• At StartX Demo Day, a Wide Assortment of Startups

    Box-of-ChocolatesLittle about the accelerator program StartX is conventional. On the one hand, the 5.5-year-old, Palo Alto, Ca.-based outfit is a nonprofit that helps founders affiliated with Stanford University to build peer groups, as well as their confidence. Specifically, it provides companies with 10 weeks of free educational programming about everything from setting goals to launching products.

    But StartX is also becoming a power player, owing largely to a deal it struck in September 2013 with Stanford University and Stanford Health Care, which asked it to manage a for-profit vehicle on their behalf — uncapped capital that StartX now uses to invest in up to 10 percent of its founders’ rounds.

    You can actually see StartX’s growing influence. Not only does the 16-person outfit now operate out of 13,000 square feet of office space, but at a demo day yesterday, on the heels of one of StartX’s three yearly sessions, roughly 200 investors stood elbow-to-elbow in a nook of that space to hear 20 of its companies ask them for funding.

    Perhaps unsurprisingly, the companies were a tad unconventional, too.

    One presenting company, Summer Technologies, a sustainable agriculture startup, is hoping to transform the cattle industry by bringing analytics to grazing management. Currently, says CEO Christine Su, farmers aren’t making the most of their land. They allow their cows to graze too long in one place, when moving them around more frequently would keep the grass and soil healthier. Summer’s software, currently being piloted at 30 ranches across five states, pulls in rain, soil and other data that can help those farmers boost their productivity.

    Another company, Payjoy, aims to bring consumer finance to hundreds of millions of people in India and elsewhere by embedding technology in smartphones and TVs that allows them to pay for the products as they’re used, instead of in up-front cash. Striking the right relationships would seem to be a big hurdle for Payjoy, but founder Doug Ricket, a former Google engineer, has spent the last six years selling technologies into the developing world; presumably, he has a network to leverage.

    Vouch, a third startup, also has an unusual approach to what’s an increasingly crowded space. It intends to use the creditworthiness of a borrower’s personal network, as well as their own individual data, to tailor personal loans for its users. Think friends, uncles, cousins. It sounds a little out there, but online lending is obviously a huge and growing market, and the team includes former alums of PayPal and Prosper, among other companies.

    How far these companies will go is anyone’s guess. But the portfolio of StartX appears to hold promise. Since launching its fund with Stanford’s capital — it’s called the Stanford-StartX Fund — StartX has invested $31.4 million across 82 companies, 9.2 percent of which have already been acquired.

    At least one company, six-year-old, San Francisco-based Life360, looks like a breakout success story, too. Right now, two million families are signing up for its family communication app each month — traction that investors have noticed. (The company has raised $76 million to date.)

    Of course, the organization has also seen its flops. Though 88.5 percent of its companies are still up and running, StartX readily admits that another 11.4 percent have gone out of business.

    If press reports are to be believed, one of its highest-profile portfolio companies – the payment startup Clinkle – may be headed in the same direction.

    For a full list of the companies that presented yesterday/are looking for funding, click here.

  • Bullpen Capital on Its New Fund, Post-Seed Deals, and Changing LP Sentiment

    bullpen capitalA few years ago, when three prominent operators came together to create a venture fund, Bullpen Capital, they figured they’d line up capital easily. Paul Martino has founded four companies, including the ad optimization platform Aggregate Knowledge; Richard Melmon cofounded Electronic Arts; and Duncan Davidson cofounded Covad Communications and SkyPilot Networks.

    LPs couldn’t care less. “We had meetings where we were hollered at for an hour,” Martino tells me of their lives in late 2010, when industry returns had sunk to a 10-year low. “Even though we were each running companies [through the late ‘90s and the 2000s], “it was like we’d wronged [LPs] by proxy. One guy even said to me, ‘Venture capital isn’t an asset appreciation class; it’s an asset destruction class.’”

    Fortunately for Bullpen – and LPs – times have changed. In a few weeks, says Martino, the Menlo Park, Ca., firm will hold a first close on a second fund that will ultimately be “between $50 million and $75 million,” up from its first, $25 million fund (about one-third of which came from Martino, Melmon, and Davidson). We talked yesterday about that new fund, and how Bullpen separates itself from the pack. Our conversation has been edited for length.

    You say you’re positioned to double, if not triple, your first fund. How have you won over LPs?

    Well, for one thing, we’ve made 33 investments, and four of them could [return] the whole fund [based on their IRR]. Also, LPs want to know how you’re going to differentiate yourself from the many other small funds they’re seeing, and we have a stage focus that only two or three other funds out there share.

    LPs also want to catch the next Mike Maples; they want to buy an option to get into your later funds. Instead of writing a $25 million check to one firm, they’ll write five $5 million checks with the hope that they might be able to give [the best of those small funds] $50 million the next time. There’s a fear of missing out, that they don’t have exposure to the best managers of the future.

    It seems like more firms are making follow-on investments in seed-funded startups. Venture51 is doing something similar, right?

    And they’re our best friends and most common co-investors. I’d hate if there were 23 firms doing what we’re doing, but we need partners and there just aren’t a lot of us doing this. When we’d learned Ronny Conway might be raising a fund to back seed-funded startups, I wrote him a note saying, “Welcome, please go do this.” Companies bumble and stumble, and we’re big believers in the power of strong syndicates. A few more of us would be a good thing.

    What’s your criteria? Does your interest extend to good teams that need to come up with a new idea?

    Investing in pivots would be like seed investing again. Instead, we invest in post-product market fit companies where big VCs say, “Come back in six to 12 months when you have a million users instead of 100,000.” We’re like an accelerator that gets the companies to the milestone that guarantees them the big round.

    What do you get in return for your check? Are you aiming for 10 percent?

    We’re like Greycroft Partners in that we have no ownership requirements – and that has helped us win 87 percent of the deals we’ve tried to get into. Sometimes, we [own] 3 or 4 percent; sometimes it’s 7 or 8 percent.

    You’ve told me you don’t take board seats, either. Does that concern LPs?

    LPs don’t like it but GPs do. Duncan and I have started 14 companies so we’re viewed as trusted advisors, rather than as a firm that’s going to potentially force the CEO’s hand. It puts us in a better position. We just led a round in an ad tech company and the week before one of its board meetings, I was asked, “What do you think the board is going to think of this presentation?” It’s a better situation to be in than the person who’s getting a distilled view of the company.

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