• VC Kent Goldman on the Changing Dynamics Between Seed-Stage Firms

    kent_goldman2By Semil Shah

    Two years ago, Kent Goldman, a former partner with First Round Capital, took the wraps off his own seed-stage venture firm and the novel idea that it incorporates. Specifically, Goldman said that his new firm, Upside Partnership, would give every founding team that it backs a piece of its own carry, effectively making them Upside’s partners.

    Investors liked the idea, committing $30 million to Goldman’s debut fund, and committing another $44 million to his second fund, which closed earlier this year. We caught up with him recently to talk about the current, seed-stage ecosystem. More from that chat below.

    In the consumer tech landscape today, what are some consumer behaviors you’re tracking that could lead to new products, services or networks?

    It’s been a pretty long time since I’ve taken a thematic approach to investing. I try to be proactive about people rather than ideas. Founders are much better at seeing the future than investors, so my focus is really on finding people who’ve been thinking about and working through solutions far longer than I’ve even known a problem exists.

    I have gotten wrapped around the conversational UI axle. Some of Upside’s earliest investments were behind founders building companies around text-based conversational UIs. With the attention now being paid to voice interfaces, it’s been difficult not to revisit the idea of a disappearing UI and the challenges they present to our collective learning around visual interfaces. For example, we’re used to having app icons to remind people about the existence of apps they’ve already downloaded. We’re used to visual design being used as a method to introduce new features. But how do you remind a user of skill they added to their Amazon Echo? What’s the audio equivalent of an app tutorial? How do you train a user to a specific conversational app syntax? What’s the audio corollary of a badge count? It’s been fun to kick around these questions with folks.

    With one fund of Upside Partnership under your belt, what’s been the single-most surprising element of running the fund?

    The biggest surprise is that we’ve been the first institutional investor to commit to funding a founding team in the majority of our investments. Our typical initial investment is very deliberately around $300,000. Because Upside was formed with the intention of playing well with other investors, I thought it was more likely that we would be tucked into a round after a lead was chosen. More often than not, it’s been the opposite. It’s been a gratifying development.

    Another surprise was that four of our first eight investments backed female founders.

    How do you anticipate seed syndicates changing as more investors enter the mix and smaller funds begin to scale? 

    It’s going to get a bit edgy in syndicate land. When I joined First Round, back in “super angel” days of 2008, I saw how much support founders could get when their investor syndicates were working in alignment with one another. But as the seed landscape evolved, becoming the lead investor or hitting arbitrary ownership targets became increasingly important to a number of funds.

    At some point investors decide whether they believe special founders drive outsized returns or concentrated ownership does. I strongly believe it’s the former, so I decided to build a fund that would be focused on overachieving as a syndicate member. This means investing time to help regardless of your check size. And it means there is a bit more freedom to support the founders you want to work with. One way to do this well is to keep fund sizes small.

    As many emerging funds make the decision to grow their size and set a goal to lead rounds, they’re going to discover that it’s much more challenging to directly compete with elite firms like First Round than it is to work alongside them. In doing so, they’re making the decision to put their access to great founders in jeopardy. It’s always been a puzzling strategic choice to me; do they want to scale fund size or do they want to scale returns?

    Many of your seed deals have gone on to raised Series A rounds. How does the nature of your work with companies change after that Series A closes?

    I’m most engaged with founders at the seed stage. The challenges they face are the ones I best understand. As their companies scale beyond into Series B territory, the decisions they face fall outside of my focus. By this point, I hope to have earned enough of their confidence that they will still consider me a trusted counsel – it’s the way I hope to earn the opportunity to make follow-on investments in their businesses. But, as companies age, I anticipate becoming more reactive, rather than proactive.

    In the context of early-stage investing, what’s something that you believe that isn’t necessarily a popularly held point of view?

    Investors stand on the shoulders of founders. And often founders, not investors, give other founders the best operational advice. It’s why we make each founder we back a partner in our fund. Venture firm’s brands are built on the smarts and fortitude of the people they back. It’s wise to recognize this with more than hollow lip service.

    Connie

    ,

  • StrictlyVC: July 10, 2014

    Good Thursday morning! For a look at the wonderfulness you could be getting in your inbox every morning, here’s the email version of today’s newsletter.

    —–

    Top News in the A.M.

    Chinese hackers in March broke into the computer networks of the U.S. government agency that houses the personal information of all federal employees, reports the New York Times.

    Faced with growing opposition from the tech industry, the Obama Administration has ditched its plans to name pharmaceutical executive Phil Johnson as head of the U.S. Patent and Trademark Office.

    The potato salad guy has now raised roughly $44,900 on Kickstarter. That had better be some good potato salad.

    —–

    A Small New Fund with a Game-Changing Idea

    Unlike venture capitalists, who get to place dozens of bets in search of a winner, founders typically have one shot at winning the startup game.

    Kent Goldman, a former partner with First Round Capital, thinks he has struck on a way to improve those odds. Today, Goldman takes the wraps off a new, San Francisco-based, $30 million seed fund called Upside Partnership that will give every founding team in its portfolio a piece of its carry, making them effectively Upside’s partners.

    That’s right. Goldman will take what he characterizes as a standard management fee. But he’ll be sharing an amount of carry that he expects will reach “significantly into the double digits,” albeit “less than half” of Upside’s overall upside.

    If a venture capitalist somewhere just spit out his coffee, it’s understandable. Like it or not, Goldman may have just changed the game for everyone. What founder wouldn’t want a piece of a venture portfolio at no additional cost? And what better motivation for founders to help one another?

    VCs like to talk with entrepreneurs about what’s fair. Goldman’s model — where founders will receive carry on a sliding scale, based on Upside’s initial check size — doesn’t get much fairer.

    Other details about the fund: Unlike the many specialized seed funds springing into existence these days, Goldman says he went in the opposite direction, with plans to focus very generally on “purpose-built founders who can explain why this is the right time in their life to pursue their passion.”

    Certainly, if Goldman is predisposed toward certain sectors, you wouldn’t know if from his portfolio at First Round, where his varied investments included the hotel booking application company HotelTonight; the real time analytics platform MemSQL; and Airware, a platform that helps other companies develop commercial drones.

    Goldman says he plans to write relatively small checks, too, staying in the “$300,000 range” when possible. For one thing, he thinks there’s a dearth of VCs who are willing or able to meaningfully help startups without more money riding on those companies. He also suggests that getting into the best deals might be easier if he’s not asking founders or other investors to “make room for me.”

    As for fundraising, Goldman, who is the fund’s sole general partner for now, says it took roughly four months, with most of the capital coming from institutional investors. In fact, Goldman says that less than $2 million came from individuals, including First Round founder Josh Kopelman, with whom Goldman remains close.

    It begs the question of why Goldman left a plum job with First Round in the first place.

    “Venture tends to not be a terribly entrepreneurial industry,” Goldman says. But he had his big idea, and he couldn’t let it go.

    “I view this like any founder who leaves a great company to try something on their own,” he says. Particularly when that company’s mission involves meeting with entrepreneurs every day, it’s “hard not to catch the bug yourself.”

    —–

    New Fundings

    AdhereTech, a 2.5-year-old, New York-based healthcare technology company that makes patented smart pill bottles that remind patients to take their medication, has raised $1.75 million in Series A funding from undisclosed investors. The company has raised $2.4 million to date, shows Crunchbase.

    Altierre, an 11-year-old, San Jose, Ca.-based provider of dynamic pricing technology to retailers, has raised a new round of more than $21 million co-led by new investor Stratim Capital and D.E. Shaw. Earlier investors ATA Ventures, DuPont Capital Management, Labrador Ventures and Kinetic Ventures also participated in the round.

    Avere Systems, a six-year-old, Pittsburgh, Pa.-based company that provides hybrid cloud-based storage to enterprises, has raised $20 million in Series D funding led by Western Digital Capital, with participation from previous investors Lightspeed Venture Partners, Menlo Ventures, Norwest Venture Partners and Tenaya Capital. The company has raised $72 million to date.

    BirdDog, a 15-year-old, Urbandale, Ia.-based company that provides recruitment and application tracking software for companies in the construction and skilled trade industries, has raised $4 million in Series A funding led by Des Moines, Ia.-based venture firm Next Level Ventures. Earlier investor Bridgepoint Investment Partners, also based in Des Moines, also participated in the round.

    Comfy, a year-old, Austin, Tx.-based company that matches college students with off-campus housing, has raised $600,000 in seed funding led by Dominion Ventures, with participation from Austin Ventures and numerous angel investors.

    NewVoiceMedia, a 14-year-old, London-based company that makes cloud-based contact center software, has raised $50 million in Series E funding led by Technology Crossover Ventures. Earlier investors who also participated in the round include Bessemer Venture Partners,Eden Ventures, Highland Capital Partners Europe, Notion Capital and Salesforce.com. The company has raised $113 million to date, shows Crunchbase.

    Syapse, a six-year-old, Palo Alto, Ca.-based data platform that integrates complex genomic and clinical data with care pathways and medical knowledge bases to give healthcare workers actionable insights, has raised $10 million in Series B funding led by Safeguard Scientifics. The Social+Capital Partnership, the company’s Series A investor, also participated in the round, which brings Syapse’s total funding to $14.6 million.

    Wayin, a three-year-old, Denver-based company whose software gathers social media postings and displays it in real time on its clients’ sites, mobile apps, or, in the case of sports teams, scoreboards, has raised $13.1 million. (We’d first flagged this one for you last month, when an SEC filing showed it had raised $12.1 million.) U.S. Venture Partners led the Series C round, with Wilson Sonsini Goodrich and Rosati, TV producer Burt Sugarman, and Discovery Land Company CEO Mike Meldman participating. Wayin was cofounded by Sun Microsystems cofounder and CEO Scott McNealy.

    WeSpeke, a four-year-old, Pittsburgh, Pa.-based online platform for language learning and practice and cultural exchange, has raised $3 million in Series B funding from undisclosed investors. The company, cofounded by the director of the Language Technologies Institute at Carnegie Mellon University, had previously raised $3.2 million over two earlier rounds, shows Crunchbase.

    —–

    New Funds

    137 Ventures, a 3.5-year-old, San Francisco-based firm that lends cash to startup founders and other shareholders in exchange for shares in their companies, has closed on its second fund with, yes, $137 million. The company raised its first, $50 million, fund in 2011. TechCrunch has much more here.

    That London-based Google Ventures unit we’ve been writing about is officially a go. According to a blog post by managing director Bill Maris, Google is entrusting a team of five with $100 million to start. Those partners include Google Europe executive Eze Vidra, entrepreneur Tom Hulme, angel investor Peter Read, Code.org UK head Avid Larizadeh, and current Google Ventures partner MG Siegler, who will reportedly remain in London temporarily to help his new colleagues get up and running. VentureBeat has more here.

    J.P. Morgan Chase has so far raised $797 million for its second digital growth fund, shows an SEC filing. The banking giant closed its first digital growth fund with $1.2 billion in 2011. Twitter, Facebook, Jawbone and, more recently, the e-commerce plays Zalando and Namshi, are among the many companies on which the firm has made big bets in recent years.

    —–

    Exits

    Neebula, a four-year-old, New York-based software company whose products automate the discovery, mapping and monitoring of IT-enabled enterprise services, has been acquired by publicly traded ServiceNow for $100 million. The company, which was founded in Israel, had raised an undisclosed amount of money from Genesis Partners and Pitgano Venture Capital, says VentureWire.

    —–

    People

    Greetings from Sun Valley, where security is tight.

    Abingworth, the international investment group dedicated to life sciences and healthcare, has promoted Ken Haas and Vin Miles to partners. Both are based in the U.S., where they focus on everything from early-stage to PIPE deals.

    During the first six months of 2014, Marc Andreessen tweeted 21,783 times, an average of five tweets per hour, every hour. Quartz has analyzed the whole archive here.

    In another sign that the Winklevoss Bitcoin exchange traded fund is making slow but steady headway, the latest amendment to its S-1 filing shows that it will use COIN as its ticker symbol. (Mais bien sûr.) ETF Daily has more here.

    —–

    Job Listings

    Amazon is looking for business development managers in both Delhi and Mumbai to make friends with local VCs, accelerators and incubators.

    Intuit is looking for a corporate development manager in Mountain View, Ca.

    And The Juilliard School in New York is looking for a director of business development to help it develop a suite of digital products and educational programs.

    —–

    Essential Reads

    Documents leaked to TechCrunch from inside Yelp allege that Google is manipulating its search results to favor Google+ content over Yelp content.

    Tinder insiders give TechCrunch their side of the story.

    —–

    Detours

    The TSA’s Instagram feed.

    Freestyling through Manila.

    Underwater photos of dogs fetching balls.

    —–

    Retail Therapy

    If you like historic military vehicles and live in the Bay Area, you might check out this upcoming tour. (H/T: InsideHook.)

    The only white jeans you need, we are told.

    —–

    To sign up for StrictlyVC, click here. To advertise, click here.

    Connie

    ,

  • A Small New Fund with a Game-Changing Idea

    kent_goldman2Unlike venture capitalists, who get to place dozens of bets in search of a winner, founders typically have one shot at winning the startup game.

    Kent Goldman, a former partner with First Round Capital, thinks he has struck on a way to improve those odds. Today, Goldman takes the wraps off a new, San Francisco-based, $30 million seed fund called Upside Partnership that will give every founding team in its portfolio a piece of its carry, making them effectively Upside’s partners.

    That’s right. Goldman will take what he characterizes as a standard management fee. But he’ll be sharing an amount of carry that he expects will reach “significantly into the double digits,” albeit “less than half” of Upside’s overall upside.

    If a venture capitalist somewhere just spit out his coffee, it’s understandable. Like it or not, Goldman may have just changed the game for everyone. What founder wouldn’t want a piece of a venture portfolio at no additional cost? And what better motivation for founders to help one another?

    VCs like to talk with entrepreneurs about what’s fair. Goldman’s model — where founders will receive carry on a sliding scale, based on Upside’s initial check size — doesn’t get much fairer.

    Other details about the fund: Unlike the many specialized seed funds springing into existence these days, Goldman says he went in the opposite direction, with plans to focus very generally on “purpose-built founders who can explain why this is the right time in their life to pursue their passion.”

    Certainly, if Goldman is predisposed toward certain sectors, you wouldn’t know if from his portfolio at First Round, where his varied investments included the hotel booking application company HotelTonight; the real time analytics platform MemSQL; and Airware, a platform that helps other companies develop commercial drones.

    Goldman says he plans to write relatively small checks, too, staying in the “$300,000 range” when possible. For one thing, he thinks there’s a dearth of VCs who are willing or able to meaningfully help startups without more money riding on those companies. He also suggests that getting into the best deals might be easier if he’s not asking founders or other investors to “make room for me.”

    As for fundraising, Goldman, who is the fund’s sole general partner for now, says it took roughly four months, with most of the capital coming from institutional investors. In fact, Goldman says that less than $2 million came from individuals, including First Round founder Josh Kopelman, with whom Goldman remains close.

    It begs the question of why Goldman left a plum job with First Round in the first place.

    “Venture tends to not be a terribly entrepreneurial industry,” Goldman says. But he had his big idea, and he couldn’t let it go.

    “I view this like any founder who leaves a great company to try something on their own,” he says. Particularly when that company’s mission involves meeting with entrepreneurs every day, it’s “hard not to catch the bug yourself.”

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

    Connie

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