• Is Tony Fadell in Nest’s Way?

    Screen Shot 2016-03-30 at 12.05.13 AMLast week, we witnessed something fairly remarkable. A major Alphabet executive — Nest Labs CEO Tony Fadell — publicly shamed the cofounder and employees of Dropcam, the connected camera company that Nest had acquired in 2014 for $555 million.

    In an article in The Information, Fadell said that he didn’t think Dropcam cofounder and CEO Greg Duffy had “earned” the right to report to him directly. Fadell also explained away an exodus of Dropcam staffers by suggesting they were subpar. “A lot of the employees were not as good as we hoped,” he told The Information. It was “a very small team and unfortunately it wasn’t a very experienced team.”

    Fadell may have been reacting to comments by Duffy, who painted a highly unflattering portrait of Fadell in the same article. However, Fadell’s comments and his poor performance underscore what an ill fit Fadell is for Alphabet and why Alphabet needs new leadership at Nest.

    It wasn’t supposed to be like this, of course. Nest was acquired by Google for $3.2 billion in January 2014, a feat that earned Fadell plenty of accolades. Worried about competition and in awe of Fadell, who’d created the iPod as an Apple SVP, Duffy concluded that selling was his smartest play when Nest came knocking that spring.

    Despite what seemed like a handsome payday for everyone involved with Dropcam, the bet soon looked like a poor one.

    As we’d reported here in November 2014, not only did Duffy’s beloved VP of marketing almost immediately leave Nest over an apparent culture clash, but numerous employees we interviewed, along with scathing write-ups by former employees on Glassdoor, pointed surprisingly to trouble.

    “Everything revolves around the CEO,” wrote one Glassdoor reviewer at the time. “It’s a dangerous mix of cult of personality and Stockholm syndrome. Comments like ‘[Fadell is] the next Steve Jobs are not uncommon, while people proudly say things like ‘I’m used to Tony screaming at me.’”

    It wasn’t just the different management styles of Fadell and Duffy, whose organization was one-eighth the size of Nest and who was well-liked by his employees. There was suddenly an inability to get anything meaningful done. One Nest employee described to me a “huge meeting culture, to the point where anyone at the director level or up spends their entire day in meetings, many of them duplicative meetings about the same subject, over and over to the point where a lot of people have complained.”

    Things remain much the same 16 months later, suggests The Information, whose report says Nest’s culture of micromanagement has more recently led the firm to plaster its offices with the phrase “Step Up” to ostensibly encourage lower-level employees to take more initiative.

    More here.

  • My Best Friend, Google

    Larry Page and Sergey BrinIn yesterday’s New York Times, columnist Farhad Manjoo wrote, “One way to think of Google is as an extremely helpful, all-knowing, hyper-intelligent executive assistant.”

    And it’s only getting smarter. As Sundar Pichai, top banana at Google’s Android division, tells Manjoo of the near future: “If I go and pick up my kids, it will be good for my car to be aware that my kids have entered the car and change the music to something that’s appropriate for them.”

    It’s an exciting prospect, though I must admit that so much connectedness raises some questions for my own young family, such as which song from “Frozen” Android will choose: “Let it Go” or “For the First Time in Forever”? What if just one kid wants to hear “In Summer”?

    If a fight breaks out in the back seat, I hope Android will turn up the volume so I don’t have to listen to my children screaming and punching each other.

    Here’s another thing: I am generally a good, straightforward person, but occasionally, when my husband thinks that I’m working tirelessly in our home office, I’m really downtown shopping at Neiman Marcus. If our Dropcam or Nest thermostat alerts Google to the fact that I’m away, and the GPS in my phone provides the rest of the clues as to my whereabouts, I wonder about some of the implications. For instance, could Google send me a discount code while I’m at the store? That would be terrific.

    Google cofounder and CEO Larry Page tells Manjoo that people get “so worried about these things” like Google’s tracking us and profiting from our every move online and off, that we could miss out on the benefits of this new context aware world over which Google suddenly looks to have iron-clad control.

    But with Page and Google cofounder Sergey Brin at the helm of this “single, hyperaware computing system,” what’s to worry about? (They will live forever, correct?)

    The fact is I am done wasting time, changing the music in my car to suit my kids. I have more important things to do, and Google knows it, because it has already scanned this content of this post.

    Photo: Peter Foley/EPA

  • For Nest Investor Shasta Ventures, Persistence Pays

    coneybeerGoogle’s plans to acquire the smart home appliance maker Nest Labs for $3.2 billion in cash should translate into a tidy return for the half dozen firms that invested $80 million in the three-year-old company. Kleiner Perkins may have the most reason to kick up its heels, having led Nest’s Series A round in early 2011. (The deal, rumored to give Kleiner a 20x gross return, might well convince its limited partners that Kleiner has recovered its mojo.)

    But the deal is also a personal victory for venture capitalist Rob Coneybeer of 10-year-old Shasta Ventures, who was introduced to Nest founder Tony Fadell eight years ago by fellow VC Stewart Alsop. (“He thought we’d like each other,” explains Coneybeer, who is a mechanical engineer by training and shares Fadell’s love of gadgets.)

    Once acquainted with Fadell, Coneybeer spent as much time with him as he could in the hope that one day they could work together. Last night, I talked with a clearly elated Coneybeer about his relationship with Fadell and his subsequent investment in Nest; what follows is a lightly edited transcript.

    Where does your story with Fadell start?

    I’ve been interested in mobile and hardware and investing in the Internet of things for a while, and when Tony left Apple, I kept in touch with him as he was investigating different ideas, including devices that use batteries to get recharged and what happens to those devices if you connect them to the Internet. So he’d been thinking about things, and we’d get together every two to four weeks to talk.

    When did it turn into more than that?

    Tony had gotten to know myself and some of my partners, and he’d developed relationships with a couple of different firms … When Tony became difficult to reach, I realized he might be starting something, and I basically pursued him and said, “I’d love to find out what you’re up to,” and I offered to sign an NDA. And he said, “You’d do that?” And I said, “Yeah, I never sign NDAs, but to learn what you’re up to, I would, absolutely.” A week or two later, he walked me through what he was up to, and I met the core team he’d pulled together.

    He went with us and with Kleiner [for Nest’s A round]. He’d known [Kleiner partner] Randy [Komisar] for a long time, and Randy has great experience in bringing consumer electronics to market [including as a founding director at Tivo].

    What was Shasta’s value-add to the company?

    It was a good personal fit. And having built [Shasta] around consumer and expertise around hardware companies, we were able to make great introductions, including to Best Buy and Lowe’s and other channel partners. We also helped with recruiting, in closing key candidates. Beyond that, it’s hard to provide a laundry list; Nest has such an accomplished team.

    Kleiner led the Series A round, but you say Shasta was a “significant participant.” Can you talk about what kind of return you’ll see from Nest’s sale? TechCrunch sources say it will return “almost all” of your second, $250 million fund, closed in 2008.

    I can only tell you that [the return will be] very, very, significant. I’m sorry I can’t be more specific, but you can write “very” three times.

    Is Nest your biggest exit personally? I recall that before Shasta, as a partner at New Enterprise Associates, you led an investment in the fiber optic switching company Xros, acquired by Nortel.

    That was $3.25 billion, so this is my second three-billion-dollar outcome. It does feel really good to build something from scratch [Shasta] and work really hard for 10 years to build a brand and to [be a part of] a product and outcome that people are really excited about. It feels like things are finally coming together.

    Are you even a teeny bit disappointed? I know you thought Nest could become a formidable standalone hardware business.

    I’ll just say that Google is acquiring the best hardware team on the planet. In terms of designing high-quality, durable, consumer hardware, you can’t name a better team.

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  • StrictlyVC: October 8, 2013

    110611_2084620_176987_imageGood morning, and happy Tuesday!


    Wall Street is showing puzzlingly few signs of panic that we’ll default on or debt. Meanwhile, Silicon Valley seems to be paying even less attention. But it’s time to freak-out, argues Dealbook’s Andrew Ross Sorkin.


    Silicon Valley’s ‘Undertaker’ Doubles Down, Too

    Everyone in Silicon Valley seems to be wearing more than one hat these days. Venture capitalists are active startup founders. Active startup founders are raising venture funds.

    Even Sherwood Partners  – a 30-person company that industry insiders long ago coined “the undertaker” because of its decades-long history of shuttering companies – has launched a second business. Called AgencyIP, it’s a platform for selling the patents, trademarks, and other intellectual property of failed startups that Sherwood unwinds.

    I caught up with Sherwood founder Marty Pichinson yesterday at his Mountain View, Calif., office to learn more, as well as see how Sherwood is doing in these boom times.

    When we last talked a couple of years ago, people thought so-called “winter” was coming for startups. It did not. Has that been bad news for Sherwood?

    Not at all! After more than 20 years in the business, we now have VCs bringing us in earlier where they really want management to focus on tomorrow and let us take care of hiccups or financial problems that can take a company off track. We’ve been doing a lot more corporate restructuring.

    What kind of hiccups are you ridding companies of?

    It can be anything. Sometimes they made a bad deal for equipment, or they paid people to [take the company one direction] and now they’re going another way. VCs will bring us in before raising a new round so we can help reduce any unsecured debt first.

    Beyond renegotiating equipment leases and analyzing who to cut, what else can you do in this kind of roaring economy? Is it impossible to work out cheaper rent right now, given low vacancy rates?

    Nothing is impossible. We’re kind in what we do. If you’re a jerk in life, people don’t want to work with you. Even though we’re renegotiating debt, maybe you’re talking about a few months. If everyone pitches in a little, there’s a better chance that the company will make it.

    What’s the failure rate right now? Has it changed because of all the seed-funding we’ve been seeing?

    Nah. About 2,000 companies are funded per year and about 20 percent of those companies exit, meaning 1,600 [fail]. Maybe it’s because your customers aren’t coming in fast enough, or another player has beat you to market, or your board members don’t have the resources to re-up anymore and they’d sooner walk away and save their dry powder.

    Right now, I’m closing a 12-year-old company that raised $227 million. It needs $40 million more but its investors are tired. Do you put it in this company or put it another? It’s all about placing bets.

    Why launch AgencyIP?

    We probably sell more orphaned [intellectual property] than anyone around. We launched the company eight months ago and we already represent more than 1,800 patents, including from CBS and Showtime and other Fortune 500 companies. We’re like William Morris, negotiating the best deals possible for the IP we have [along with finding ways to repackage it]. We can take two patents that aren’t the best in the world, for example, and put them together and they can become better.

    Who’s buying what, and what’s the range of how much they are willing to pay? 

    Our offices are full of people all the time, so we have excellent relationships with everyone. And we’ve had IP sell for $500,000 and we’ve sold it for between $25 million and $30 million.

    You’ve seen plenty of cycles. Where are we in this one?

    To me, there’s never been storms or halos. Someone is always reinventing something. These young people can see through time. Who ever thought that Facebook would be what it is — or Amazon, or Google, or Twitter?

    Change is continuous and every four or five or six years, there’s a paradigm shift to where smart people think the new deals will be and as part of that readjustment, you get rid of the old things. Maybe you shouldn’t bail out. But you can’t hold on to everything forever.


    New Fundings

    Appoxee, a 2.5-year-old mobile engagement platform based in Tel Aviv, has raised $1.8 million in seed funding led by Lazarus Israel Opportunities Fund and individual investor Mosche Lichtman. Previous investors Cyhaw Ventures and Oryzn Capital also contributed to the funding, which brings the total amount raised by the company to $2.4 million.

    Basis Science, a two-year-old, San Francisco-based smartwatch maker, has raised $11.8 million as part of a Series B round it began raising earlier this year, when it collected $11.5 million. Together, with the company’s Series A funding, Basis Science has raised $32.3 million from investors, including Mayfield FundDCMNorwest Venture PartnersIntel CapitalDolby Family TrustStanford University and Peninsula-KCG.

    Pacejet Logistics, a 36-year-old, Columbus, Oh.-based company whose shipping software connects a customer’s order processing system to a network of shipping carriers, has raised $4.5 million in Series C funding led by Athenian Venture Partners.

    Personalis, a two-year-old, Menlo Park, Calif.-based company that sells genome sequencing and analysis services to life-sciences researchers, has raised a $22 million B round that brings its total funding to $42 million. Investors in the company include Lightspeed Ventures PartnersMohr Davidow Partners, and life science investor Abingworth.

    Sparkcentral, a two-year-old, San Francisco-based company whose customer service platform aims to help big companies monitor and manage complaints from social media sources, has raised $4.5 million in Series A funding led by Sigma West. Previous backers also participated in the round, including Social+Capital PartnershipGraph Ventures and Sebastien de Halleux, co-founder of Playfish.

    Swirl Networks, a year-old, Boston-based developer of a location-based iPhone app that helps retailers engage with consumers while they shop, has raised $8 million led by Hearst Ventures. The round also included funds from previous investors SoftBank Capital and Longworth Venture Partners.


    New Funds

    Montage Capital, an early-stage firm focused on investing in financial services, e-commerce, and resources (like energy, food and water) companies that are between their angel and Series A rounds, has raised $2.2 million in funding, according to an SEC filing. Montage, based in Menlo Park, Calif., was founded by Todd Kimmel, who was most recently a general partner at Mayfield Fund, which he joined in 2009. Before Mayfield, Kimmel worked as a principal at Advanced Technology Ventures.

    Thrive Capital Partners, a Peoria, Ill.-based firm that looks to develop and buy companies that offer a positive social impact, is seeking up to $10 million for a new fund, according to an SEC filing. The outfit, which began fundraising late last month, has so far raised $450,000​.

    The Entrepreneurs’ Fund III (TEF3), a San Mateo, Calif.-based, early-stage, IT-focused venture fund, is looking to raise $100 million for a fund called Entrepeneurs’ Fund IV, shows an SEC filing. TEF3 was founded by Jeffrey Webber, a founding partner of R.B. Webber & Co., a Mountain View, Calif.-based management consulting firm that went out of business in 2004, 13 years after it was founded.



    Publicly traded ad management company Digital Generation has acquired a four-year-old, Santa Monica, Calif.-based company called Republic Project for $1.4 million in cash. Republic Project operates an ad campaign platform and raised $1 million in funding last year from 500 StartupsGoogle VenturesVenture 51 and individual investors.



    Reuters takes a look at how hard it is for even professionals to make money off IPOs once a company is out.

    The hot IPO market isn’t doing much to boost M&A, either, reports Venture Capital Dispatch.



    Jason Goldberg and Nishith Shah, the CEO and CTO of troubled online retailer Fab.com, have told staffers (and AllThingsD) that they are forfeiting their 2014 salaries. Fab has raised more than $300 million in venture capital from Menlo VenturesAndreessen Horowitz, and Atomico among many others; the company has raised another $30 million in debt.

    John Martin, a Baker Botts attorney who has been serving as chair of the firm’s technology practice, was just named Partner in Charge of the firm’s Palo Alto office.



    Place, a day-long conference centered around indoor marketing, starts around 9 a.m this morning in San Francisco. You can find details here.

    If you’re in the Bay Area, you might also want to hit up the Ritz Carlton at Half Moon Bay, for the second day of Venture Alpha West, which kicks off at 8:15 with a keynote by Tim Draper of Draper Fisher Jurvetson.


    Job Listings

    The pharmaceutical company Merck announced last week that it’s laying off 8,500 employees and cutting $2.5 billion in costs over the next two years. But, good news: it’s still looking for an associate director for its Digital Innovation and Outreach team — a role that requires building relationships with venture capitalists, startups, academia and “thought leaders.” A bachelor’s degree and some exposure to venture capital or private equity is required. The job is in Palo Alto, Calif.


    Essential Reads

    Twitter could be valued at as much as $20 billion once it begins trading.

    Facebook is building a 394-unit residential community for its employees, just a stone’s throw from its Palo Alto campus. Aside from the creepiness factor (and undeniably, there is one), you might be interested in knowing exactly what the development’s plans look like.

    Nest could help transform people’s homes —  if they don’t choke over the $129 price — says Wired’s Steven Levy.

    Google‘s executive chairman, Eric Schmidt, tells a crowd that Android is “more secure than the iPhone.” (The crowd does not buy it, seemingly.)



    More evidence that you should eat five times a day.

    Amazing pictures by photographer, world traveler, and serial trespasser Bradley Garrett.

    Whatever you think of Supreme Court Justice Antonin Scalia, this is a great interview with him.


    Retail Therapy

    In our youth, we had a place for these kinds of sweaters: the Ugly Sweater Drawer. Still, if you’re easy on the eyes and under 35, you can probably pull off one of these retro numbers. (Older than that and the look is really no longer ironic.)

    This is pretty cool, though we don’t advise it for the office. You’d probably feel pretty stupid, getting yourself fired for shooting a rubber band, or 600 of them, at your coworker.

    Please feel free to send us any and all story suggestions (anonymous or otherwise) by clicking hereIf you’re interested in advertising in our email newsletter, please click here. To sign up for the newsletter, visit strictlyvc.com.

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