• Swedish Payments Unicorn Klarna Hits the U.S. to Take On Its American Rivals

    klarna-sebastian-ceoIf you live in the U.S., you might not be terribly familiar with Klarna, a 10-year-old Stockholm-based company that provides payment services for online storefronts in a somewhat unique way — by “separating the buying from the selling,” as company cofounder and CEO Sebastian Siemiatkowski explains it.

    Put simply, you visit a site powered by Klarna, input only your email and zip code, and presto, your item is purchased. You then have 30 days to pay back Klarna, using whatever payment method you like. The big idea is to increase conversion rates, and whether or not they realize it, 35 million consumers have now used Klarna across the sites of 50,000 merchants, who understandably love the service. (The fewer keystrokes required, the higher the chance a purchase will be made, especially with a smartphone.)

    Of course, what’s happening behind the scenes is a sophisticated fraud management operation, one that counts Sequoia’s Michael Moritz as a board member and which was most recently valued at $2.25 billion. Klarna plans to compete more aggressively in the U.S., too. Over the past year, it has set up offices in New York and Columbus, Ohio. Now it’s searching for space in San Francisco, where it eventually expects to employ up to 30 people to help it strike relationships with companies big and small.

    Over coffee earlier this week, we talked with Siemiatkowski about Klarna’s roadmap and what he thinks of one competitor in particular: four-year-old Stripe, whose valuation is twice that of Klarna and which now has its sights on the Nordic countries where Klarna has become king. (Stripe also happens to be backed by Sequoia.) Our chat has been edited for length.

    Much more here.

  • Construction App Fieldwire Raises $5.5 Million Led by Formation 8

    Field16x9NoLogo (1)Fieldwire, a San Francisco-based mobile and web platform designed to make collaboration on construction projects more efficient, has raised $5.5 million in fresh funding led by Formation 8. Other participants in the round included Trinity Ventures and earlier backers Bloomberg Beta and AngelPad, the investment fund and accelerator where the company first gained investors’ attention in the fall of 2013.

    Including earlier seed funding, the company has now raised $6.6 million altogether.Because Fieldwire is part of an increasingly crowded, if nascent, group of startups that are zeroing in on the same market, we decided to talk last week with cofounder Yves Frinault to learn more. Our chat has been edited for length.

    One of your better-known competitors is PlanGrid. How do your companies differ?

    At our core, we’re a task management platform, working on tasks and collaboration, including with the foreman, the subcontractors, and labor; PlanGrid is more focused on digitizing and storing blueprints and construction documents. We’re more like Asana for construction; they’re more like Box. It’s tasks versus files.

    How big is Fieldwire at this point?

    We were five people. We’ve doubled in the last four months to meet demand, but we could have been a lot more; we believe in dense, focused teams. As for [our clients], there are currently 35,000 projects on the platform [owned by] 1,000 companies.

    So these are big clients.

    When you operate a typical SaaS company, you usually start in mid-market and go up market. In construction, it’s different. The top line, half-a-billion-dollar companies are the ones driving the projects, so we found ourselves working with those guys — the large general contractors and specialty contractors — right away.

    More here.

  • To Atomize or to Grow?

    seedlingBy Semil Shah

    The growth in micro VC funds is now well-documented. While there are many reasons to explain why this trend took hold, the more interesting question to ask is: What will happen to those funds which survive?

    Grow the Team

    A natural desire of any entrepreneurial endeavor  — including starting a fund — is to keep growing it. In the context of small funds, traditional LPs will naturally hope this new crop of managers who emerge will grow a franchise, will add people to the team, and ultimately manage more money. Eventually, some of these franchises can grow to manage quite a bit of money per fund per GP and can, in effect, become a new type of Series A firm. This is the theory. It remains to be seen if more than just a few can make this transition, as the models at seed versus Series A are obviously quite different.

    Stay the Course as Lone Wolf

    While it may sound traditional to turn a good micro VC fund into a more traditional venture franchise, creating a strong general partnership is not a simple, check-the-box activity. Noting the difficulty, some micro VCs have opted to stay as solo operators longer than LPs had imagined. (See Manu Kumar.) Some, of course, continue to outperform and earn the right to manage more money per fund (if they choose to). In this instance, the LPs aren’t able to invest more and more of their funds into the GP. In the same way a large VC fund may look for opportunities to increase their ownership in a great company in their portfolio in order to make its own economics work, a large LP will often have a similar desire.

    Differentiate and Evolve

    Just as investors may have “app fatigue” or “food delivery service” fatigue, LPs pitched by micro VC funds have their own flavor of fatigue. As a way to cut through the noise, many of them drill into what differentiates a GP they’re considering an investment in. This can nudge micro VCs to differentiate on the basis of sector (hardware, Bitcoin, etc.), or geography (focusing in emergent areas outside the Valley especially), or stage (pre-seed vs seed, etc.), and more. And the success of Y Combinator and the potential for more steady budgets for an accelerator or incubator could encourage more to let go of the traditional fund model altogether.

    I know these choices because I have been faced with them. The LPs rightly ask these questions and conduct references to determine which way the micro VC wants to go. But the truth is that, just like most at seed don’t know how well a company will do at the very early stages, most of them also don’t know what the optimal path to take is. This can lead to an awkward discussion, where LPs may want or need to hear certain things to “check the box” in their processes versus having the raw discussion about what is working and what doesn’t. The truth is that most people don’t know, and in this market, which is changing year to year, the main value in these smaller funds is that their inherent nimbleness by virtue of being small gives them the right level of flexibility to adapt to a dynamic, ever-changing environment.

  • Piazza, Backed By Sequoia and Others, Looks to Next Round

    Small-Pooja-Image-300x200You might not be familiar with the 25-person, Palo Alto, Ca.-based startup Piazza, but plenty of engineering and other STEM students are aware of it.

    The online platform where students and instructors come together to learn and teach was first conceived by founder and CEO Pooja Sankar, who as a first-year student at the Stanford Graduate School of Business, felt isolated at times in her learning experience. It reminded her of her undergraduate experience at Indian Institute of Technology Kanpur, the engineering school in India, where there were 400 boys and 20 girls in the computer science department.

    Says Sankar, “I felt at a disadvantage because I didn’t have a support group to master concepts, classes, career, or how you choose a company or a startup.”

    Sankar felt alone in having so many unanswered questions, but it turns out she was far from it. Today, says Sankar, roughly 1 million students around the world are posting questions to their particular course pages on Piazza, to which their peers and instructors are responding. In fact, she says, 50 percent of computer science and STEM majors at the top 20 U.S. schools — as well as at elite schools in Iran; Pakistan; Israel; Ontario, Canada and elsewhere — spend between two and three hours on the platform each day. (Altogether, says Sanker, students and educators at 1,000 universities in 60 countries are now using the platform, including at such prestigious schools as Princeton, Harvard, Stanford, and the Imperial College of London.)

    Now Piazza is cultivating a new fan base – company recruiters. Explains Sankar: Up until now, executives have been setting their recruiting strategies in the dark,” says Sankar. “It’s, ‘We’re going to fly our guy to [Carnegie Mellon],’ and they literally send their VP of engineering around” with the hope of connecting with the right people.

    Where Piazza can help them: the troves of data it’s collecting on students, including what courses they are taking and the types of questions and answers they are contributing to the platform, all of which companies are now using to run targeted searches and to send personalized messages to students who opt in to its recruiting service.

    Currently, there are nearly 250 companies using Piazza in their recruiting efforts, up from 40 when the service officially launched in February of last year.

    Sankar characterizes their range as “broad – from 10-person startups to 100,000-person companies” and Piazza charges them for yearly subscriptions to the service accordingly, with prices ranging from $2,000 to “six-figures.”

    Things are going so well, says Sankar, that Piazza — which has so far raised $15.5 million from investors, including Sequoia Capital, Bessemer Venture Partners, Khosla Ventures, SV Angel and Kapor Capital – will be in the market for more funding soon.

    “We’re at a stage where we’re doing what we wanted to do with our last fundraising,” she says. (It closed 16 months ago.)

    “Now we want to throw fuel onto the fire.”

    For a new survey from Piazza about the companies where students most want to work, check out our related TechCrunch piece this morning.

  • How Stanford Management Co. Sees the World (Brace Yourself, Israel)

    John PowersLast week, at the PreMoney Conference in San Francisco, veteran venture capitalist Heidi Roizen moderated a panel that asked institutional limited partners for their view of the world.

    The speakers each had unique insights, but the audience may have been particularly attuned to one – John Powers, who served as president and CEO of Stanford Management Company for nine years. (He left his post last year and remains “unpotted,” as he put it.) As Roizen noted in introducing Powers, Stanford is among the world’s most sought-after investors given the power of its imprimatur — not to mention the $25 billion it has to manage, roughly 5 percent of which it invests in venture capital.

    Luckily for attendees, Powers didn’t disappoint. In fact, he spoke candidly about a wide range of issues that may help capital-seeking venture firms better understand Stanford’s point of view, even while it’s likely to disappoint many of them. Here’s some of what he had to say:

    On whether or not Stanford is likely to reinvest in a firm it has backed previously:

    We’re looking at track record over time, and sticking pretty close to a roster of people who’ve been great VCs over a long period, because . . . there is a huge amount of persistence. It’s a brand business. It’s a business where the brand of the VC attracts the opportunity set. It’s sort of the only form of capital that I can think of that’s driven by brand attractiveness as opposed to price.

    On when and whether Stanford will invest in a new venture fund:

    We didn’t fund a lot of new venture funds over the course of my time there, but we did [invest] pretty steadily, every couple of years, in one or two new funds, [and] brandedness was the key. So what about this fund would lead us to think it can establish brandedness? That could come in the form of notorious founders. Andreessen Horowitz was branded day one because of the pedigrees of both Marc [Andreessen] and Ben [Horowitz]. The guys at Emergence Capital had a niche strategy that happened to be a large niche but was identifiable and you could see, okay, they can build a story around their early participation in and ownership of this view of the world. [We like that] as opposed to a general purpose, “We’re going to do a little software,  a little semis and hardware, and a little consumer” venture fund. It was much harder for us to see [how the latter types of funds could] get escape trajectory.

    On what Stanford worries about:

    The one thing you have to remember in venture is that a few outcomes can totally transform a fund. So whatever you do analytically to think, ‘These guys are going to get branded’ or whatever, stumbling into the right deal can transform a fund.

    That’s true, too, when you fire someone. If this guy’s long in the tooth, they’re not cutting it anymore, we’d like to fire them, you do that, [then] they come in with one home-run deal in the next fund and you look foolish in front of your board.

    On why Stanford isn’t keen on investing internationally:

    You’d invest internationally if you felt you were going to get better returns than domestically or if you felt that you were going to get something that diversified the stream of cash flows to you. So you go country by country.

    In very large measure, the Israeli venture community is the 51st state of the U.S. venture community; I think you don’t get superior returns over time or haven’t in general, and you don’t get diversification away from investing in a cybersecurity company in the U.S. So you’d go to Israel if you felt like you couldn’t gain access to the best stuff in the U.S. Therefore you were sub-optimizing but doing the best you could by investing in a very vibrant entrepreneurial community over there – just recognizing that it’s probably [not] going to match up over time with what Sequoia can do for you over here.

    China is very different. There are huge indigenous sources of demand, a massive reinvention of the economy; the streams of opportunity that you see there . . . may be emulative of, but not derivative of, what you get in the U.S. from a returns standpoint.

    India has been a bit of a confusing hybrid, with not the same level of indigenous demand [as China], though that appears to be changing to some degree.

    On being “cold-blooded”:

    Speaking from my former seat at Stanford, you have to be pretty cold-blooded. Are we better off spending time trying to get a little better allocation out of Sequoia in the next fund than we are flying around the Far East or something? [The answer, thinks Stanford, is yes.]

  • Madrona Venture Group Seals Up Its Sixth Fund in Seattle

    Matt McIlwainMadrona 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.

  • As On-Demand Valet Battle Intensifies, Luxe CEO Shifts Gears

    Curtis LeeThe battle to baby your car is heating up. This morning, Zirx, a year-old, San Francisco-based company that will park your car, wash it, fill up its gas tank, and rotate its tires, is announcing $30 million in new funding. The round comes roughly a month after Luxe, another San Francisco-based valet app, raised $20 million. (Luxe has now raised roughly $25 million altogether, while Zirx has raised around $36 million.)

    Yesterday, we talked with Luxe CEO Curtis Lee – a former product manager at Zynga, YouTube, Google, Skype, and Groupon — about the competition, and whether and when these types of companies turn profitable. Our chat has been edited for length.

    You now have 40 full-time employees and hundreds of contract workers parking customers’ cars in San Francisco, L.A., and Chicago. Yet you say that parking cars is step one. What’s next?

    We’re more of a services platform than anything else. We happen to park your car, but we’re already doing gas fill-ups, car washes, and oil changes . . . Your car is effectively an urban locker, and we want to get stuff delivered to your car, as well as do things with it, like pick up your keys, get your groceries . . .

    How do you decide when to roll out new services?

    I’m a product manager. My cofounder [CTO Craig Martin] is a engineer. We worked at Zynga together, and we tend to like to do experimental things often. If they work, we double down. If they don’t, we won’t. And we saw that early on, the primary reason customers decided to use us was for our additional services.

    What are you charging for some of these services?

    Our rates vary depending on the city, but in San Francisco it’s $5 an hour [to have your car valet parked] and $15 per day. Car washes are $40. Gas fill-ups are the cost of the gas plus a $7.99 surcharge.

    Are you dealing with much poaching?

    Certainly, other companies are trying, especially because our guys are so obvious on the streets [wearing the Luxe uniform, which are bright-blue jackets]. We’re the only company that shows customers where our lots and our valets are on a map. That makes us vulnerable sometimes, but our retention remains very high. We think [our workforce] is fairly happy. We also have more demand than our competitors, and [valet pay] is hourly based, so [our valets are] not going to make as much money elsewhere. It’s like Uber; people want to work for Uber because it has the [consumer] demand.

    What of allegations that on-demand startups short-change workers by classifying them as independent contractors?

    We’re not obsessed or worried about it. I think it’s more a philosophy thing than the letter of the law. You treat employees – and independent contractors – with respect. It’s not as much about classifications. Who knows what will happen. [Any potential legal changes] aren’t in our hands. But we’re keeping an eye on it.

    Do you pay your valets minimum wage? Do they make much in tips?

    It’s completely optional, but our customers can give tips [via our app] because they were trying to do it regardless, through cash. Our guys make way more than minimum wage for sure because of the demand we get.

    Also, our guys don’t need to own cars. There’s no equipment necessary [beyond a scooter to get to customers more quickly]. Twenty percent of Uber drivers’ salaries go toward wear and tear and gas.

    It’s seems like potentially hazardous work, zipping around town to pick up and drop off customers’ cars as quickly as possible.

    We put [our valets] through extensive training so they understand where they need to drop off people’s cars, as well as make sure they aren’t doing anything that puts them at risk. Our bright blue jackets are also designed to ensure people see them. And we have a valet office where people can hang out and eat free food and relax and, if there are issues, go to office hours and talk with us.

    Your arrangement with city garages is pretty central to your future profitability. Are these typically monthly arrangements for spots?

    We have different agreements with different parking lots all the time — everything from monthly to yearly to daily arrangements. But parking lot owners take care of us and we take care of them, turning over the space enough times that we can make a profit on a per unit basis. The best analogy is to Priceline. For hotels, unused rooms are sunk costs. Priceline has created a billion-dollar business just by providing discounts to customers and getting [hotels paid] for their underutilized inventory.

    Still, some VCs think services businesses like yours are too cost intensive. What are they missing?

    We’re basically creating a behavioral change. Those days of searching for parking, wasting time, wasting gas – they’ll disappear in time. Also, parking alone is a $100 billion market globally and a $30 billion market in the U.S. And you’re seeing tremendous growth of car ownership internationally, including in Brazil, China, and India, all of which are undergoing massive urbanization without enough infrastructure to keep up. There are just huge opportunities for us.

    Will you be fundraising again this year?

    We’re open to raising [again] when the time is right.

    Photo courtesy of Forbes.

    (Bay Area readers, to learn more about the shifts in on-demand startups, you might want to check this out next month. We’ll be there to moderate a panel.)

  • Heads Up: Navdy Raises $20 Million Series A Round

    Navdy-Projectin-HUD4Navdy, a 20-person, San Francisco-based company, has spent the last two years working on a head-up display that can be installed on the dashboard of any car and aims to make driving safer by getting people to look ahead at the road, rather than down at their phones.

    Its vision is about to be fulfilled, too. After taking more than 17,000 pre-orders for the product on its site, amounting to more than $6 million in sales, the company says it’s ready to start shipping the first version of the Navdy to customers in the second half of this year. (Pre-orders cost $299; the device will retail for $499.) In fact, investors are so excited about the company’s future that they’ve just given the company $20 million in Series A funding.

    Earlier this week, we spoke with Navdy founder and CEO Doug Simpson to learn more. Our chat has been edited for length.

    You’ve sold a lot of a product that hasn’t shipped yet. Did we miss your Kickstarter campaign, or did Navdy do this exclusively through its site?

    It was all done on our own site. We wanted to have more control over the user experience, and we have a [fun, product demonstration] video that’s done well, with more than 1.4 million views – that’s a big success factor. It’s a problem that people can identify with, and it’s an experience that feels magical, and I think that came across in the video and people got excited about it.

    How will big will the product run be, and did you always intend to begin shipping in the second half of this year?

    It was not always the plan. We were targeting the first half the year, but the preorder campaign was way more successful than we thought it would be, which made things more difficult, including [regarding] the supply chain. We’ve also continued to [integrate feedback] from a lot of usability testing and made iterations that have taken longer than we expected, but the result is that we’ve made some great improvements in the product. It was a difficult decision to disappoint people with a delay, but it would be worst to disappoint them with the product itself.

    As for production capacity, it will take less than a month to get through the orders we have now; after that, we’ll be producing between 20,000 to 30,000 units per month.

    And where will they sell?

    From a channel perspective, we’ll be able to take orders online this year, and next year, we’ll roll out to other channels, including traditional consumer retailers like Best Buy. We don’t have anything to announce, but the number of retailers and distributors who’ve [reached out out to us] is over 2,000.

    You’ve probably gotten a lot of feedback regarding which apps people want Navdy to include and those they don’t. Have you made any big changes based on that feedback?

    Not really. Our original plan was to focus on three use case: navigation; communication – meaning call control and text messages; and music control, and the feedback we’ve had is that those are the categories that are important to customers. Music control is a lower priority than the first two, so that’s helped us prioritize our development efforts.

    The obvious concern with Navdy is that it will be rendered obsolete by newer cars that have this kind of technology baked in.

    One of the surprises of the pre-order campaign is that lots of OEMS have already started contacting us about partnering. That’s always been our strategy, though we thought it would take time to get their interest. It will be a long process, but either way, we always plan to offer a direct-to-consumer product, too.

    What proof you have that your product will make driving safer?

    As part of user testing, we’ve taken a look at cognitive upload, the distraction of interacting with our product versus the phone. We’re also working with insurance companies and car companies on some of those aspects as well. There’s a lot of evidence to support that head-up display technology itself — developed by the military and used now by all commercial airlines – is safer.

    What’s next? Is there a product line in the pipeline?

    Yes, we really want to focus on making the in-car experience great, and we think we can expand beyond just this initial product, but right now, we’re very focused on [the first version] and the second version will build on that. I can’t really share more than that right now, though.

  • Big-League LP: “It’s a Good Time to Be Asking Questions”

    Peter DeniousRoughly one year ago, FLAG Capital Management, the limited partnership, revealed that after 20 years, Diana Frazier would step down from her role as co-head of U.S. venture capital, and that Peter Denious, who formerly headed the firm’s emerging markets efforts, would assume her role.

    Denious has been fairly quiet since then, possibly because the move came about as FLAG – which has backed Accel Partners, Andreessen Horowitz, Redpoint Ventures, Spark Capital and Union Square Ventures, among others — was beginning to raise its ninth fund of funds.

    Denious still declines to discuss that effort, but he did talk with us this week about his observations – and concerns – about the current state of the venture industry. Here’s part of that conversation, edited for length.

    You recently created a presentation called “Venture Portfolio Management in the Age of the Unicorn,” stating that FLAG has exposure to 56 so-called unicorns across 100 positions but suggesting that you have concerns about whether investors are taking enough money out of those deals. Are you talking with them about it?

    We talk with them pretty openly and actively about it. We’ve always been big believers that you have to be both a great investor who can attract world-class entrepreneurs, as well as be a world-class portfolio manager.

    It’s easy for VCs operating inside partnerships to get involved in their 10 or so investments, but it’s important for somebody to be thinking about the dynamics of generating returns, too. It’s a piece that we think is relevant in a time when things are up and to the right.

    Given the number of secondary shops to descend on Silicon Valley in the last couple of years, I’d guess that plenty of firms are selling portions of their stakes. What are you seeing?

    These are case by case situations. Obviously, we’ve looked into our portfolio and across those exposures, and where the VC has an embedded return of at least 10x, we’ve been seeing them take chips off the table. We think as long as managers are having the discussion, they’ll arrive at the right answer.

    Are you concerned by how few companies are going public, relative to the number of richly funded late-stage companies we’re seeing?

    I don’t think that each of whatever the number of agreed-upon unicorns that we’re seeing will do well. Some will be severely tested when the capital runs dry, and anyone who says otherwise must be wearing a pretty strong pair of rose-colored glasses.

    By the same token, the amount of transformation and disruption in these companies’ respective industries is truly amazing. I do think there’s a subset of these companies that deserve to be very big. Do they deserve to be $50 billion, $100 billion [in value]? That’s subject to debate, but many will be very profitable if they aren’t already.

    So you’re more troubled by valuations than underlying business models.

    In most cases, we don’t have a business model problem. We don’t see a lot of nonsense, as with the last [late ‘90s] cycle. What’s debatable is valuation and are people paying too much for growth as these businesses scale, and I think that’s all to be determined. Who are we to say that this company at that valuation is too low or too high?

    We’re typically early-stage and not growth or late-stage investors and part of the reason we don’t invest there is because as you move later and later on the continuum, you’re taking more of the valuation risk. I don’t think anyone would question the 10 most highly valued unicorns. The question is whether the premiums being paid for their growth is justified, and again, only time will tell. I do think that late-stage and crossover ventures are the most at risk, but that’s what they get paid to do.

    But you anticipate a day of reckoning?

    With respect to the pool of these late-stage companies, one can argue that so much late-stage capital has allowed for more unicorns to be created than would otherwise be the case. When that capital goes away, you’ll see more exits at the sub-$1 billion level.

    Some [may go public.] I think it’s too early to draw too many conclusions about IPOs, which were down in the first quarter; we’ll know more in the next few quarters. But it’s a good time to be asking questions. I do think there will be a day of reckoning.

  • Duo Security Raises $30 Million More, Led by Redpoint

    Jon OberheideDuo Security, a five-year-old, 100-person company that sells its cloud-based two-factor authentication software to thousands of organizations, including Facebook, Twitter, NASA and Uber, has just raised $30 million in Series C funding led by Redpoint Ventures, with participation from Benchmark, Google Ventures, Radar Partners and True Ventures. (The Ann Arbor, Mi.-based startup has now raised around $50 million altogether.)

    Last week, we chatted the Duo Security’s cofounder and CTO, Jon Oberheide, about how his company is using mobile devices as a second form of authentication, and what comes next.

    Some major company’s information is breached every week it seems, yet there are also other two-factor authentication services out there tackling the problem. What makes yours different?

    First, we think the existing security is broken. Underlying information technology has shifted out underneath existing security technologies and they aren’t relevant anymore. In the past few decades, your security model was built within the physical walls of your organization, then people began accessing the same device but they weren’t necessarily in the building, which made phishing for those employees’ names and passwords easy. Poor hygiene across multiple sites was the problem we were trying to solve, and we succeeded in ensuring that your identification couldn’t be stolen.

    Then mobile devices came along and now everyone uses their own favorite products.

    Yes, and those mobile devices aren’t under the control of an IT administrator. You have these cloud services that are being controlled by third parties. IT departments have gone from saying “no,” to partnering with [various parties] to ensure their [devices’] secure enablement.

    And you have a new edition that you say works even better than what your customers have been using. How so?

    Our new platform edition allows companies to establish what security policies are acceptable and customize protection at the point of entry. It can stop break-ins regardless of whether hackers have a user’s name or password by analyzing a company’s policies for each log-in attempt, including the location of the user, the reputation of the IP address, and what level of device health they want to admit into their enterprises. It addresses, for example, the employee who might forget his phone at the bar. A company can require that a full encryption and screen lock [are activated] to prevent someone else rom picking it up and trying to access corporate information. Or, if you’re a domestic company whose employees primarily log-in from Starbucks, you might want to block access to China or Russia, where a lot of hackers come from. You just click a box and it’s done.

    How much more will this new edition cost customers?

    On a per user, per month basis, we currently charge $3; our platform edition wil cost $6 per user per month because we’re providing a lot more value to companies that we think justifies [the price hike]

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