• Andrew Braccia’s Big Bet on Slack

    518951f510641_andrew-lgAndrew 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.

    Connie

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  • A French VC Shows off a New Fund — and Growing Interest in Europe

    Felix CapitalFrédéric 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.

    Connie

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  • Fred Destin of Accel Partners on What’s Changing (Fast) in Europe

    ©2013 Jon Chomitz Photography 3 Prescott street, Somerville, MA 02143 www.chomitz.com jon@chomitz.com 617.625.6789

    Almost exactly a year ago, Belgian-born venture capitalist Fred Destin left his longtime post with Atlas Venture in Boston and joined Accel Partners in London. Last week, over a charcuterie board at a French cafe in San Francisco, Destin talked with StrictlyVC about the move, what the Accel team in London shares in common with their U.S. peers (and what they don’t), and the newest trend in European startup funding. Some of that chat, edited for length, follows.

    Accel London has been around since 2000 and closed a $475 million fund in 2013. 

    Yes, and started investing it in April of last year. The fund was raised with maybe a little bit of anticipation. Also, sometimes you meet no entrepreneurs you want to back, then you meet five at the same time, so our pace is always a little inconsistent.

    How big is the team?

    We have six seven partners, one VP, one principal, three associates. We have a habit of promoting from within. I’m a rare external hire.

    How closely tied are you to the team here in the U.S.?

    We run separate funds, but it’s the same brand and we have a fair amount of overlap [in terms of LPs], and I believe we have 18 coinvestments that come in a variety of flavors. Both funds had been looking at SaaS accounting for small businesses, and in the end, [New Zealand-based] Xero is the only company you want to back in this field – we think it can kill Intuit – so we [collectively] made a $100 million investment in the company. We’ve also co-invested in [the newly public online marketplace] Etsy and [the Australia-based collaboration software company] Atlassian. Sometimes, it’s European-born companies, too. When we backed World Remit, a remittance business, half of its $40 million Series A came from the U.S. and the other half came from London.

    What if you wanted more than 50 percent? Do you ever compete with the U.S. team? 

    I can’t really think of a case where we’ve  been competitive. They’re a really disciplined team on investments, and so are we. If we find something that we think is really great, we’ll say, hey, we can syndicate with Index [Ventures] or we can try to move all the money through the Accel partnership. [The U.S. firm] looks at [the deals] independently. But there are definite benefits [to partnering], as when we find a little gem like Showroomprive [a Paris-based online shopping giant that sells discounted clothes, cosmetics and household items]. It was bootstrapped and had got to quite a large size, and [my London colleague] Harry [Nelis] went to meet them and said, “We can write a single check. I’ll bring Palo Alto into it so you have one investor and one board member.” So we put in [roughly $47 million] in a single shot, with both funds contributing.

    Can you see a future where you won’t be Accel London but something else? DFJ and Benchmark obviously decided to reign in their brands at different points.

    You learn from what happens in the past. I’m not sure you can scale venture very well. Having general partners in London who effectively decide on what happens to the firm makes decision-making really simple.

    We’re also in close cooperation with Palo Alto to make sure we represent the brand in the same way.

    How institutionalized are your communications?

    The important decisions, like when to hold an annual LP meeting or when to fundraise, are discussed extensively between the groups, but the rest of our discussions are very organic and multithreaded. You don’t want to fight the natural order of things. We’re very careful about not sharing too much information about the companies we look at, but we definitely share expertise and views and kind of help each other be better.

    It helps when you have funds that are performing well and teams that are high quality. If one part of the organization was doing well and the other wasn’t, it might become more tense, but that’s not the case.

    There’ve been lots of reports out this year about Europe falling behind.

    I’m just back in Europe, and I’m amazed by the number of large successes being built. There were seven or eight billion-dollar-plus exits last year, including [the British property site] Zoopla [which went public last June] and [the online restaurant delivery company] JustEat [which went public in April 2014]. Our third fund has three [billion-dollar-plus] companies, including [streaming music service] Spotify, and guys like [ridesharing company] BlaBlaCar, World Remit, and [the online lending marketplace] Funding Circle are growing super fast.

    I used to be quite negative about the market,  but now we’re seeing companies achieving hyperscale and building value really quickly, and in the case of [our portfolio company, the online marketplace and Craigslist competitor] Wallapop, it’s even bringing the fight to the local guys [in the U.S.].

    But European entrepreneurs are often quick to note that their funding options remains fairly limited.

    The VC landscape remains quite weak. You have Index and Accel as the sort of leaders. You have Balderton [Capital], which has enjoyed a great reinvention-slash-turnaround [since parting ways with Benchmark]. Then you have some new managers, including Mosaic [Ventures] and Frederic Court [a longtime investor at Advent Venture Partners who is raising a new fund under the brand Felix Capital], and a bunch of micros VCs like Hoxton [Ventures]. But there are a bunch of funds that have exited or stopped fundraising — names that everybody knows aren’t going to make it.

    What’s happening, though, is that U.S firms and the “Tiger Cubs” are smelling blood, so we’re seeing Insight [Venture Partners], DST [Global], TCV, and some of these tech hedge funds all suddenly coming into Europe on a regular basis, and anything that scales they want to fund. It’s a huge factor right now. They’re hunting aggressively, writing big checks, and moving fast.

    And that’s purely good news? As you know, there’s a little angst here about the impact all their money is having on companies and their burn rates.

    In general, we love it because we finally have scaling capital. We just invested in Deliveroo, which is the European version of DoorDash. It’s growing like a weed, but a few years ago, we’d have had to scale organically or raise a small Series B. Now people are knocking at the door of companies that are scaling and saying: “Can we write a big check?” We’re like, finally, we’ll be able to build billion-dollar companies in less than 10 years – maybe in three to five years.

    The other big factor in Europe is Rocket Internet, which used to clone companies but they had no balance sheet. Since its IPO [last October], they have a balance sheet. And while I don’t know exactly how much cash they have, it’s probably a billion-plus [dollars] that they can use to invest, replicate and whatever else they do, and they’re the biggest VC in Europe. They force people to raise their game, because if you want to compete against Rocket, you have to know what they’re doing.

    Connie

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  • 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.

    Connie

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  • Richard Wolpert’s Big Idea: Tech Support for Your Parents

    richard wolpert“I’m no spring chicken,” says Richard Wolpert. “But I’ve been at this for 30 years and I have a lot of great experience under my belt.”

    Wolpert — who sold companies to Adobe and RealNetworks and launched Disney’s earliest online businesses before joining Accel Partners as a venture partner and cofounding Amplify.la — is explaining why, after more than seven years as a full-time investor, he just founded his fourth startup.

    The L.A.-based company is three-month-old Hello Tech. Its big idea, the one that Wolpert couldn’t let go: remote tech support for consumers who own or want to buy products like Sonos speakers and Nest thermostats but who need help in keeping them up and running.

    “These are homeowners with disposable income who don’t how how to get through the newest digital security service or latest update [to their other products],” says Wolpert. “It’s much more than, “Let us catch that virus.” He adds with a laugh: “Most investors we pitched said, ‘I would buy this for my parents so I don’t have to do this anymore.’”

    It’s really no joke. The tech support market — valued at $21 billion — appears to remain wide open at the moment.

    Services like Geek Squad, the Best Buy subsidiary, have largely alienated U.S. consumers over the years. Meanwhile, no brand has managed to capture much of the market in its place. A sampling of Hello Tech’s current competitors include Student@Home, a London-based company that sends IT students to customers’ homes; iCracked, a two-year-old, Redwood Shores, Ca., company that sends out help to consumers who’ve damaged their Apple products; and Geekatoo of Mountain View, Ca., an Angie’s List-like service that connects product owners with “verified geeks” and which Wolpert doesn’t seem to take very seriously.

    “You ask for help, then within 24 hours, someone like Tom at ComputerRepair.com arranges to come out and you pay him directly. It’s not an end-to-end service. We imagine something much tighter.”

    Just don’t ask how it works. Aside from Hello Tech’s funding – it just raised $2.5 million co-led by Accel, Upfront Ventures, and Crosscut Ventures – Wolpert isn’t ready to disclose much, saying he prefers not to share “some of what we think will be the secret sauce.”

    Indeed, he declines to answer numerous questions about how Hello Tech will manage supply and demand, how it will market the service, or how the company can ensure that its remote workforce represents the standards Wolpert envisions.

    Wolpert offers instead that he cofounded Hello Tech with two former Disney colleagues who he has known for 19 years: Minah Oh and Sascha Linn. He says Hello Tech will run “much like other marketplace models,” meaning it will take a percentage off every transaction and that users will rate the technicians who visit them. He also says that Hello Tech will launch in six cities to prove out its model, starting this spring in L.A.

    Asked a related question about the company’s road map, Wolpert says only that, “We have some clever ideas and we don’t want to tip our hat to the market.”

    Likely, by “market,” Wolpert means Ron Johnson. As PandoDaily notes, Johnson, a former SVP of retail operations at Apple, also recently launched a company that’s largely operating in stealth mode.

    It sounds as if it’s targeting the same, big opportunity, too. Back in October, Johnson talked with the Wall Street Journal about providing customers with the ability to touch and try expensive electronic goods before making a big purchase.

    Johnson told the outlet: “That’s when you typically want something more than fast delivery; you might want a little help . . . There’s a place for high touch in a high-tech world.”

    Connie

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  • Troubled Payday Lender Wonga Still Has a Chance, Insist Insiders

    wonga_2368090bIn the span of seven years, Wonga, a London-based online payday lender, managed to become one of the best known Internet brands in the U.K, with half the buses in London plastered with its ads, along with a good number of soccer players, through Wonga’s sponsorship of the English Premier League team Newcastle United.

    Then, late last week, the company disclosed that it was writing off some $350 million of debt – at a cost of roughly $56 million to the company — following a “voluntary agreement” between the company and the U.K.’s Financial Conduct Authority (FCA), which took over regulation of the consumer finance sector last year. Wonga’s implicit admission: That despite the more than 8,000 pieces of information that its algorithm takes into account when assessing a potential borrower, the company had lent money to people (330,000 of them) it should have declined.

    Andy Haste, an executive chairman who was installed at Wonga in July to rehabilitate the company, said that going forward, the company is committed to lending only to those who can “reasonably afford” a loan. Haste – who was hired into Wonga after it was caught sending bogus letters from nonexistent law firms to customers in arrears – also added that he “agreed with the concerns expressed by the FCA and as a consequence of our discussions we have committed to taking these actions.”

    So when did things go south at Wonga and can the company — which has raised roughly $145 million from Balderton Capital, Accel Partners, Wellcome Trust, Oak Investment Partners, Greylock Partners, Dawn Capital, Meritech Capital Partners, and Index Ventures over the years — ever recover? Unsurprisingly, it depends on who you ask.

    Insiders generally paint a picture of a company that’s been the victim of a changing regulatory environment. When Wonga was launched, its business was lightly regulated by the Office of Fair Trading (OFT), which was “not a banking oversight function that had a great deal of power or was intrusive,” observes one investor. Wonga suddenly faced a much more stringent set of checks and balances when the regulation of consumer credit was transferred last year from the OFT to the FCA.

    The FCA’s regulators have been overly harsh, too, insists another source, who suggests its cozy relationships with established players is primarily why the FCA almost immediately began poring over the fine print at Wonga. “Wonga’s business was always regulated,” says the insider. “From the first day, it was licensed; it had its own underwriting agents and was being reviewed by regulators. But becoming such a large brand so quickly was hurting the established banks, which are very influential in a country like the U.K.”

    Still, those who spoke with StrictlyVC also concede that Wonga made plenty of mistakes – not working earlier with financial services authorities, “running the business a lot looser than they should have,” and those threatening debt collection letters among them. (The latter proved an especially big embarrassment to the Church of England, which said it had unwittingly invested in Wonga through an investment fund; it ditched its stake in July.)

    The company’s once-renowned algorithm also appears to have failed the company – a lesson, possibly, to many newer lending companies that believe the sophisticated algorithms they’re developing are akin to impenetrable moats.

    As says one insider: “With algorithms, you always think you’re doing the right thing until the sh_t hits the fan. You ask the guys involved in Long Term Capital Management [the famous hedge fund that collapsed in the late ‘90s] whether they knew there was a ‘black swan’ in their algorithm; they didn’t.”

    The question now is whether Wonga stands any chance of surviving. Haste has said he believes Wonga, which serves 1 million customers, can succeed as a small company. Others close to the company aren’t so sure about its fate. Says one source: “Will Wonga be a big business again? I doubt it because of the damage to their brand reputation.”

    Say another: “If Wonga can afford to pay the penalty and stick around, they have a business to build. Consumers in the U.K. don’t have a lot of other good options. The banks are still doing a sh_tty job.”

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

    Connie

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  • Amplify.LA Turns the Accelerator Model Inside Out (Completely)

    Paul BricaultSince Y Combinator first swung open its doors nine years ago, hundreds of accelerator programs have sprung into existence, almost all modeled in similar fashion — holding classes at certain times of the year, accepting a pre-determined number of startup teams, and staging “demo days.”

    Paul Bricault, a founder the two-and-a-half-year-old accelerator Amplify.LA in Venice, Ca., thinks that’s a little, well, silly. In fact, Bricault and Amplify’s cofounder, Richard Wolpert, have basically ripped up that playbook and created a new one that in almost every way operates differently. Whether it works is another question that only time will answer.

    We chatted with Bricault, who is also a venture partner with Greycroft Partners, yesterday.

    You wear two hats. So does Richard, who’s a venture partner at Accel Partners. How do you divide your time?

    Amplify takes the bulk of my time. On an average week, it’s probably 70/30. But there are no normal weeks. [Laughs.]

    You’ve raised two small funds so far, a $4.5 million fund and an $8.1 million fund closed last November. Will you be in the market again soon?

    We’re not even a third of the way through fund two yet. My guess is that we’ll start fundraising early next year.

    How many companies have you funded?

    We’ve done 36 altogether and 31 have gone on to raise capital. Twenty-seven have raised seed rounds; four have raised Series A rounds, the smallest of which was $6 million. It’s a higher percentage than your average [accelerator] by a significant margin.

    You take pride in doing things — a lot of things — differently. Amplify.LA doesn’t do classes; you have a rolling start program instead. You don’t have set economics. You invest in follow-on rounds. Why take such a different approach, given the success of Y Combinator?

    Yes, we’re an accelerator in name but we do things differently. We have a rolling start program because we interviewed entrepreneurs from a dozen accelerator programs in the U.S and Israel and Canada and realized that classes benefit the accelerators but not entrepreneurs, who may have a different time frame than the accelerators. I don’t believe a class-based structure engenders cooperation, either; the founders feel like they’re in a Darwinian funnel leading up to their demo day. You see more collaboration between the SaaS company that has just raised a seed round and is working beside a younger company that needs help on its pricing model. Not last, classes create an artificial structure at most accelerators that have maybe 10 or 12 slots. We’ll go for a couple of months without admitting anyone, then admit four startups in a month.

    As for the economics?

    Not all companies are created equally. Some have traction and patents when they reach out; some have a brilliant idea and a PowerPoint. So it doesn’t make sense from an entrepreneur or investor standpoint to [present standard terms]. I will say that in general, we take between 5 and 10 percent and put in anywhere from $50,000 to $200,000, which is more than you typically see at accelerators.

    And we do follow-on financing, but not in every company. We’re so small that it’s not a huge negative signal [if we don’t participate in a company’s next round]. It’s not always because we like a company better but because of the economics of how we set up each deal. If we take four percent in one company and it’s raising a seed round, there’s a higher chance of our wanting to put more money in, versus the company where we already own more.

    Why have you dispensed with demo days?

    For similar reasons. As an investor, I’ve always disliked them; they force you to listen to pitches that aren’t necessarily in your areas of interest and pushes entrepreneurs into a truncated pitch structure, which causes all of the pitches to begin to sound the same. The whole thing is very impersonal. We do a showcase here instead, where investors who attend can preselect the companies they want to meet with and, rather than sit through pitch, they meet one on on with those teams to get a better sense of them, without 100 investors listening over their shoulder.

    Seed funding doesn’t seem to be an issue in L.A. as was once the case.

    There are a lot of seed funds here now: Crosscut Ventures, Double M Capital, Lowercase Capital, TenOneTen Ventures, Karlin Ventures, Wavemaker Partners, Baroda Ventures, A-Grade [Investments], QueensBridge [Venture Partners], TYLT Lab. There are probably 20 seed funds now, which is small by Silicon Valley measures but huge for L.A.

    What about early-stage VC?

    If there’s anything I worry about, it would be the lack of Series A and Series B and C capital in LA. There are two or three funds — Anthem [Venture Partners], Greycroft and Upfront [Ventures] — and other than that, there aren’t a lot of firms in a position to lead Series A rounds, so we have to attract external capital. Amplify.LA’s Series A rounds have been lead by Azure [Capital in San Francisco], Bessemer [Venture Partners, with offices in New York, Silicon Valley and Boston in the U.S.] and [Boston-based] Polaris Partners. Getting people to come down to L.A. or across the country is critical to the growth of ecosystem right now.

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

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    Connie

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  • Accel Partners Backs Father-Son Team in Sookasa

    SookasaSookasa, a 2.5-year-old, 12-person startup in San Mateo, Ca., is taking the wraps off its business today, as well as unveiling $5 million in Series A funding led by Accel Partners, which it closed on last August.

    No doubt Accel was attracted to the startup’s technology, which promises to dramatically simplify the protection of sensitive files across popular cloud applications and mobile devices. As services like Dropbox and Box become increasingly ubiquitous and more employees use them to share files with each other and people outside their companies, businesses in particular need a better way to manage and protect that data. Sookasa, a cloud-based offering, says it make the process of encryption so easy that even a sole practitioner can get up and running as easily as he or she can sign up for Dropbox itself.

    Yet Sookasa is interesting for another reason. In addition to cofounders Madan Gopal and Chandra Shetty — both senior engineers from Cisco, formerly — Sookasa’s founders are a father and son who serve as CTO and CEO, respectively. Israel Cidon was long a professor at Technion in Israel; he also founded four prior companies, including Actona Technologies, acquired in 2004 by Cisco. Asaf Cidon, a PhD candidate at Stanford, spent a year working in R&D at Google after spending three years in the intelligence section of the Israel Defense Forces.

    Asaf Cidon talked with StrictlyVC the other day about the company and what it’s like to work with his dad.

    You want to allow professionals in regulated industries, like health care, finance and legal, to use their favorite cloud services in a secure way. How is your service different from what already exists?

    The issue with other types of solutions is that they’re only good as long as you’re accessing the cloud through a company computer or company network. If you’re sharing with someone outside of company, they can’t access the files. We encrypt files anywhere they go.

    What was the impetus for the company?

    Dad and I are both geeks who’ve been mucking around for years on crazy ideas and we were [storing] a lot of our documents on Dropbox. And we asked ourselves: Where is our data? Where are all the copies of these files and who can access them? What we found was those are really hard questions to answer. These services keep a lot of different copies and it isn’t clear who can access them. It’s an interesting problem to address for consumers, but even more so for businesses, where you can get fined $5 million for a HIPAA breach, for example.

    Not many entrepreneurs launch companies with their fathers. What it’s like?

    There probably aren’t many cases where founders have started a tech business with family members — though Mendel Rosenblum cofounded VMWare with his wife [Diane Greene], which is an even more precarious situation. [Laughs.] My dad and I really get along, though. We’re also very different. He’s a professor who’s really interested in hard problems; he’ll obsess for a week over [some aspect of] encryption architecture. I love the business side and how we find the right business positioning and sales, which I didn’t always know I would.

    You raised $5 million in Series A funding in August, after raising $1.7 million in seed funding in 2012. Why announce it now?

    First, we had to go through extensive security and HIPAA audits by [the audit firm] Praetorian, to [ensure we meet all the technical safeguard requirements]. We also wanted to wait until the product was simple enough for the public to use. We have customers, but an encryption product isn’t necessarily easy to explain to a doctor or nurse or even a lawyer. Now the product is in a state where you put your folder in Dropbox and it’s encrypted, it’s done. You don’t even know it’s there.

    For inquiring minds, will be you be in the market for more funding this year?

    We’re not right now looking for a Series B, but we’ll need funding to expand. We’ll probably need inside sales [staff] pretty soon. With our ambitions, we’ll be going through at least one more round — to put it mildly.

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    Connie

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  • The Lesson of Jim Goetz: Great VCs Make Their Own Luck

    Jim GoetzPeople may be surprised that low-profile Jim Goetz of Sequoia Capital just landed the largest-ever acquisition of a venture-backed company. They shouldn’t be.

    Researchers have shown that superstar investors are remarkably consistent over time. In fact, when it comes to predicting which startups will be successful, individual VCs are roughly five times more powerful as leading indicators than the firms for which they work, according to a study published last May by Harvard and Carnegie Mellon academics. (The study controlled for all kinds of deviations, including industry, investment amount, the amount of experience of the VC at the time of the investment, and the age of the startup itself.)

    As one of the study’s authors, Matthew Rhodes-Kropf, told me when the study was first published, “The guys who know how to get big exits get big exits no matter where [they’re employed]. The guys who fail are pretty consistent about that, too.”

    Goetz is clearly one of the guys in the first camp. An entrepreneur who later became a general partner at Accel Partners, Goetz scored numerous hits for the firm, including Perbit (sold to Juniper), Rhapsody (acquired by Brocade Communications), and Entrisphere (sold to Ericsson). Goetz was so good, in fact, that in 2004 Sequoia Capital hired him away from Accel.

    Lucky Sequoia. Facebook’s $19 billion acquisition of WhatsApp could mean as much as $3.4 billion for Sequoia’s LPs, given that Sequoia invested a reported $60 million in the company across three separate rounds for an ownership stake of as much as 19 percent. And it’s just one of the big exits that Goetz has provided Sequoia. He led the firm’s investment in AdMob, which raised less than $50 million and was acquired by Google for $750 million just three months later; and he was also the force behind Jive Networks, Nimble Storage, and Palo Alto Networks, all of which have enjoyed successful public offerings.

    Another Accel partner, Peter Fenton, has followed a remarkably similar trajectory as Goetz. At Accel, Fenton quietly amassed a portfolio of 10 startups, later helping to sell two of them — JBoss to Red Hat and Wily Technologies to Computer Associates — in hugely successful outcomes for Accel.

    In mid-2006, Fenton was also headhunted by another VC firm – in this case, Benchmark Capital. At Benchmark, Fenton has continued to knock the ball out of the park. Two of his more prominent investments include Yelp (which went public in 2012); and New Relic, which was valued at $750 million in a funding round a year ago. In addition, Hortonworks and Zendesk are expected to go public in the near future. And did we mention Twitter? Fenton sits on its board and will reportedly net hundreds of millions of dollars personally alongside Benchmark, which owned 6.7 percent of the company at the time of Twitter’s November IPO.

    Goetz and Fenton aren’t lucky; they’re consistent. And their success may encourage more firms to poach star players, particularly if their LPs have anything to say about it. Brian O’Malley, a rising star at Battery Ventures, was recently lured over to Accel. With Goetz’s big deal, other firms are surely poring over other firms’ rosters in search of their own superstars.

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    Connie

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  • Dropcam, the $50M Startup That Should Keep ADT Awake at Night

    dropcam

    Dropcam is watching you.

    To date, the four-year-old startup has raised $47.8 million for its HD wireless home-monitoring cameras that allow consumers to watch the kids from the office, glimpse which neighbor isn’t picking up after his dog, or catch break-ins.

    Greg Duffy, Dropcam’s 26-year-old cofounder and CEO, won’t disclose how many of the company’s $150 cameras the company has sold, but he will say that the company is enjoying “5x” year-over-year revenue growth from a “significant sample of users” that “cut across nearly every demographic.”

    That’s a lot of video. The company claims that it uploads more video each day than YouTube.

    What Dropcam plans to do with all that video is where things get interesting. At Dropcam’s San Francisco offices, where 45 people are now employed, Duffy hints that Dropcam will soon dip its toe into the lucrative realm of home security.

    It makes perfect sense. It also puts the company’s funding into perspective.

    Right now, 40 percent of Dropcam’s customers pay $9.99 or $99 per year to save up to seven days of video footage, partly for home security purposes.

    Duffy believes Dropcam can capture a much larger piece of the home security pie because, in his view, it’s a market that’s just waiting to be disrupted  Not only are the “ADTs of the world” “generally stuck in past eras of technology,” but “they charge you insanely high prices for a very simple service,” he notes.

    ADT’s most basic plan — which includes a motion detector, two wireless door or window sensors, and a wireless key fob that enables users to control the system – costs $42.99 per month, a $300 installation fee and requires a three-year commitment. More “advanced” services — including stored video footage and email alerts — cost $57.99 a month, with a $500 installation fee and a three-year contract.

    That’s big business: ADT has a market cap of $8.7 billion dollars.

    Companies like ADT “make you think that to keep your family safe, you need to pay for something that’s essentially as expensive as a cell phone and requires [an even longer] contract,” Duffy says. “But it costs them nothing to deliver the service, and using today’s technology, you could deliver [the same service] for a fraction of the price.”

    Dropcam’s investors — Institutional Venture Partners, Accel Partners, and Kleiner Perkins, among others — evidently think so, too.

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    Connie

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