Northwest investing scene.
I hate to use the word, but it’s really become a juggernaut of innovation in cloud, in big data, augmented reality, next-generation consumer… Related to that, the rise of Amazon and revitalization of Microsoft is attracting all kinds of talent to this region, which bodes well for us.
How are you measuring the impact of [Microsoft’s newest CEO] Satya Nadella?
I was over at Microsoft last week getting a tour of its HoloLens [holographic goggles technology] and I was blown away by the demos. Operationally, there’s a huge difference, too. One of our startups, Smartsheet [which makes cloud and mobile-first productivity tools], had tried unsuccessfully a few years ago to integrate with Microsoft. [Under Nadella], the company has gotten traction with Office 365 and was just featured at a recent conference as an example of a great integration partner. The pace at which Microsoft folks are understanding and building integration with the startup community is significantly enhanced over the last 18 months. Satya has just set a different tone — more humble and more outward looking about what the ecosystem and customers want.
Madrona was super active last year, investing $463 million into the Pacific Northwest with its syndicate partners. Are valuations still comparatively more reasonable up there?
[Laughs.] Yes, they’re somewhat more reasonable, and the cost of living is somewhat more reasonable. We roll our eyes when square footage hits the high $30s; you [in the Bay Area] start rolling your eyes when it hits the high $70s. It also doesn’t hurt that we don’t have a state income tax.
[As important] we have a growing [well of] deep talent here. Some people have come to work at Microsoft and Amazon but Facebook and EMC and Google also now have hundreds if not thousands of employees here. We’ve funded 15 companies that have come out of the University of Washington. Our LPs are also very excited about this multi-generational effect we’re starting to see. For example, we backed Isilon [the enterprise storage company that was acquired by EMC in 2010 for $2.25 billion]; now we’ve backed two teams to come out of the company, the next-gen storage companies Igneous and Cumulus. There’s just talent all over the place.
Frédéric Court has been a venture capitalist for about 15 years, but it was only recently that he hit the fundraising trail for the first time.
The experience went well, apparently. This morning, Court, a longtime partner with the European venture firm Advent Venture Partners, is taking the wraps off his own, London-based venture fund, Felix Capital, which he says raised $120 million in just a few months.
That might not be terribly uncommon in Silicon Valley, but it doesn’t happen very often in Europe. More unusual, Court is the sole managing partner, though he has enlisted longtime Advent colleague Less Gabb as his finance partner and Antoine Nussenbaum – formerly of Atlas Global – as principal.
Earlier this week, we talked with Court about why he has struck out on his own, and whether his debut fund says anything more broadly about what’s happening in Europe.
Why leave Advent after all these years?
Our last fund is doing extremely well, but Advent is now a life sciences fund [which closed its newest, life sciences fund last fall with $235 million]. It’s a bit like what happened at Atlas Venture. The tech partners were going to raise a tech fund from scratch and I decided instead to start something quite new and have a sector-focused and thematic approach.
Your new theme is “operating at the intersection of technology and creativity.” What does that mean?
It means investing in more creative businesses like digital brands, especially in markets like commerce and media, in sectors like fashion, and beauty and wellness more generally. Some fantastic global brands have been built in Europe, and we think there’s a generation of new companies to be built that are digital first – companies like FarFetch [an e-commerce site featuring designer apparel from hundreds of boutiques], which we backed at Advent and is in our portfolio now at Felix, as well.
Are you looking to fund European companies alone?
They’ll either be in Europe or have a European angle. We have one [still-undisclosed] investment in New York where we’ve been helping them expand across the pond. We did that at Avent with companies like [the mobile payment company] Zong, which we helped move from Switzerland to Palo Alto [where the company was acquired in 2011 by eBay], and [social media marketing company] Vitrue, which is based in Atlanta and we helped expand into Europe.
What size checks will you be writing?
We have the flexibility to invest from $100,000 up to $10 million in a later-stage round, though our sweet spot will be $2 million to $4 million in Series A and B rounds.
You’re announcing three companies as part of the launch. For curious readers, what are they?
There’s FarFetch. We’ve also funded the Business of Fashion, which started pretty much like your newsletter and over the last seven or eight years has become one of the most authoritative media brands in the online fashion industry. Along with [coinvestors] Index Ventures and LVMH, we’re helping the founder turn it into a platform. Our third investment is in Rad, a Paris-based online street wear brand that’s a bit like Urban Outfitters and is expanding across Europe.
This new fund closed with $40 million more than you were targeting. Are LPs loosening their purse strings in Europe more broadly?
There is capital in Europe, but the delta between the opportunity and available capital is significant. It’s still a fraction of the available capital in the U.S.
But you’re also seeing more U.S. firms like Insight Venture Partners enter Europe and take stakes in high-growth companies.
They typically come in much, much later. What we’ve seen in the past two or three years is a reduction in competition from U.S. firms because the market is so competitive in the U.S.; firms just don’t have the bandwidth to fly to Europe unless one of their trusted friends mentions a deal to them. Also, when you’re talking about Insight and [Technology Crossover Ventures] and DST [Global], they’re looking to write checks of $50 million to $70 million, and the number of companies that can take that much capital is much lower here than in the U.S.
Is Europe seeing more corporate investors? They’ve sort of filled a hole in the U.S., especially when it comes to Series B rounds.
We see some corporate money, though much less than in the U.S.. We’re more seeing local sovereign funds step in, where governments have realized that a lack of capital [to startups is a disadvantage]. One of the biggest backers is [the French government’s] Bpifrance.
Are things fairly collegial among traditional early-stage investors then?
There are firms that we know well – Accel, Index – and they were very helpful to me in raising my new fund, and in introducing me to their LPs. In the early stages in Europe, there isn’t the kind of competition you see in the U.S., while in parallel, we’re seeing the quality of talent rise in both founders and people joining startups. These will be very interesting years to invest.
Photo of Less Gabb, Frédéric Court, and Antoine Nussenbaum (left to right), courtesy of Felix Capital.
Like many venture firms, Bessemer Venture Partners provides all manner of perks for its CEOs, including a day of race-car driving and wine tasting.
Today, in San Francisco, the firm will be providing its CEOs with a different kind of perk. Together with Salesforce Ventures, Bessemer is hosting a day-long “cloud” summit that brings together CEOs backed by the two outfits to share best practices, let them learn from each other, and to dazzle them with speakers like quarterback-turned-investor Steve Young and the futurist Ray Kurzweil.
Yesterday, we caught up with longtime Bessemer partner Byron Deeter, who organized the event, and who has led deals in numerous high-flying cloud companies — including the online storage service Box, the app-building software service Twilio, and the digital signatures specialist DocuSign – to learn more.
What are you hoping these CEOs will learn today?
Part of the event is just understanding where we are. Analysts are now predicting that midway through next year, the majority of application revenue in [customer relationship management] will be cloud-based, which is a tipping point we’ve long been predicting. More broadly, we’ve been tracking public cloud companies for a while now, and based on our data analysis, we’ve come to believe this group will have a combined market cap of half a trillion dollars by 2020, up from $180 billion today — which is itself up from $40 billion three years ago.
As an investor looking to make two bets per year, roughly, where are you spending your time? What sub themes do you think are most interesting right now?
I’ve personally been most active in industry cloud and enterprise mobile, which is finally coming of age.
Industry cloud?
Industry cloud is really this notion of the “verticalization” of software and the opportunity for a large vendor like Veeva [which makes cloud-based software for the life sciences industry] or Athena Health [which provides its customers with electronic health records, revenue cycle management, and more] or Shopify [which juggles all kinds of store management issues for its retailer customers] to create dedicated [cloud-based] software for a dedicated industry group. And these models can have massive success.
And enterprise mobile? We have to admit that long-suffering Good Technology [among the first startups to provide email access via mobile devices] still springs to mind whenever we hear those words.
We founded Visto [which acquired Good in 2009 and took its name] at Bessemer [in 1996]. Early investors lost money, but out of the wreckage has emerged a valuable business. It represents some of the challenges of entering a market before it’s ready. Being early is the same as being wrong if you’re just too aggressive and run out of money before the market comes to you. Now, with the penetration of smart phones, internet usage is tipping to mobile and empowering a workforce of people who have smart phones but don’t sit in front of a PC all day. And this is just the early days of that opportunity.
How are valuations?
Privately held cloud companies are trading at multiples well above their public market counterparts. It’s about double the public company multiples for the hottest late-stage private companies, which is unusual in that private companies used to trade at a discount to public comps because they were illiquid.
Does this now years-long trend concern you?
Well, it’s very hard to lead new investments in late-stage cloud companies because many are priced to perfection. You have all these groups – late stage investors, private equity investors, crossover public investors – that want exposure to hypergrowth and that are being aggressive about it, and they’re combining to drive up valuations. In many cases, they’ve been rewarded for their actions, too, with very positive, profitable returns.
But companies are also staying private longer as a result.
I think you need to disconnect the two. Investors can invest at any stage and, within reason, still have very positive results. That’s separate from when the company chooses to go public.
Does it make sense to wait [on an IPO]? I do think companies are overthinking it and waiting too long. When they have strong businesses with proven business models, waiting to grow from $2 billion to $10 billion in market cap makes less sense. Many are staying private for the right reasons, though, [such as] to work through business model and strategic issues.
Bessemer is the largest shareholder in Pinterest. Does it make sense for Pinterest to go public any time soon?
It doesn’t. Pinterest is still refining its business model, and that’s best done as a private company, where you can take a lot of risk and not have to report on every action in a public setting.