• Peter Thiel’s Other Fund, Mithril Capital Management, Raises $600 Million

    Ajay RoyanPeter Thiel is having a good month.

    According to a new SEC filing, low-flying Mithril Capital Management, which Thiel co-founded with longtime colleague Ajay Royan in 2012, is out raising its second fund with a $600 million target. Sources say the fund is already oversubscribed, however, and that it may hit $1 billion before it holds a final close.

    Emails and a call to the firm were not returned Friday afternoon.

    The vehicle marks the second giant fund that involves Thiel in one week’s time. The Friday before last, Founders Fund, the early-stage venture firm he co-founded in 2005, closed its sixth fund with $1.3 billion.

    There’s seemingly no end to LPs’ appetite for anything involving Thiel, though it’s also worth noting that aside from his involvement, the firms don’t feature much overlap.

    StrictlyVC sat down with Royan in 2014 to discuss Mithril, which is named after a fictional metal from J. R. R. Tolkien’s fantasy writings. The way he explained its focus then was as a growth-stage fund, one focuses on established companies that are leveraging tech in some way but are not necessarily tech companies. (He compared it, in fact, to a young General Atlantic.)

    Though Mithril has backed some tech companies, including the cloud service marketplace AppDirect; Classy, which provides online fund-raising services for nonprofits; and the data analysis giant Palantir (which is one of Founders Funds’ biggest bets to date), it has numerous bets that better underscore its mandate, including to fund companies too mature for many VCs yet that don’t fit the mold of a private equity investment, either.

    More here.

    Connie

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  • Mithril Capital Bets Big on Diabetes

    Diabetes wordcloudMithril Capital Management prides itself on funding unique “growth companies regardless of sector or geography,” says Ajay Royan, who founded the San Francisco-based venture firm with investor Peter Thiel in 2012. Last month, for example, it backed a Berlin-based, publicly traded company with an approved treatment for brain cancer.

    Fractyl, a company aiming to better control type 2 diabetes, also fits the bill. In fact, Mithril — which has just led a $40 million financing for the three-year-old, Waltham, Ma., company – thinks Fractyl might become the “single most impactful company in our portfolio,” says Royan.

    Certainly, the market opportunity Fractyl is chasing is enormous. More than 350 million people around the world suffer from type 2 diabetes, and as many as one in three U.S. adults could have diabetes by 2050 if current trends continue, according to the Centers for Disease Control and Prevention.

    While the disease is usually managed through exercise regimens, oral medications, and insulin shots, in more extreme cases, bariatric (weight loss) surgery is recommended, and it’s here where things get interesting.

    Bariatric surgery has been shown to return a person’s blood sugar levels to normal roughly six months after the procedure. Traditionally, it was believed the surgery is effective because the size of the stomach is reduced, but researchers and doctors have begun to believe it owes to a change in gut metabolism.

    “The [first section of the small intestine] contains cells that function as chemical sensors,” explains Royan. “As you eat food, a portion of your small intestine anticipates the food’s composition and signals a hormonal response to start preparing insulin or whatever is appropriate for that food.” In diabetics, that portion of the gut is scarred, so the body’s response is off.

    The big idea of Fractyl cofounder and CEO Harith Rajagopalan — a cardiologist and medical device entrepreneur — was to address the issue by altering the physiology of the gut. Specifically, Fractyl has created a device that’s inserted into the small intestine using an endoscope; after expanding and smoothing out the targeted part of the tract, it applies heat via a catheter balloon filled with hot water that kills the surrounding layer of skin. If all goes correctly, the old cells slough off and new cells with hormone receptors are generated in their place.

    So far, the idea is looking spot on. Thirty-five patients have participated in trials, with the results validating the company’s approach. Still, it’s early days. The trials began just eight months ago, meaning no one yet knows how effective the treatment will be over a longer period of time.

    There’s also competition to consider. Though Fractyl has some deep-pocketed venture firms, including earlier investors General Catalyst Partners, Bessemer Venture Partners and Domain Associates, the kind of skin ablation done by Fractyl’s device isn’t unique, even if no one is doing it precisely the same way.

    Royan says he isn’t concerned about potential copycats, pointing to Fractyl’s “significant IP filings.” More, he insists, Fractyl’s design will be very hard to beat. Asks Royan,“Were there cell phones before and after the iPhone? Yes.” But the iPhone’s design has kept it at the fore. For his money, so will Fractyl’s specific approach to fighting diabetes.

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

    Connie

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  • StrictlyVC: April 25, 2014

    It’s Friday, party people! Hope you have a terrific weekend, and we’ll see you next week with more good stuff.

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    Top News in the A.M.

    A couple days after Netflix and Comcast fought in public, the two companies, which are supposed to be partners, have taken it into the street again.

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    Inside Mithril, Part Two

    On Tuesday, StrictlyVC took readers inside 22-month-old Mithril Capital Management, a well-known but little-understood investment firm cofounded by longtime friends and colleagues Peter Thiel and Ajay Royan.

    As we’d sat down with Royan for more than an hour at Mithril’s San Francisco offices, we had some additional notes from our chat we thought you might find interesting. They’ve been edited for length.

    You worked with Peter at his hedge fund, Clarium Capital Management, as well as at Mithril. What makes your partnership work?

    We’ve worked together so long that he’s a fantastic foil to my thinking. And after all these years, if Peter is excited about something and I think differently, he’s very open to good feedback. So we have good discussions [and] independent views and there’s enough shared experience and shared principles that we can have a quick, high-resolution conversation about things in depth.

    Mithril has made seven investments to date, most of them eight-figure investments, including in a San Francisco-based security software company called Lookout. Do you take board seats with these investments?

    It’s at the request of the company. My view is [you want to offer] high availability and low interference. You want the check writing to be the most dramatic thing that you do, which is contra to what you hear in the Valley these days. You should be very helpful — and we are, whenever we’re asked, including with sophisticated financial strategy. But companies are staying private longer these days, so they’re encountering operational issues and capital management issues that venture-backed companies didn’t encounter 10 years ago, and that’s where we’re most helpful. But that is not formal governance; that’s really about a good relationship with founders.

    You’ve said that with Mithril’s first, current fund, you ended up with a more standard fund structure, though you really wanted to form a corporation. Will you pursue a different structure the next time around?

    No, [what we have] is a standard default that works for everyone. Our LPs in the first fund — we were careful in who we ended up working with. About a fifth of the capital is principal capital, so that was meaningful. We ended up working with a lot of family money – so, larger family endowments [as opposed to institutional capital] and sovereigns, as well. But in most of these cases, if we look at our LP base, it’s almost all direct investors, it’s people who are looking at us as a partner in Silicon Valley to understand what’s going on in the technology space, to be invested in it, so it changes the character and complexion of it.

    What’s your view on valuations? Is Mithril at all price sensitive?

    Entry price is really important. But you want to enter on a basis where you can hold over the long term. Almost every investment we’ve made has been a non-auction process. Even if there was an auction going on, it’s usually gotten sidetracked in favor of having a conversation with Mithril because [we’re typically] investing at an inflection point in a company’s business. Take Lookout for example. It’s known for its anti-virus protection for phones. But because it’s protecting 50 million devices . . . it now has a network of phones using applications like a neighborhood watch. And you can extrapolate information from this network and understand where the threats are coming from across different artificial silos. It’s not just AT&T or T-Mobile’s phones. It’s not phones owned by GE employees or your family members. So its historic business is still valid and growing fast, but there’s a whole other S-curve starting, and that’s what we’re underwriting. It was almost like a new Series A for a company that’s already a $500 million to $600 million company.

    You believe there’s still too little tech investing, and that the world needs more firms like yours and Andreessen Horowitz and Khosla Ventures. Why?

    From an investor point of view, there’s just very little going on [on] a relative numbers basis. It might not feel that way sitting in San Francisco or counting the number of words associated with technology in the newspapers today relative to 10 years ago. But on a global basis, you look at real estate investment and you look at power plants and real assets . . . and [tech investment] is just minuscule compared with the money that goes into these other asset classes. The fact that so little capital has generated so much value in such a short time has made it have an outsize effect in people’s minds. If you look at the Fortune 500 by revenue, there are a lot of industrial companies; if you rank it by profits, it’s remarkably tech heavy. I think the whole world is just beginning to understand what that means.

    DOD

    New Fundings

    Bitmoon Computing, a months-old, Palo Alto, Ca.-based, still-stealth startup, has raised $8 million in funding, according to an SEC filing firstspied by Fortune. Two executives are listed on the filing: Rob Woollen and Jason Frantz, both EIRs at Sutter Hill Ventures. Other members of Sutter Hill are listed as directors.

    Crate Data, a year-old, Berlin-based open source data store for developers, has raised $1.5 million in funding from Sunstone and DFJ Espirit.

    Crispr Therapeutics, a months-old, London-based company developing an enzyme that can be used as a tool in gene-editing procedures, has raised $25 million in Series A funding led by Versant Ventures. (The New York Times wrote an interesting piece on gene editing last month, fyi.)

    Freee, a two-year-old, Tokyo-based maker of automated online accounting software for small and mid-size businesses, has raised $8 million in Series A funding from DCM and Infinity Venture Partners.

    GroundMetrics, a 3.5-year-old, San Diego-based developer of electromagnetic surveying technology used by the oil and gas industry, has raised $2.7 million in Series B funding led by Cowboy Technology Angels, an Oklahoma-based angel group. Other participants in the round included Tech Coast Angels, Crescent Ridge Partners, ACE Fund,Harvard Business School Alumni Angels, and former Barclays executive Peter Landin.

    Isarna Therapeutics, a 16-year-old, Munich, Germany-based company developing inhibitors that stimulate the human immune system to fight cancer and other diseases, has raised $7.6 million in funding, including from AT NewTec, Global Asset Funds and MIG Fonds. To date, the company has raised at least $25.4 million altogether, shows Crunchbase.

    Juno Therapeutics, a young, Seattle-based startup that’s developing immunotherapies for cancer, has closed its Series A round (again). In December, the company announced it had closed on $120 million, much of it from ARCH Venture Partners and the Alaska Permanent Fund, through a partnership managed by Crestline Ventures. In January, it added $25 million to the round from Bezos Expeditions (the investment arm of Amazon founder Jeff Bezos) and Venrock. Yesterday, Juno revealed that it has raised yet another $31 million, closing the round at $176 million. No new investors were named. Juno is a joint venture among the Fred Hutchinson Cancer Research Center, the Memorial Sloan-Kettering Cancer Center, and Seattle Children’s Research Institute.

    Peloton, a two-year-old, New York-based that produces in-home bikes (along with on-demand instructional exercise content), has raised $10.5 million in Series B funding led by Tiger Global Management, which was joined by angel investors. Peloton is also about to open an 8,000-square-foot cycling studio in New York’s Chelsea neighborhood. The company has raised just more than $14 million altogether.

    SirionLabs, a 1.5-year-old, Gurgaon, India-based enterprise software company aimed at improving the efficiency of outsourcing contracts, has raised “about Rs 28 crore” from Sequoia Capital, reports the Economic Times. The company was cofounded by second-time entrepreneur Ajay Agarwal, who also cofounded a legal processing outsourcing firm called UnitedLex.

    Stitch, a year-old, San Francisco-based mobile email application for salespeople, has raised $3.25 million in seed funding from Google Ventures, SoftTech VC, Freestyle Capital, Foundation Capital, ENIAC Ventures and angel investors, reports TechCrunch.

    Virtuix, a year-old, Houston-based company whose gaming device features a 360-degree treadmill that allows gamers to run, walk, jump and crouch when playing a game with a virtual reality headset, has raised $3 million in funding led by Maveron and Tekton Ventures, a seed stage venture fund based in San Francisco. Other participants in the round included Scentan Ventures, Radical Investments, Scout Ventures,StartCaps Ventures and angel investors.

    XAPPmedia, a year-old, Washington, D.C.-based startup that provides interactive audio advertising for Internet radio stations, has raised $3 in funding from undisclosed investors to develop an advertising platform. VentureBeat has more here.

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    New Funds

    ARCH Venture Partners, a 28-year-old, Chicago Heights, Il.-based venture firm that invests in life sciences, physical sciences, and IT companies, is targeting $250 million for its eighth fund, shows a new SEC filing that states a first sale has yet to occur. Among ARCH’s newest bets isJuno Therapeutics (see New Fundings), and Nextcode Health, a clinical diagnostics company. ARCH raised its last fund, a $400 million vehicle, in 2007, according to peHUB.

    Three members of the Waterloo, Ontario startup community are creating a $5 million (still unnamed) fund to help early-stage tech firms in region,reports the Guelph Mercury. Michael Litt and Devon Galloway, co-founders of Vidyard, and Mike McCauley, a founder of BufferBox, have already funded sevens startups and say they’ll be writing many more checks of between $25,000 and $100,000 in “local deals, smart founders, guys we can see ourselves in a few years ago,” Litt tells the outlet.

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    IPOs

    The law firm Fenwick & West announced the results of its 2013 technology and life sciences IPO survey yesterday. Among its many conclusions: the number of tech and life sciences IPOs rose 62 percent between 2012 and last year, with life sciences companies slightly outpacing their tech peers. (Twenty-three life sciences companies went out, compared with 22 tech offerings.) Life sciences companies also had better public debuts, with 83 percent of them trading up their opening day, compared with 64 percent of tech companies. Another point: 11 companies completing IPOs in the second half of 2013 also completed a follow-on offering within six months of their IPO. The full report is here.

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    Exits

    DocTrackr, a three-year-old, Cambridge, Ma.-based document rights management startup, has been acquired by the publicly traded company IntraLinks Holdings for an undisclosed amount. DocTrackr had raised $2 million in seed funding from investors including Polaris Venture Partners,Atlas Ventures, Lead Dog Ventures, and Common Angels.

    Zefr, a 4.5-year-old, Venice, Ca.-based software platform for brand and content management on YouTube, has sold its MovieClips unit (which encompasses a catalog of 45,000 film clips) to the ticketing platform Fandango for an undisclosed amount. Reportedly, Fandango is looking to start producing more original programming, as well as tie-in promotions. Zefr has raised roughly $60 million from investors, including US Venture Partners, MK Capital, Shasta Ventures, Richmond Park Partners, First Round Capital, and SoftTech VC.

    Payscale, a 15-year-old, Seattle-based compensation software services company, has been acquired by the private equity firm Warburg Pincus in a deal worth up to $100 million, reports TechCrunch. PayScale has reportedly developed a massive database of individual compensation profiles, containing salary information on 40 million jobs, since opening its doors. Over the years, it has raised more than $33 million from investors, including Montlake Capital, Madrona Venture Group, Fluke Venture Partners, Trinity Ventures, Allen & Co., and SAP Ventures.

    ProtoGeo Oy, a two-year-old, Helsinki-based maker of a mobile app calledMoves, has been acquired by Facebook, a move that signals the company’s interest in the fitness tracking market. Inc. Facebook says the company will continue running independently, and that Facebook will use it to help people “take small steps toward more healthy habits and lifestyle,” according to the WSJ. The app had raised a small, undisclosed round of financing from Lifeline Ventures, PROfounders, AJP Holding,Juha Lindfors, Jyri Engestrom, and Tekes.

    Scroll Kit, a 2.5-year-old, New York-based startup whose platform enables people to build websites without knowing any code, has been acquired by Automattic, the parent company of WordPress. Terms of the deal aren’t being disclosed, but the Scroll Kit editor is being shut down in three months as its co-founders integrate some of the features into WordPress.

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    People

    David Cowan of Bessemer Venture Partners spent Wednesday with a barbershop quartet, serenading the Bay Area office managers of Bessemer’s portfolio companies. Cowan called them the startups’ “unsung heroes.” You can see group’s delightful harmonizing right here.

    Liron Gitig has been promoted to partner at FTV Capital, the 16-year-old San Francisco-based growth equity investment firm. Gitig joined FTV Capital in 2006. Before joining the firm, he worked briefly for Lazard Technology Partners and spent three years as a vice president at Giza Venture Capital.

    Vic Gundotra, a vice president of engineering at Google who was a leading force in bringing Google+ into the social world, is leaving the company, Re/code reported yesterday. The outlet’s sources say Google CEO Larry Page has already picked a current Google+ exec — VP of engineering David Besbris — to replace Gundotra, who hasn’t said yet what’s next.

    Conor Moore has been named the national co-leader of KPMG‘s venture capital practice. Moore, who is based in San Francisco, joined KPMG in 2002 and has held a number of different roles over the years, including partner-in-charge of KPMG’s Northern California technology and venture capital practices.

    Kevin Rose may not be long for Google Ventures, where he’s currently a partner — so he reportedly suggested at a conference in Europe yesterday.According to the Silicon Valley Business Journal, Rose said at the show that he regrets resigning as CEO of the aggregation site he cofounded, Digg, and that he has his heart set on launching a new startup, even while he isn’t yet working on anything.

    Semil Shah, a popular TechCrunch columnist and seed-stage investor, will no longer be contributing to the outlet after a three-year run. “I don’t know the details, as I’m not too involved with the publication, but the weekend and guest columns are moving in a new direction, and I’m not a part of that direction,” he wrote in a post yesterday.

    A (creepy but seemingly pretty accurate) wax replica of Facebook founderMark Zuckerberg has been fashioned for a new Madame Tassauds’ museum in San Francisco. Of the statue, Madame Tussauds’ marketing manager told NBC Bay Area that “35 percent of the figures are from the San Francisco Bay Area or people, like Mark Zuckerberg, who have moved to Bay Area to make their mark on the world.” (Steel yourself, Larry Page, surely you are next.)

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    Job Listings

    OnDeck, the well-financed small business lender, is looking for acorporate development manager in New York.

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    Data

    Datafox looks at the rising tide of companies that stand to gain from the explosion in mobile advertising.

    A new Makovsky Health/Kelton survey suggests that consumers are getting more open-minded about sharing their personal health data. A whopping 90 percent of the 1,000 respondents said they would have no problem sharing their healthcare data to help researchers understand a disease or improve care or treatment options. More here.

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    Essential Reads

    Apple, Google, Adobe, and Intel have reportedly agreed to pay a total of $324 million to settle a lawsuit accusing them of conspiring to hold down salaries in Silicon Valley, just weeks before a high profile trial had been scheduled to begin.

    Growth-capital financings purportedly give startups time to mature before advancing onto the public markets. But they aren’t necessarily a recipe for better stock performance once the companies go out, reports The Information. (Subscription required.)

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    Detours

    Apple, Google, Adobe, and Intel have reportedly agreed to pay a total of $324 million to settle a lawsuit accusing them of conspiring to hold down salaries in Silicon Valley, just weeks before a high profile trial had been scheduled to begin.

    Growth-capital financings purportedly give startups time to mature before advancing onto the public markets. But they aren’t necessarily a recipe for better stock performance once the companies go out, reports The Information. (Subscription required.)

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    Retail Therapy

    The Four Seasons now has a private jet and wants to take you around the world in it.

    LittleBits’s Space Kit. A bit pricey but very neat!

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

    Connie

  • Inside Mysterious Mithril Capital

    Ajay RoyanOne of the best-known things about Mithril Capital Management is that it is named after a fictional metal from J. R. R. Tolkien’s fantasy writings. Put another way, the 22-month-old investment firm, cofounded by influential investor Peter Thiel and his longtime colleague Ajay Royan, remains mostly a mystery, even to those in San Francisco, where it’s based.

    That’s probably because local investors don’t see much of the firm, suggests Royan, sitting in a modern conference room at the firm’s well-appointed offices in the Presidio, where roughly a dozen people — principals to vice presidents who’ve worked for one of Thiel’s past companies — are trying to create a kind of modern-day Berkshire Hathaway.

    More specifically, Mithril is assembling a highly concentrated portfolio of companies that most in Silicon Valley have never heard of, let alone would ever fund. (Think underwater robots in Toulouse, France, and a Boston-based technology company that’s enabling travelers to book train tickets the same way for every rail line.) It’s going long on these companies, too. When the firm raised $540 million for its debut fund, it turned not to institutional investors but “larger family endowments and sovereigns,” who agreed to let Royan and Thiel lock up their money for as long as 12 years. The pair, who personally contributed up to a fifth of the fund’s capital, told investors they wanted the option to wait out markets if necessary.

    Of course, Berkshire Hathaway’s founder Warren Buffett famously doesn’t invest in technology. But Royan, who speaks in elegant paragraphs peppered with scholarly references, says that’s a product of timing. Tech was a “boom and bust” industry once, not a long-term bet. Today, he says, “If you ran the Warren Buffett gambit in 2014 de novo, you’d probably only be doing technology-driven investing, because that’s where you build [today’s] lasting franchises.”

    StrictlyVC talked with Royan last week; here’s some of that chat, edited for length:

    You were born in India, raised in Abu Dhabi and graduated from Yale – a degree in political economy in hand — by age 20. What did you want to do, and how did you wind up working alongside Peter Thiel?

    I wanted to be an industrial designer; I wanted to be an entrepreneur. And I became aware of Peter through mutual friends around a friend’s wedding in New York. At the time, he’d recently sold PayPal to eBay and was thinking about [starting his hedge firm] Clarium [Capital Management] and our initial conversations were around my joining him as an entrepreneur in residence and starting a company.

    And you did, eventually becoming a managing director at Clarium. Why leave to co-found Mithril with Thiel in 2012? What was the impetus?

    With a hedge fund, people can invest whenever they want but they can also redeem whenever they want; it doesn’t matter how successful you are. And a big macro event like the 2008 financial crisis created a [system-wide need for liquidity] precisely when, because you have convictions and a view of the future, you wanted to invest more. That led to a conversation about permanent capital and longer-term investing.

    What was the initial idea?

    The initial idea was to have permanent capital, for it to almost be like a corporation that would go public 15 years down the line, and Peter and I would happily lock up our own capital for that period. [But] that turned out to be a very radical proposal. People were like, “Whoa.” [Laughs.] So we ended up defaulting to a more standard fund structure. But we asked for people to be thoughtful about how to make it a long term fund, so it has almost a six-year investment period [so we can wait out frothy markets if we want]. It’s also . . . almost a 12-year fund, so when we talk with entrepreneurs, we can say [that while] we started in 2012, we can have a view inside this balance sheet all the way to 2024.

    You’ve made seven bets so far, in very disparate types of companies. One of them is C2F0, a collaborative cash flow optimization company in Kansas City that tries unlocking capital trapped in trade relationships. What kind of process led you to the company?

    There was this question-asking process basically saying: Are there things other than credit underwriting that make sense in an economy where it’s hard to mobilize capital? Who’s thinking about this? And our team ran a screen and we looked at companies in the space; we looked to see if they were working with good investors and whether they had a technology DNA, because you do have a lot of financial people who think about stuff like this, but we didn’t want a transactional business. We didn’t want to do an exchange on Wall Street.

    How many companies do you talk with, who at the firm ultimately decides what Mithril will fund, and what size checks is the firm writing?

    I think we’ve [funded] less than 1 percent of what we’ve looked at in the last 20 months . . . The investment committee is Peter and myself [because] we want to be able to make decisions quickly . . . And we make investments between $20 million and $100 million-plus in size.

    Have you written a $100 million check?

    We have a $100 million exposure, including reserves, to a company, already [though I can’t say which]. It’s not in stealth, but we haven’t announced the investment at the company’s request. But we do have about 20 percent of the fund committed to a single name at this point.

    (We’ll be running more of our interview with Royan this week, readers, so stay tuned.)

    Connie

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