• Guild Education Lands $8.5 Million in Series A Funding Led by Redpoint

    screen-shot-2016-10-02-at-11-24-29-amAccording to a 2014 report from Complete College America, a nonprofit group based in Indianapolis, just 19 percent of full-time students earn a bachelor’s degree in four years at public universities. The stats are even worse at community colleges, where five percent of full-time students earn an associate degree within two years, and just 15.9 percent earn a one- to two-year certificate on time.

    Some of why students are taking longer to graduate centers on the lack of a clear planning, changing majors, changing universities, and taking unnecessary courses, suggests a variety of research. But Rachel Carlson, the cofounder and CEO of Denver-based Guild Education, says there are plenty of non-academic factors at play, too, including soaring tuition costs and shift work that can interfere with community college class schedules.

    Indeed, to help those many students who are working their way through college, as well as help companies that recognize the importance of helping employees realize their full potential, 16-month-old Guild partners with employers including Chipotle to offer education as a benefit, right alongside healthcare.

    How does it work?  The IRS already allows for employers to offer up to $5,250 annually of tax-free education to help any employee as long as the benefits “are provided by reason of their employment relationship.” Employers can also pay beyond $5,250 if they like, though employees generally have to pay tax on the additional amount. (Qualified employees can also apply for an additional $5,815 in available federal grants.)

    More here.

  • Chris Moore of Redpoint Ventures: The Market Feels “In Flux”

    Screen Shot 2016-09-02 at 12.45.02 PMChris Moore is an increasingly rare breed. At the founding of Redpoint Ventures 17 years ago, Moore joined as an associate and — unlike today’s associates who often are cycled in and out of venture firms — he was made a partner. Since then, Moore has led deals in numerous companies that have gone on to sell for sizable amounts, including Auditude, acquired by Adobe; Right Media, acquired (and later shut down) by Yahoo; Efficient Frontier, acquired by Adobe; and Blue Kai, acquired by Oracle.

    He also led Redpoint into Refresh, acquired earlier this year by LinkedIn for undisclosed terms.

    Earlier today, before leaving Redpoint’s Sand Hill Road office for the long weekend, Moore talked with us about what he’s seeing in the market right now and why it “feels like it’s in flux.” More from that chat, edited for length:

    We’re sort of confused about what’s happening out there these days. 

    I know, it isn’t really clear right now which way the market will go. We had a real run-up last year and the year before, with lots of money coming into the system and momentum investing and all the unicorn hoopla. Then, late last year, it started to feel a little more discriminate, I think in part because the funding ecosystem was just getting exhausted.

    The beginning of the year felt particularly grim, but it appears things are moving full speed ahead again.

    In January and February, we had that public market hiccup, and we all said, “Ooh, this is it. It feels like the start of the correction.” And it didn’t really happen. Interest rates are still low and tech is still the one place where there’s growth in the world and investors are still looking for growth.

    I do think there’s more focus on the fundamentals, and that translates from the later stage growth market all the way down to the Series A market. I think we’re even starting to see it a bit in the seed market.

    It seems like there are still an awful lot of companies getting funded.

    The pace has slowed a bit over last year, but not a lot. Still, I know we’re more focused on the “show me” rather than the “tell me.” We’re looking for market validation and proof points in the form of customer momentum and evidence that the business model can work.

    Are terms changing?

    No, not at the Series A stage. If you start asking for [onerous] terms, it’s hurts the company and it hurts us, because your next set of investors are going to say, “Hey, they got those terms at the Series A; we want them, too.”

    Are Series A valuations down?

    More here.

  • 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.

  • Duo Security Raises $30 Million More, Led by Redpoint

    Jon OberheideDuo Security, a five-year-old, 100-person company that sells its cloud-based two-factor authentication software to thousands of organizations, including Facebook, Twitter, NASA and Uber, has just raised $30 million in Series C funding led by Redpoint Ventures, with participation from Benchmark, Google Ventures, Radar Partners and True Ventures. (The Ann Arbor, Mi.-based startup has now raised around $50 million altogether.)

    Last week, we chatted the Duo Security’s cofounder and CTO, Jon Oberheide, about how his company is using mobile devices as a second form of authentication, and what comes next.

    Some major company’s information is breached every week it seems, yet there are also other two-factor authentication services out there tackling the problem. What makes yours different?

    First, we think the existing security is broken. Underlying information technology has shifted out underneath existing security technologies and they aren’t relevant anymore. In the past few decades, your security model was built within the physical walls of your organization, then people began accessing the same device but they weren’t necessarily in the building, which made phishing for those employees’ names and passwords easy. Poor hygiene across multiple sites was the problem we were trying to solve, and we succeeded in ensuring that your identification couldn’t be stolen.

    Then mobile devices came along and now everyone uses their own favorite products.

    Yes, and those mobile devices aren’t under the control of an IT administrator. You have these cloud services that are being controlled by third parties. IT departments have gone from saying “no,” to partnering with [various parties] to ensure their [devices’] secure enablement.

    And you have a new edition that you say works even better than what your customers have been using. How so?

    Our new platform edition allows companies to establish what security policies are acceptable and customize protection at the point of entry. It can stop break-ins regardless of whether hackers have a user’s name or password by analyzing a company’s policies for each log-in attempt, including the location of the user, the reputation of the IP address, and what level of device health they want to admit into their enterprises. It addresses, for example, the employee who might forget his phone at the bar. A company can require that a full encryption and screen lock [are activated] to prevent someone else rom picking it up and trying to access corporate information. Or, if you’re a domestic company whose employees primarily log-in from Starbucks, you might want to block access to China or Russia, where a lot of hackers come from. You just click a box and it’s done.

    How much more will this new edition cost customers?

    On a per user, per month basis, we currently charge $3; our platform edition wil cost $6 per user per month because we’re providing a lot more value to companies that we think justifies [the price hike]

  • Ryan Sarver on Life as a VC, Twitter’s Future, and Why Startup Spillover Out of SF is Inevitable

    Ryan-Sarver5By Semil Shah

    It’s been nearly a year since Redpoint Ventures appointed Ryan Sarver, Twitter’s former Director of Platform, as a partner. At the time, Sarver was making the occasional angel investment, but he has spent the last 10 months or so getting up to speed as a formal, full-time investor. We caught up with him last week to find out how it’s going.​

    You recently left Twitter for Sand Hill Road. What was the process like talking to VC firms? What about the process do folks on the outside perhaps not fully appreciate?

    Originally my plan when I left Twitter last year was to take three to four months off and then start something on my own. I had a few ideas brewing that I was curious about and if you had asked me, there was no doubt in my mind that was what I was going to do.

    When I signaled that I was leaving Twitter, a few firms reached out to talk — some about EIRing and some about doing investing full time. I was still pretty focused on starting something in the fall, but after spending the summer getting to know the Redpoint team, I started to seriously consider the role. I spent a lot of time thinking back through my career to what I felt most fulfilled by and realized that I most enjoyed the early, foundational days of a company. Team building, vision setting, figuring things out when you have almost no information and no resources. I didn’t enjoy being part of a larger organization as much and realized that venture could be a way for me to do more of the parts that I loved and less of the parts that I didn’t.

    I think the most unique thing about the hiring process is that, unlike a startup, you’re being hired into a partnership which makes the process fairly complicated. There isn’t a single hiring manager but many, and your time horizon is much, much longer. It’s a more complex process in many ways, but rightfully so.

    What are your first few deals as a VC, and how did you go from “interested” to “having conviction” as an investor?

    I’ve done two deals so far, but only one, Secret, has been announced. I think the idea of having and maintaining conviction has been one of the hardest parts for me in the role. It’s much easier when you’re an individual making angel investments to find founders and companies that you get passionate about. It’s a whole other thing to do it as part of a partnership with much bigger checks. To me the difficulty is in the lack of information and time in a deal. Founders are dealing with very imperfect information and they are living and breathing the space. As an investor, you’re getting to spend very little time with a team before you have to make a call. Naturally, I’ve found the deals that I have the most conviction about are the ones where I am coming to the deal with a lot of background in the space. There are a million reasons companies can fail, so you have to find the few things about the team and their approach that you can hang your hat on and that give you optimism that this one is going to beat the odds.

    As someone with deep experience at Twitter, do you believe Twitter can grow its user base?

    I think of it like “could Twitter as a product be valuable to more than 300 million people” and I have no doubt that that’s true. In many ways, I think it can be more widely applicable than Facebook even. Twitter is a real-time information service, similar to news, with messaging layered on top of it. Twitter’s biggest problem is twofold. First, it needs to better explain itself to the masses so that the next billion users know why they should be using Twitter. Everyone has heard of Twitter, but most people have no idea what role it fills in their lives. For those of us who have figured it out, it’s magical, invaluable and addictive.

    Second, the product itself has to be more understandable to the masses without losing its soul. Tons of people have signed up for the service only to churn out because they don’t get value from Twitter. I don’t think this is a reflection of whether or not they can get value from Twitter, but instead a failing of the product to make it easy for the average user to get that value. Really it comes down to helping them find great accounts and delivering relevant content to them quickly. They have a huge challenge in front of them to accomplish those things, and I don’t think there is a silver bullet for them, but I feel strongly that it’s a product that could touch a billion users.

    Give us an idea of how much time you spend in San Francisco versus the Valley.

    I’ve gotten asked this a lot recently and I think the prevailing thought is that all deals have moved up to the city and out of the Valley. While it’s definitely true that there has been a big shift to the city, I’m still seeing some great deals down in the Valley. An overwhelming majority of consumer and mobile deals have moved to the city, so if those are the only deals you’re looking at, then you’re in the city 90 percent of the time. With that being said, we’ve seen some great deals down in the Valley [that] are typically more focused on b2b and infrastructure. RelateIQ and Jaunt, two of our more recent b2b deals, are both based down in the Valley, for example, whereas Secret, Coin, and HomeJoy are three recent consumer deals up in the city. On an average week, I’m probably splitting my time between Menlo [Park] and San Francisco.

    Residential and commercial real estate in the city continues to get crazier and crazier, and I do think you’re going to see that trend push some new companies to open their first offices outside of San Francisco.

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  • Scribd CEO Trip Adler on Books, Froth, and the Company’s Next Round

    Trip AdlerScribd has had a circuitous arc. Started in San Francisco in 2007, Scribd’s original concept was to allow anyone to take any kind of written content and slap it on the Web. (Fifty million documents have been uploaded since.) By 2009, it was also running an electronic book market, allowing authors and publishers to upload their works, then set their own price for them and keep most of the revenue. In 2011, Scribd also launching a news reading app called Float. (It later folded Float back into the company.)

    But the company thinks it has struck on its most promising transformation yet, as a digital lending library that charges $8.99 per month for unlimited access to roughly 100,000 titles from publishing partners like HarperCollins that can be read on pretty much any kind device.

    The company is about a year into the shift, though it only announced it in October of last year. Earlier this week, I talked with cofounder and CEO Trip Adler to see how it’s going – and whether Scribd might raise more funding to move past competitors (including, potentially, Amazon) that also want to become the Netflix of books.

    What can you tell us about how your new business is going? Are you releasing subscriber numbers?

    We aren’t, but they look good. Since launching a little over a year ago, the [number of subscribers has] been growing 50 to 100 percent each month. I haven’t seen anything grow quite this fast [at Scribd].

    Your business is increasingly reliant on subscriptions, whereas your document sharing business is largely ad supported. How much of that $8.99 is going in your pockets versus publishers whose books you’re renting?

    We pay publishers based on reading activity, so if a customer reads a book, we pay the publisher for the book.

    That seems like an expensive proposition. How much do the books cost you?

    Some of the romance books might cost a few dollars; some of the best-sellers can cost up to $15. We have some power readers who will read many books in one month, but the typical user reads a book a month, and we’re optimizing around the average user, who costs us less [than the $8.99 monthly subscription fee]. The model has been profitable since we launched it.

    You’re gathering a lot of data about how people consume books, including what prompts them to skip ahead, and whether people are more likely to finish biographies than business titles. Will you start charging publishers for these analytics?

    Analytics isn’t part of our business model yet. So far, we’re just sharing it with publishers very openly, but it could be something down the road that we turn into a business model.

    How are you marketing this new service?

    Most of it has been organic; we have 80 million monthly active users, so we’re mostly marketing it to that audience, and growth hasn’t been a problem. We’re also starting to do more paid ads, and we’re talking to journalists like you.

    How big is Scribd at this point, and is it profitable?

    We have 55 employees, mostly in engineering and design. And we’ve been profitable for a while and growing revenue pretty steadily – 90 percent year over year since we started the company.

    You’ve raised $26 million so far, with your most recent, $13 million round closing in 2011. Are you back in the market or will you be soon?

    We might fundraise if it feels like we have a use for the cash, but it hasn’t been a priority for us. Right now, we’re just focused on making the product the best that we can.

    People are throwing a lot of money around right now.

    Things do seem frothy to me. The valuations that companies are getting are just crazy. For that reason, it could be a good time to fundraise. If you can build a company and get it profitable, funding comes naturally, though. It’s harder to build a profitable business than to raise money.

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