• A Strange New Battle Begins Over Who Owns Cruise Automation

    Screen Shot 2016-04-14 at 4.52.59 PMA strange new battle over valuable startup equity took another step forward late yesterday afternoon.

    Jeremy Guillory, a Bay Area mechanical engineer, has filed a cross-complaint against 2.5-year-old Cruise Automation and its longtime CEO, Kyle Vogt. At issue: Guillory says that the self-driving car company — which developed an autopilot system for existing cars and is being acquired by General Motors for reportedly north of $1 billion — is cheating him out of his rightful 50 percent ownership stake in the business, which he says he helped form. (In legalese, Guillory is accusing Vogt and Cruise of promissory estoppel, conversion, unjust enrichment and accounting.)

    You knew this counter-claim was coming Wednesday, when the president of Y Combinator, Sam Altman, tried to get ahead of things publicly in a blog post.

    As you may have read then, Altman, who has known Vogt for years and whose accelerator program provided Cruise its first check, acknowledged that Gillory “collaborated with Kyle for a very short period early on in the life of Cruise.”

    Some time in the weeks since GM announced it was buying the company in mid March, Guillory requested a percentage of Vogt’s equity in the company, even though, according to Altman,  “Kyle and Jeremy parted ways” after roughly one month of working together. “This event happened more than two years ago, and well before the company had achieved much of anything.”

    The matter was private at first, with Vogt making what Altman described as an “extremely generous offer to settle this claim,” presumably to keep it from derailing Cruise’s acquisition. When Guillory didn’t accepted Vogt’s offer by a deadline last Friday, Vogt hired the law firm Orrick, Herrington & Sutcliffe to sue Guillory for so-called declaratory relief.

    Guillory’s new cross-complaint seems to confirm Altman’s account from yesterday (which itself echoes Vogt’s suit).

    The filing acknowledges that Guillory and Vogt first met in mid October 2013 and began working on Cruise. By October 21, 2013, they had submitted an application to Y Combinator, whose deadline that year was October 31. By November 7, 2013, after the duo had been accepted into the accelerator, Vogt told Guillory that he no longer wanted to work together.

    Guillory’s attorneys note that on that print application to YC, Guillory and Vogt list themselves as co-founders and 50 percent shareholders of Cruise.

    That seems to be the only documentation Guillory has to support his claim, along with this one-minute video, which Guillory and Vogt also submitted as part of their application. Whether it’s enough could determine whether or not Guillory is entitled to up to hundreds of millions of dollars.

    More here.

    Connie

    , ,
    , , ,

  • Y Combinator Tells VCs Not to Worry About Its New $700M Fund

    Twitter_AliAlmost a year-and-a-half after Ali Rowghani resigned as COO of Twitter, he’s been appointed the head of Y Combinator’s growth fund by the organization’s president, Sam Altman.

    TechCrunch had heard whispers of the move earlier this week, but Altman made the announcement official earlier yesterday, tweeting of Rowghani that he’s a “wonderful partner to help companies scale.”

    Rowghani joined Y Combinator as a part-time partner back in November of last year. Earlier in his career, from 2002 through 2008, he served as the CFO of Pixar. (Rowghani had joined Twitter as CFO from Pixar but was made COO in 2012.)

    Yesterday, we hopped on the phone with Rowghani to discuss some of his plans moving forward.

    Most notably, Y Combinator will be leading investments in startups with its new growth capital, which is coming in part from Stanford University, Willett Advisors, and TrueBridge Capital Partners, according to the Wall Street Journal. Indeed, as TechCrunch reported early this week, YC is the lead investor in Checkr, a San Francisco-based startup that runs background checks and vets potential hires for fast-growing startups. The company is raising at least $30 million in Series B funding, at a valuation north of $250 million.

    For VCs who haven’t had to compete with Y Combinator in later-stage rounds, this is a Big Deal.

    More here.

    Connie

    ,
    , , , ,

  • Having Won Over VCs, Y Combinator Turns to LPs

    y_combinator_logo_400-400x220Last week, Y Combinator ran investors through 105 presentations by early-stage startups in a two-day show it calls Demo Day. The pace of deal-making for such events, staged every summer and winter, has grown so feverish that the incubator introduced a new wrinkle: backers could commit to plowing millions into a company by simply clicking the equivalent of an “easy button” via an online dashboard that Y Combinator created.

    Many local VCs seemed too busy to notice. Brian O’Malley of Accel Partner was walking around on his phone. Jon Sakoda of New Enteprise Associates made the rounds. Hunter Walk of Homebrew looked to be taking a couple of meetings, too.

    Yet there were other, more surprising guests. There, in the front row, was “Stevie” Cohen, the famed hedge fund manager. Elsewhere in the audience, a money manager for Major League Baseball sat rapt, listening to the procession of startup presentations.

    Perhaps the most interesting category of attendee, though, were more traditional limited partners, who typically invest in venture and private equity funds.

    Indeed, while it used to be that VCs treated their LPs a bit like mushrooms, keeping them mostly in the dark, today’s LPs want to be closer to the action, and for them, Y Combinator is Ground Zero.

    More here.

    Connie

    ,
    , ,

  • With Newest Program, Y Combinator Looks to (Eventually) Fund 1,000 Startups a Year

    y_combinator_logo_400-400x220For better or worse, Y Combinator is putting the pedal to the metal.

    On the heels of some of its biggest classes to date, the well-known accelerator yesterday introduced yet another new program. That initiative? The YC Fellowship program.

    The broad strokes are as follows: About 20 teams that are “very, very early” and haven’t yet received funding elsewhere will be chosen by Y Combinator to receive a $12,000 grant. The teams can be based anywhere.

    Much more here.

    Connie

    , ,

  • Another Hardware Fund Emerges: Meet Root Ventures

    Root VenturesYou may have noticed: Hardware investing is in vogue. Andy Rubin, creator the mobile operating system Android, recently launched Playground Global to advise device makers in exchange for equity. Formation 8 is raising a $100 million hardware-focused venture fund. That’s saying nothing of the seed-stage fund Bolt, which raised $25 million a few months ago, and the numerous accelerators now focused on backing hardware startups, including Haxlr8r, Lemnos Labs, and Highway1, which is an offshoot of the custom design manufacturing company PCH International.

    Now, the Bay Area has yet another entrant on the scene: San Francisco-based Root Ventures, which just closed its debut, hardware-focused fund with $31,415,927 (the first 10 digits of Pi), capital that it raised from a gaggle of high-net-worth investors along with the fund of funds manager Cendana Capital.

    Root Ventures is a single-GP fund founded by Avidan Ross, a trained engineer who was previously CTO of the private equity firm CIM Group. Ross isn’t widely known (yet) in press circles, but a growing number of venture capitalists and entrepreneurs have grown acquainted with him through the roughly 10 bets he has placed in recent years with the help of his friends’ capital.

    Some of Ross’s older bets include Wallaby Financial, a mobile finance company that was acquired by Bankrate in December for an undisclosed amount. Another is Skycatch, an aerial robotics platform that received its first check from Ross and which has gone on to raise $24.7 million altogether, including from Google Ventures. Ross also wrote the first check for Momentum Machines, a company whose robots turn raw ingredients into packaged hamburgers without human intervention. It just raised an undisclosed amount of follow-on financing from Founders Fund.

    “I don’t think people were investing in me based on my individual track record as an angel,” says Ross. “Those investing in me know me from a previous life [as CTO] of a pretty large investment firm where I built a lot of great relationships with people who trust my ability to invest in great technology.”

    Ross, who raised much of his new fund late last year, has made three newer investments on behalf of Root Ventures, where he plans to make concentrated bets, and to write first checks in the range of $500,000.

    The most recent of its portfolio companies is operating in stealth mode, but it’s easy to see the appeal of the others. Mashgin — company Ross met through entrepreneur friends — has developed an automated checkout kiosk machine that employs computer vision to identify any object on a surface (down to the different-flavored Snapples, says Ross). The big idea: to create a far more seamless experience for shoppers.

    The company graduated late last year from Y Combinator and is about to announce a “significant” amount of follow-on funding, says Ross, who wrote its first check.

    Ross also invested in Prynt, which makes a smartphone case that prints out photos. He met the company during his honeymoon in China. The young company was operating out of the Haxlr8r accelerator in Shenzhen, “and I asked if I could take a three-hour break and visit with the companies. I immediately thought: ‘This is amazing.’”

    If you don’t understand why a printing up a digital photo might be interesting, Ross says Prynt’s opportunity goes “above and beyond printing out a polaroid. When you print a photo, you’re basically printing up the last frame of a 10 second video. With Prynt photos, you hand them to someone else, they point their phone at the photo, and the photo becomes alive [by featuring those full 10 seconds]. It’s like a Vine that only that person can watch. It creates privileged access.”

    Others must like it, too. Prynt recently raised $1.5 million in a Kickstarter campaign earlier this year.

    Ross says the company also just raised a “sizable seed round that’s unannounced. An earlier SEC filing suggests the amount is $2 million.

    Connie

    ,
    , , , , , , , , , ,

  • The Muse Raises $10 Million (and Turns Away $10 Million)

    Kathryn MinshewThe Muse, a 3.5-year-old New York-based career site that offers job opportunities, advice, skill-building courses, and video profiles meant to show what it’s like to work at different companies, has just raised $10 million in Series A funding from Aspect Ventures, DBL Partners and QED Investors.

    Co-founder and CEO Kathryn Minshew says the platform, which is largely used by millennials – 65 percent of them women and more than 50 percent nonwhite — could easily have raised $20 million.

    We talked yesterday about the fast-growing, 33-person company — and what happened out on the fundraising trail. Our chat has been edited for length.

    You founded the Muse with two other women, Alex Cavoulacos and Melissa McCreery. How did you come together?

    We met while working at McKinsey, during my first first week on the job in the fall of 2008. Lehman had just fallen. There was a lot of upheaval. Even though McKinsey was a great educational experience, I realized I didn’t want to be a consultant. The three of us kept talking about what it would be like if you could get advice on your career and see inside companies before applying and we finally thought: maybe we should just start [our own career site].

    You say it’s taken off like gangbusters.

    It started off as a very basic content career site in September 2011, but we’d attracted 70,000 people to it in the third month. It wasn’t impressive looking, but based on that user growth, Y Combinator accepted us into its winter program and by the following summer, we had 100,000 people on the site each month. Now, 3.5 million people are visiting each month.

    Most are millennials. Our average user is 29, compared with LinkedIn, whose average user is 47. Sixty-five percent of our users are female, compared with LinkedIn, whose users are 55 percent male.

    Why is that?

    We think it’s partly because LinkedIn is more of a transactional networking tool; it isn’t a place where users feel like someone is looking out for their career.

    How is The Muse making money?

    The vast majority comes from recruiting; we now 300 companies listing jobs and corporate profiles on the site. Generally, companies are measuring their ROI by how may hires they’re making, how aware people are of their brands, and how many people engage with their materials, which we put together in part by sending a videographer into every company’s offices. We want users to see authentic, quality materials about what these workplaces are like. [Companies] just pay to sign up, and we take care of everything.

    What about content?

    We have a small amount of revenue that comes through content marketing. Our users are generally very willing to take our recommendations around career-related products and services, but we want to make sure anything sponsored is noted and that we don’t work with partners that we don’t think are relevant or up to our standards. Trust is an important part of our brand.

    What are some ways that you’re using all the data you’re collecting?

    We can tell that people who are interested in certain companies will probably like other types of companies that wouldn’t be obvious from the [mandate] and size of those companies. We can pull out when someone is open to looking for a job because what they’re clicking on and reading starts to change [and we can personalize the experience for them].

    The data is useful for employers, too. They want to be able to compare their recruiting efforts to other companies, so if they say, “We didn’t see as many applications for this role as we wanted to,” we can tell them, “We can see 1,000 people clicked on that role and 40 people applied. That conversion is substantially lower than your close competitor; maybe there’s something in the job description that isn’t communicating what you want it to.”

    How many markets is The Muse operating in currently?

    We’re actively serving jobs in eight markets right now, including New York, San Francisco, L.A., Chicago, D.C., and Boston. But we’re launching soon in Atlanta, Austin, and Houston, and we get nice – and angry – requests from Portland, Raleigh-Durham and other places asking why we aren’t there yet, so we’re investing heavily in expanding the number of cities we serve.

    How was fundraising?

    Even though the market is very good right now, you never know how it’s going to receive your particular company. But it was fun – even a bit crazy. The market is a little insane. People were aggressively pushing us to do things that didn’t make sense. I had to go to a lot of people who I really like and who would probably be very valuable and useful and say, “We’re not going to raise $20 million.”

    Connie

    , , , , , , , , ,

  • Battery Ventures and Venrock Back 6Sense with $12 Million

    Amanda Kahlow. photoA lot of bets are being made these days on the thesis that most enterprise products don’t make users’ lives easier or help them do their jobs better. “I doubt you could find a single sales rep who really enjoys using Salesforce,” says Roger Lee, a general partner of Battery Ventures. “What a [customer-relationship management] product should do is tell you which leads are likely to close this quarter, what products they’ll buy, how much they’ll spend, and whether they’re candidates for upsell opportunities.”

    Lee — who likens Salesforce’s offering to “basically a filing cabinet” — is putting his money where his mouth is with 6Sense, a year-old, 15-person company that helps enterprise customers like Cisco and Pure Storage to determine an account’s overall propensity to buy, help them predict where their prospects are in the buying cycle, and surface new prospects. In fact, this morning, 6Sense is announcing a $12 million Series A round led by Battery and Venrock. I talked with its CEO and cofounder, Amanda Kahlow, late last week to learn more.

    You say you figured out the market fit for 6Sense at your last company – a Web analytics consultancy – but had to figure out the technology piece.

    A lot of really smart technical founders build [a technology] in search of a business case. We were the opposite. We were a business case looking for a platform. Thankfully, at one meeting with a venture firm, a firm’s CTO [pointed me to] GrepData, a [big data analytics startup that went through the Y Combinator incubator program in late 2012], and when we came together, it was a match made in heaven. I couldn’t be blessed with a better technical cofounder [than GrepData cofounder Premal Shah].

    You have lots of competition. How do you differentiate 6Sense from the many other startups doing predictive analytics?

    We live in a world where people leave behind a digital footprint, and in the consumer world, that helps companies like Amazon know what you want, likely before you know you want it. But in the [business-to-business] world, [no one has yet] solved the problem because of the complexity and irregularity of the data coming in. What everyone else is doing right now is asking: Is this the profile of the right buyer? But they aren’t asking: Is she going to buy now? Our magic is in taking time-sensitive data [and combining it with unstructured data, like activity on thousands of B2B publishers sites] along with [structured] behavioral data to create a behavioral catalogue to make sense of data across the Web.

    Why isn’t Salesforce doing what you do?

    The focus of companies like Salesforce has been around the efficiencies of workflow. Which email should you send next? How do you manage the buyer’s process? I do think Salesforce will want to do [what we’re doing], but it’s not trivial. It isn’t something a smart engineer can do tomorrow.

    This is your second company. You started your first about a dozen years ago, soon after you’d graduated from college. Why not work for someone else?

    I come from a family of entrepreneurs. My dad has been a lifelong entrepreneur, trying to make a go of different software technologies. One of my brothers runs an [e-learning company]; another brother runs a company in the B2B marketing space. [I credit] our dad’s entrepreneurial spirit. We also have a mom who told all of us — almost ad nauseam [laughs] — that we could be anything we wanted to be.

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

    Connie

    , , , , , ,

  • In Accelerator Wars, the Teacher Becomes the Student

    Dave McClureDave McClure once followed Y Combinator’s moves closely, looking to emulate parts of its structure. Now, the famed, nine-year-old tech accelerator looks to be playing catch-up with Dave McClure.

    This week, for example, Y Combinator announced it would start running its Startup School, a one-day networking event, in New York and London. Y Combinator, which will continue to run its three-month sessions from its headquarters in Mountain View, Ca., is casting a wider net because “if we focus on the U.S., we miss maybe 95 percent of the best founders,” said the outfit’s new president, Sam Altman, at a TechCrunch conference in New York.

    Y Combinator also announced its intentions this year to “get bigger,” with Altman handed the reins by cofounder Paul Graham to grow it. Toward that end, the incubator has recently added six people to its roster of partners, and Altman says Y Combinator’s upcoming class could have upwards of 95 companies, making it the biggest in the program’s history.

    Y Combinator’s new initiatives have received a fair amount of attention. But they look oddly familiar to McClure, founder of the four-year-old venture fund and accelerator program, 500 Startups. Indeed, 500 Startups was premised on the idea that venture investing is far more scalable than widely believed, and that to really nab the best deals, an outfit has to go global.

    Each year, 500 Startups backs roughly 300 startups. Half of them pass through the firm’s three-month-long accelerator program, where they’re hosted at 500 Startup’s offices in San Francisco or Mountain View. (The outfit accepts roughly 30 startups each quarter, alternating between the two places.) 500 Startups also invests in another 150 seed-stage firms outside its accelerator program each year. About 20 percent of all of those companies are international, says McClure; 80 percent are U.S.-based companies, with roughly half coming from the Bay Area.

    Part of what makes 500 Startups work at its scale, seemingly, is that it’s investing in far more than ideas. Most of the startups it funds have a functional prototype. Most have customers at some scale. Some even have million-dollar-per-month revenue run rates

    It also believes in “failing on a budget, and failing quickly,” says McClure. (500 Startups invests a net $75,000 in each of its accelerator companies for a 7 percent stake.) And 500 Startups thinks investing is something that can be taught in little time to other people, who now represent the outfit’s interests around the world, including Brazil, India, Southeast Asia, China, and Mexico. “Some say it takes 10 years to become a great investor. We think it takes 20 decisions,” says McClure.

    We’ll see what happens. 500 Startups has yet to land an Airbnb or Dropbox – companies that have pushed the value of Y Combinator-backed startups into the tens of billions of dollars, at least on paper.

    Then again, 500 Startups is younger and has a promising portfolio, along with several big exits under its belt. Among them: the 3D printing company Makerbot (acquired for roughly $600 $400 million), the social marketing company Wildfire (acquired by Google for $350 million), and the video site Viki (acquired by Japan’s Rakuten for $200 million).

    500 Startups has closed two funds totaling $73 million so far and is now investing out of a third fund that’s targeting $100 million, shows an SEC filing.

    I ask McClure what he thinks of Y Combinator’s newest moves, and he says, laughing: “Welcome to the party, Sam.” But he also notes that, “We’ll have to work harder. We were hoping to have the international stage to ourselves for five years and it now it looks like it might have been four.”

    In the meantime, McClure takes some pleasure in noting that “we were the first out of the gate on a number of things that Y Combinator is just now paying attention to. I’m a huge fan of [Paul Graham] and Y Combinator itself,” he adds. “But I think we probably influenced their strategy.”

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

    Connie

    ,
    , , ,

  • The Startup Whisperer, Paul Graham, on Getting Back to Basics

    Paul-GrahamY Combinator cofounder Paul Graham spoke at the Launch conference in San Francisco yesterday afternoon in a “fireside chat” with the event’s founder, Jason Calacanis.

    While it wasn’t exactly a hard-hitting interview – these things are rarely intended to be – Calacanis managed to surface a lot during their conversation. Graham spoke at length about about Y Combinator’s earliest days, for example; addressed a couple of the controversies he has found himself embroiled in over recent months; and explained the rationale behind his decision to relinquish day-to-day control over Y Combinator. (He’s basically exhausted and wants his “brain back.”) Calacanis also asked Graham plenty about what indicates to him that a startup might succeed or fail. Here’s some of what Graham — whose platform has helped launch Airbnb, Dropbox, and Stripe, among more than 600 other companies — had to say:

    On one of the quickest ways to get crossed off the list during an application interview with Y Combinator:

    “The founders have to get along. If the founders hate each other, you’re in big trouble,” and it happens “very, very often,” said Graham. “You don’t know how good friends you are with somebody until you try to start a startup with them. That’s why it works so badly when you have some startup that’s started by some dude in business school who has this idea for some startup, and then he goes and finds some, like, 20-year-old meek, undergraduate computer science major to realize his vision, and that’s the founding team … If you go into a Y Combinator interview, and one of you looks in terror to the other one before answering questions, that’s one of our secret tells. Or if you roll your eyes while your cofounder is speaking, which has actually happened, or if you stand up your cofounder – like you don’t show up for the interview… these have all happened.”

    On a founder type that Graham may have misjudged earlier on his career:

    “The one thing is people who are very smart, but that’s it. People who are very smart but ineffectual. We used to have more faith in brains. It turns out you can be surprisingly stupid if you’re sufficiently determined. And anyone can tell this empirically. There are some parts of America where there are a lot of rich people and they’re not very smart – parts of Manhattan and Florida and L.A. You don’t have to be supersmart if you’re fearsomely effective.”

    Calacanis asked him the most important thing for startups to focus on:

    “There’s a meta answer to that,” said Graham. “The most important thing for startups to do is to focus, because there are so many things you could be doing, but one of them is the most important, so you should be doing that and not any of the others. So you should not be grabbing coffee with investors. When you want to raise money, you shift into fundraising mode and you go and raise money. You do not promiscuously meet with investors in the middle of the day when you should be working simply because they send you an email saying, ‘Hey, let’s grab coffee.’ There are a 1,000 things you could be doing, and only one of them is the most important … and you work on that.”

    On the essence of growing a startup:

    “You have to start with a small, intense fire. Suppose you’re the Apple I. I think they made something like 500 of those things. So all they had to do was find 500 people to buy these things and they launched Apple. Apple! So you’ve got to find a small number of people – it’s necessarily going to be a small number of people…who want what you’re making a lot… You don’t have to do any better than Apple and Facebook. You’ve got to know who those first users are and how you’re going to get them, and then you just sit down and have a party with those first few users and you just focus entirely on them and you make them super, super happy.”

    Calacanis also managed to back into a question about how Graham righted the ship when, in 2012, it began to seem that Y Combinator was accepting too many startups into the program for its own good. (Its summer 2012 class welcomed 80 teams.) Considering that Y Combinator intends to grow much bigger, and may even spread to other cities eventually, according to Graham, his answer seems noteworthy:

    “We thought, ‘Why does this batch suck so bad? Why do we hate our life?’ There were startups, like halfway through the batch, I still didn’t know what they were doing. And we were asking what went wrong and it was so obvious…It was N squared, specifically,” said Graham. “It would be no problem having that many partners dealing with that many startups, so long as they were sharded,” he added, referring to a programming word that means a horizontal partition. “So we redesigned YC to be sharded and it has been ever since and it works just fine. Like, 68 [teams], no problem … We have three siloes, each one overseen by a group of partners. So basically, it’s like three little Y Combinators. And we know little Y Combinator works.”

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

    Connie

    , , ,

StrictlyVC on Twitter