The research firm CB Insights recently put together its list of the 15 tech companies that had the best "exits" in 2013 — that is, they delivered the richest return for their investors, whether they were acquired or went public. Topping the list was Veeva Systems, for example, which raised just $4 million of funding and was worth more than $4 billion after its initial public offering.
Three Massachusetts companies showed up on the list, including Crashlytics, a company that produces tools that help the developers of mobile apps better understand why they crash. Crashlytics raised about $6 million from local angel investors and Flybridge Capital Partners, a Back Bay venture capital firm, before being bought earlier this year by Twitter. The deal was originally valued at just north of $100 million, including some cash, Twitter stock, and stock options, but at Twitter's current stock price, the payout has risen to about $300 million.
And the company might never have existed if not for a young associate at Flybridge, Victoria Song, who introduced the two founders of Crashlytics to each other at a dinner she organized in early 2011. Song also brought the deal to Flybridge, where it is on track to become the firm's biggest hit so far. (Because of Securities and Exchange Commission rules, Flybridge can't sell its shares of Twitter until next May — six months after the IPO.)
Here's how it happened...
Song put together a dinner for entrepreneurs and angel investors at Beehive in the South End, back in January 2011. (It was part of the Dart Boston event series.) Among the attendees: Wayne Chang, a serial entrepreneur who was juggling several different projects, and Jeff Seibert, who was running the Boston engineering office of the cloud storage company Box. (Chang says he wasn't on the invite list for the dinner, but crashed it. Song says doesn't remember inviting him.)
Song went out for lunch with Chang a few weeks later, where she learned that he and Seibert were considering working together on a startup. "I wanted to get my firm exposed, but Wayne refused to put a pitch deck together, since it was too early and he had no plans to fundraise yet," she explains.
"So I put the pitch deck together myself and pitched it to my team, and then convinced Wayne and Jeff to do a casual breakfast with [Flybridge partners] David [Aronoff] and Chip [Hazard]," in April of 2011. "...A lot of investors began circling the deal as it was getting put together, but I stayed close and was fortunate to have built trust with Wayne and Jeff from the beginning, so they were happy to have us as investors. The rest is history." Crashlytics announced its initial funding round of $1 million that fall; Song says that Seibert and Chang first met seven of their eventual backers at that 2011 dinner at the Beehive.FULL ENTRY
Maybe not yet. But another student-run investing group is about to start putting money into campus startups, this time at Tufts University. The Tufts Venture Fund, formed last year by students including Eric Peckham and Alexandra Halbeck, has been out raising money from Tufts alumni with an aim of reaching $300,000. Faculty advisor James Barlow tells me that "they've been successful in securing $150,000 for certain, and they may actually be in the range of $250,000."
The fund "will probably launch next semester, and begin making investments pretty soon after," says Barlow, who runs the Entrepreneurial Leadership Program at Tufts' Gordon Institute. Investments will initially focus on currently-enrolled students, as opposed to recent graduates, and will max out around $25,000. The university will have a right to veto the fund's proposed investments — a right "it hopes not to exercise," Barlow says.
The fund's objective, according to a description Tufts provided, is to "help the most promising founders launch strong and gain the early traction necessary to raise a larger seed round of financing from top angel or venture capital investors around the country." It will also help connect entrepreneurs with relevant mentors from the Tufts alumni network. Perhaps the best-known Tufts alum in the entrepreneurial realm is Pierre Omidyar, founder of eBay.
While the Tufts Venture Fund won't invest huge amounts of capital, Barlow says it could make the difference between a student deciding to chase her startup dream — or accept a full-time job instead. "This kind of third-party validation of an idea can be pivotal, in terms of students committing to their idea. Being able to say, 'I have a venture started, I've raised some money, and I'm showing some traction' is a pretty good reason not to take the job at Google or wherever," says Barlow.
The student investing team will include a mix of undergrads, grad students, and Tufts alumni.
But it sounds like this is a toe-in-the-water experiment for NEA — at least for now. Partner Dave Mott, right, who heads the firm's healthcare practice, will spend most of his time in Boston. But he isn't moving here. Partners Jim Barrett and Ed Mathers will also be using the new Cambridge office, but on an as-needed basis. All three partners focus on healthcare deals.
NEA has already been a pretty active player in Boston and Cambridge: about half of the firm's partners have put money into about two dozen companies locally, including Epizyme, Proteostasis Therapeutics, PatientKeeper, Philo, and Care.com. NEA has also been a supporter of the orphan drug accelerator Cydan, and was a founding partner in the Experiment Fund, which makes seed investments in student startups on the East Coast, and is based at Harvard. Last year, Dayna Grayson of North Bridge Venture Partners traded Waltham for Maryland to join the firm.
NEA is currently making investments out of a $2.6 billion fund raised last year. The firm invests in tech, healthcare, and energy companies.
Peter Boyce, an associate at General Catalyst who helps oversee Rough Draft, says the student team made 15 investments last year, but are "not announcing all of them yet, as some are remaining stealth." Boyce, a recent Harvard College alum, was part of the student team in 2012-2013, which was Rough Draft's first year of operation.
The first batch of investments included RequestNow, a song requesting service for DJs, and Tessel, an easily-programmable microcomputer that recently raised almost $200,000 on the crowdfunding site Dragon Innovation. Boyce says that the founders Rough Draft has backed have gone on to raise over $3 million in seed funding, and have been accepted to Y Combinator, the first TechStars Chicago class, Summer@Highland, and the Thiel Fellowship.
This year's group has been meeting weekly since mid-September at General Catalyst's Harvard Square offices. Rough Draft is holding a free event for student entrepreneurs this coming Monday.
The team this year includes:FULL ENTRY
Polaris isn't abandoning its long-time Waltham digs just yet; co-founder Terry McGuire tells me the lease there still has a couple years left, and some partners may prefer to work in the suburbs for the time being. "We're going to be in Waltham for a while," he says. "We'll have a presence in both places. We clearly want to have a stronger presence in the city, and we love what's going on in the Seaport area."
But Polaris partner Dave Barrett, who is overseeing the deal, says that the Boston office "will ultimately be our new headquarters." He says it is about 16,000 square feet, the majority of the 10th floor.
Polaris was an investor in LogMeIn, the remote access company that moved from the 'burbs to the Innovation District over the summer, and also Spindle, a startup based there that was snapped up by Twitter in June. Spindle co-founder Pat Kinsel is now an entrepreneur-in-residence at Polaris.
Polaris also operates a co-working space for entrepreneurs in Kendall Square called DogPatch Labs. That facility, which once offered free rent to select entrepreneurs, began charging occupants earlier this year. Barrett says the firm hasn't yet decided whether the DogPatch entrepreneurs will eventually move to the Marina Park Drive office: "We're still thinking that through, and working that through."
Will the last VC firm left on Mount Money turn out the lights?
"Students will have a unique perspective on these ideas and markets, as well as the teams building the companies," says Phin Barnes, the First Round partner who oversees the Dorm Room Fund. "We want to give them as much latitude as we can." Supervising the operation of the Dorm Room Fund, which already operates in New York, Philadelphia, and Silicon Valley, is CeCe Cheng, right. Cheng says the core of the Boston investment panel members will come from Harvard and MIT, "but we will also have an open application for students at other schools who want to be on the team." The panel meets weekly during the school year, and once a month over the summer. They are paid a two percent management fee to cover their operating costs, such as events and marketing.
Barnes says he hopes to see investments being made in Boston before Halloween. Most will be $20,000 or less. The investments are structured as convertible notes, a kind of loan loan that later turns into an equity stake when other investors come in. (With a convertible note, the company's valuation isn't set, so students won't have to haggle with their peers over what a startup is worth.) Any economic upside from eventual acquisitions or IPOs goes to First Round's limited partners and an entity that is designated by the students making the investments — like a campus startup incubator or a research center.
Barnes says that the Dorm Room Fund isn't intended to help First Round find promising investments sooner than other VC firms. "Some of the student teams will invest in areas we don't invest in, and some will invest in companies that wind up raising money from other VC firms," he says. The firm's goal, rather, is to build relationships with future entrepreneurs. "There's a chance that Dorm Room Fund will find the next Airbnb or Dropbox or Facebook," he says. "But the real benefit, I think, is if we can create a community and give them a little flavor of what First Round is like. Some of them will reach out to us when the time is right."FULL ENTRY
Boston office of Russian Venture Company is raising new $200 million fund to back Russo-American businesses
That's a big change for RVC-USA, as it is known, which so far has operated on a $2 million annual budget to "do outreach" to the venture capital and entrepreneurial communities here, in the words of CEO Axel Tillmann, which includes trying to persuade U.S. venture capital firms to put money into Russian businesses seeking to establish a foothold in the U.S. "In working with VC firms, what you always hear is, 'If someone else is willing to take the lead, I'll do it. There's often that 'you go first' attitude," Tillmann says. "So if I as RVC can lead a deal," that may create momentum that will help a funding round come together.
Tillmann says that he's an admirer of the Israeli model, where companies operate an R&D office in Israel but hire a CEO and sales and marketing staffers in the States to reach customers here. The new RVC Partners fund he's planning would invest in those sorts of companies, or U.S.-bred start-ups interested in building, say, a software development or engineering team in Russia. "There has to be a Russian angle," says Tillmann, a native of Germany. He expects the Russian government to contribute about $20 million to the new fund, with the rest coming from investors around the world. (The government portion hasn't yet been approved.) Tillmann says he has "soft commitments" for about $100 million so far, but hopes to be done raising the fund sometime this year. He says he has already identified several partners he'd bring on to help make investments, but wasn't yet ready to name them.FULL ENTRY
CommonAngels is trying to address the perception among entrepreneurs that collectives of angel investors can be slow to make investment decisions, and can hassle entrepreneurs with endless hoops to jump through, Heymann says. The goal is to remake CommonAngels so that it acts and operates more like a venture fund, rather than a somewhat loose collective of wealthy individuals who cut checks when they feel inspired.
"It's not lost on us that angel groups have a mixed reputation," she says. "With an angel group, you've got 30 people in the room, and an entrepreneur may wonder who the real decision-makers are. There can also be the sense that any one of them can kill the deal. To change that perception, we're changing how we operate internally. We want to be seen as a go-to place for seed capital."
Heymann will work with longtime CommonAngels managing director James Geshwiler, though it sounds as though he'll technically report to her. (Another CommonAngels managing director, Chris Sheehan, left late last year to join TrueLens, a digital marketing startup that received funding from the group.) Geshwiler says that the changes the group is going through will be "a 180-degree shift on culture," and acknowledges that the group may lose some members as a result.
The biggest change for CommonAngels will be that more of the money for each deal will come out of the group's $13 million central investment fund, rather than individual members cutting checks. Previously, 10 to 15 percent of an investment round — typically around $1.5 million for CommonAngels — might have come from that central fund, with the rest coming from individual members. Going forward, Geshwiler says it is more likely that half of the round will come from the fund, with the other half coming from a smaller set of members with real expertise in the sector (videogames, for example.) And CommonAngels members will be required, in the future, to put money into that central fund to stay involved with the group.
But the other change is that Heymann and Geshwiler will be two of the members of a new eight-person investment committee that will be able to pull the trigger on deals more easily — there will be no majority-rules vote from CommonAngels members. "These committee members will be representational, and they'll listen to their peers," Geshwiler says, "but the committee and people with expertise in the sector will have a disproportionate vote." He jokes that "the founding fathers got rid of direct democracy for a reason."
The aim is to decide on some kinds of deals within a few days, and others — like enterprise technologies that require more due diligence — in four to six weeks at most. Instead of meeting monthly, CommonAngels will now meet every other Tuesday, either in Waltham or Kendall Square.FULL ENTRY
That's what's happening at the Media Lab, where Joi Ito — an early investor in Twitter, Kickstarter, and Flickr — is now into his second academic year of running the place. An as-yet-unnamed fund would collect money from Media Lab sponsors and use it to support students who want to start companies based on their research at the Lab. Ito has been getting advice from Media Lab alums who have trod that path already, like Joe Chung, the co-founder of Art Technology Group, an e-commerce software company that went public and was later acquired by Oracle.
One key purpose of the new fund, Ito explained to me recently, will be to encourage students to finish their degrees before they start companies. "We want students to stay focused while they're here," he said. But once they're done, the fund will provide a six-month stipend to lay the groundwork for their company, and help make sure that the new venture has clear rights to the intellectual property they developed while at the Lab. (In the past, there has been a somewhat vague non-exclusive right granted to students to commercialize technologies that they worked on while at the Lab, Ito said.)
The Media Lab's corporate sponsors would put money into the fund. (The current sponsor list includes companies like Google, Intel, IDEO, Sony and Hasbro.) In addition to providing the aforementioned stipend, the fund would also invest alongside venture capitalists or qualified angel investors who decided to fund any of the startups, matching the money they put in up to 15 percent. That means that Media Lab sponsors could enjoy a nice return if companies do well. "It's a way for sponsors to keep track of the startups that come out of the Lab, and share in their success," says Ito. "Some of them could also be first customers for these new companies." MIT would also get a percentage of any investment gains, though Ito is careful to say he wants the fund to operate "at arm's length" from the university.
The fund hasn't yet gotten the final seal of approval from MIT's administration, but if it's OK'ed, Ito would chair the committee that chooses which recent grads will get initial stipends. The rest of the committee would be made up of Media Lab alums who have been successful entrepreneurs. Ito says his goal is to "increase the quality and thoughtfulness of startups" that the Lab is spawning. It sounds like the new fund won't get involved with companies started by faculty, like Bluefin Labs, which was acquired by Twitter earlier this year, or the recently-formed Jibo Inc. More details will likely be announced later this month.
One local investor who had some knowledge of Ito's plans, but asked for anonymity because she was not up-to-date on them, told me that the biggest issue will be how the new fund will alter Ito's role. Essentially, if part of his objective is to help launch successful startups, how will that influence who he recruits (and supports) as faculty and students, and what sorts of new research initiatives get green-lit?FULL ENTRY
The panelists were Deepak Sindwani of Bain Capital Ventures and Sunil Dhaliwal of Amplify Partners (pictured at right), Todd Dagres of Spark Capital, Amir Nashat of Polaris Partners, and Jeff Fagnan of Atlas Venture. The event took place at Microsoft NERD in Kendall Square, on February 7th.
We talked about reasons to be optimistic and pessimistic about the venture industry in 2013...Dhaliwal's newly-announced firm...the fate of seed-funded startups when they go to raise a larger Series A round...how entrepreneurs should think about how many VC firms to pitch, and which ones...the panelists' turn-offs when they listen to entrepreneur presentations...a recent investment, and how they did due diligence on it...first-time founders versus more experienced entrepreneurs...the day when Facebook's founders went to pitch Battery Ventures in Waltham...and opportunities in cleantech and enterprise technology right now.
I also invited three entrepreneurs from the audience to give a brief pitch about their startups, and asked the panel to tell me what areas they'd poke at or ask more about.
Dhaliwal says that he's interested in writing small checks ($50,000 to $1.5 million) at the stage when "there isn't a complete team. You're talking to technical guys, not the typical 42-long who walks into a VC firm and gets funding. There may not be product-market fit yet. But we want to set up a support system to help that kind of technical founder focused on infrastructure markets." He defines infrastructure as selling to the IT executives at a company — or an end-user who is doing an end-run around the IT department.
Amplify hopes to collect $40 million in capital to invest, according to a recent SEC filing. So far, it has raised about $16 million of that.
Dhaliwal tells me that he is especially interested in three trends: the move to cloud-based services; the explosion of data, and the storage and analytic technologies that will accompany it; and real-time infrastructure, which he defines as "optimizing and improving the performance of web-based infrastructure, whether it's back-end or front-end." He has made seven investments so far under the Amplify umbrella, in AppNeta, Continuuity, Datadog, Fastly, Wibidata, and two others that haven't been announced yet.
"I count eight incumbents that I want my entrepreneurs to target taking value from," Dhaliwal says. "Cisco, EMC, Microsoft, Dell, HP, IBM, SAP, and Oracle. The market cap of those eight companies is $1 trillion. It maybe is not the sexiest thing in the world to talk about taking on these companies, but there's real value getting created there."
Dhaliwal says that he wrapped up his commitments to Battery Ventures last fall, and started working full-time on Amplify in the fourth quarter of 2012.
Dhaliwal says he doesn't have office space yet, but hopes that the new firm will be based in Cambridge, where he lives. He's the only general partner at Amplify, but joining him as a principal is Farah Giga, formerly a principal at Valhalla Partners and a HP executive. She'll operate out of Palo Alto.
In addition to Weber’s departure, there’s other news related to Dogpatch, the Cambridge facility that offers free office space — courtesy of Polaris — to about 35 small startups and solo entrepreneurs. It’ll move next month out of its current digs at One Cambridge Center (which are sub-leased from Microsoft) into space at 101 Main Street. The new Dogpatch Cambridge will be managed by Cambridge Innovation Center, even though it is separate from the CIC's main building. (101 Main, right near the Longfellow Bridge, is a hot property right now: VC firm Matrix Partners just moved its headquarters there, and Amazon.com has leased 105,000 square feet there for its secretive Cambridge engineering group.)
At Cambridge Center, "we’d been leasing from Microsoft, and Microsoft wants the space back,” says Polaris partner Dave Barrett, who blogged about the changes yesterday. “We’re not facilities managers, we’re investors.” The new space will probably house fewer startup teams than the current one: Barrett estimated its capacity at about 30. And since it will be managed by Cambridge Innovation Center CEO Tim Rowe and his team, “it lets us work with entrepreneurs, rather than filling up the fridges and keeping the network up,” Barrett says. So far, more than $75 million in funding has been raised by companies that have used space at Dogpatch Cambridge, most of it from investors other than Polaris. (Dogpatch Cambridge first opened in 2009.)
Update: While Barrett didn't bring up this change in our initial conversation, it sounds like rent will no longer be completely free at Dogpatch for all residents, but that Polaris may subsidize some of the costs for some of the residents. "We're subsidizing fees for existing residents to help them during the transition period to the new Dogpatch Labs at 101 Main," Barrett explained in an e-mail. "Going forward, we'll will have space for some incoming residents and other members of the community whom we plan to involve in the new Dogpatch Labs which we (Polaris) will also subsidize."
Polaris' crew has been shrinking in recent years, ever since the Watham firm closed a $375 million fund in 2011 that was much smaller than the previous pools of capital it had collected. Among those who've left are Mike Hirshland, Bob Metcalfe, and, now, Weber. (Alert reader Matt Ludwig points out that another onetime Polaris principal, Ryan Spoon, also left... and also wound up at ESPN.)
The TechStars Boston program, housed on the same floor of Cambridge Center as Dogpatch, will also likely move out sometime this year. But program officials tell me they don’t expect that to happen before late May, when the spring cycle of TechStars wraps up.
An aside that won't surprise anyone who commutes in eastern Mass.: Weber tells me that his new commute from his home in Berlin, Mass. to ESPN in Connecticut is only about ten minutes longer than his old one to Cambridge.
Update: Weber just published a blog post about his new gig.
And Xconomy reported on January 11th that Polaris will close two other Dogpatch incubator spaces, in New York and Palo Alto.
The Boston firm is announcing this morning that it has raised $175 million, a new pool of capital that it will invest in startups that build enterprise technology, largely along the East Coast. Partner Liam Donohue says that the firm isn't changing its line-up for the new fund, or the types of companies it will back. "We've done a lot in health IT, security, web infrastructure, and big data, and we're not planning to do much new off that core," he says. "We're seeing more data analytics deals, like everyone else, and we'll probably do more healthcare IT in the new fund." The original investment fund at .406, which it finished raising in 2008, was just a bit smaller than this new one, at $167 million.
.406 typically likes to be the first VC firm to put money into a start-up company, participating in the A round. As far as making seed investments, Donohue says, "We do it selectively, but we're not running a seed program."
.406 was founded in 2006 by Donohue, Maria Cirino, and Larry Begley. Among its more successful investments so far are Adtuitive (acquired by Etsy), ChosenSecurity (acquired by PGP Corp), and Veracode, an information security company occasionally mentioned as a 2013 IPO candidate. Its offices on Atlantic Avenue are decorated with Ted Williams memorabilia like the signed bat above.
In the mid-1990s, Matrix had moved from downtown Boston to Waltham, in an effort to be closer to many of the telecom and enterprise software entrepreneurs the firm was backing at the time. But more recent Matrix investments include Cambridge- and Somerville-based startups like HubSpot, GrabCAD, The Echo Nest, and TalkTo. "We've known for a long time that the ecosystem had really moved down here," says partner David Skok. "We were seeing entrepreneurs that we wanted to visit us [in Waltham] saying, 'Hey, I don't have a car, I'm going to have to take a Zipcar...and we don't want to inconvenience entrepreneurs." The firm's lease in Waltham lasts another two years, but Skok says the people at that office will be moving into Cambridge sometime in mid-2013.
Matrix has been using its Kendall Square digs to host events for entrepreneurs, and also to offer temporary space to entrepreneurs and startup teams. Among those that have used it are GrabCAD, Sqrrl, TalkTo, Alignable, and Aquto.
Some of the new space that Matrix is now taking over at 101 Main used to be occupied by Edhance, a startup that operated a student discount program. It was acquired in 2011 by BuyWithMe, a Matrix portfolio company, but the company's Cambridge presence seems to have vanished.
Matrix is only the latest VC firm to trade the 'burbs for the city; others have included Bessemer Venture Partners, Charles River Ventures, and Highland Capital Partners, all now in Cambridge. (I wrote back in August about efforts to rehab the Bay Colony Center in Waltham, once the roost of many of the suburban VC firms.) Here's a video conversation with Skok that I shot in Matrix's Cambridge offices in October. In it, he first mentioned Matrix's plans to shut down the Waltham location.
Well, it's still on the verge of going mainstream, and now there is an investment firm setting up shop in Needham to try to accelerate the arrival of what it calls "the next explosive wave of the internet … the Internet of Things." The founders of IoT Works are Woody Benson, formerly the managing director of Prism VentureWorks, and Philip DesAutels, who had helped Microsoft develop its education business.
They're not saying much yet about the new firm — or whether they've actually raised money so that it can make investments or acquisitions. (Their description of IoT Works is below.) "Investments and advising will be happening for sure," Benson says via e-mail, adding, "We are working on a big play with a global partner." IoT Works publishes a blog and e-mail newsletter newsletter focused on topics like sensors, connected lightbulbs, autonomous cars, and healthcare applications.
I asked Benson about Prism, the Needham-based VC firm he has run for more than eight years; it was unable to raise additional money from its backers, despite backing a few winners like LogMeIn, m:metrics, and Maven Networks. "Prism is not making new investments," he explained. "We have plenty of [capital] reserves to support our companies. I will remain a [general partner] and do everything I can to get value from our investments."
Here's their description of the opportunity:FULL ENTRY
"He complements our styles," says Sigma partner Bob Davoli. "We're all operating guys. We've been founders and CEOs. We like to hatch a few deals, and do lots of series As and Bs." Before helping get General Catalyst off the ground, Simon was the founder of a medical device company called UroMed.
Will the addition of Simon expand Sigma's focus into drugs, healthcare and medical devices? (The team there has traditionally done a lot of IT services and software investments.) Maybe. Davoli notes that Sigma has already invested with Simon in iWalk, a developer of prosthetics, but that "therapeutics won't be his focus — it'll be the exception that proves the rule."
Davoli says that he and partner Paul Flanagan have invested with Simon on at least three companies when Simon was at General Catalyst, and that they've been looking at deals together over the past few months "to see if our perspectives would be complementary." They obviously decided that they were.
Sigma Prime, previously the East Coast office of Sigma Partners, filed paperwork earlier this year with the SEC to raise a $150 million fund. In October, I wrote that they expect that to be done by the end of the year.
With Simon gone and General Catalyst partner Hemant Taneja shifting his focus to Internet deals, it seems like GC has decided to exit the business of investing in life sciences and cleantech companies.
"We have been talking to some companies over the past six months, with the expectation that they might be a good fit for the fund," Von Kohorn tells me, but Beta hasn't made any investments yet. That could happen before the end of 2012, he says.
A typical Beta Fund investment will be in the $100,000 to $200,000 range, with some money reserved for future rounds. "We'll aim to invest in about 15 companies with this fund," Von Kohorn says. He and Meisner will consider investments in software and IT companies; materials science; nanotech; and biotech. Biotech? Really? Von Kohorn says that he and Meisner were investors in SmartCells, one of those rare drug development companies that raised just $9 million in funding before being sold to Merck for $80 million (and as much as $420 million if it hits certain milestones). "We liked that story a lot, even if it is a bit of an outlier," Von Kohorn says.
The fund may invest alongside other angel investors or angel groups, he says, usually before venture capital firms are willing to jump in. He says that Beta's backers, or limited partners, are all individuals from the New England region, but they will be passive investors.
Von Kohorn is an organizer of New England AI, a group of artificial intelligence experts who meet regularly at Google's Cambridge offices, and also a portfolio manager of Apt Capital, a commodities-focused investment fund. He is chairman of the screening commitee of Beacon Angels, a Boston angel investment group. Meisner is a member of Beacon Angels and Launchpad Venture Group, another local angel organization, and a former sales and business development executive at Authentica, Chantry Networks, and Connected Corp.
"We're particularly excited about this region and its breadth of awesomeness across tech sectors," Von Kohorn says. Both he and Meisner operate out of Newton, but the new firm won't have an office of its own.
I sat down with hm last Friday in Matrix's Kendall Square offices -- which will soon be the firm's only offices, Skok divulged -- to talk about the opportunities that Skok sees in today's tech landscape. I also asked a couple questions about how the Boston venture capital scene is changing, and the current craze for sprinkling around seed capital (generally regarded as investments under $1 million).
I spent the bulk of the interview asking Skok questions that had been submitted via Twitter. Among them:
@raj: Who's in the Matrix anti-portfolio?
@missusP: Does he see more or less opportunities for women in tech; in what ways? How many women-led companies has he funded?FULL ENTRY
I had a chance to sit down with Sabet recently (and I'll be interviewing Skok for a future blog post.) With investments in companies like Foursquare, Twitter, and Runkeeper, Sabet is active in New York, San Francisco, and Boston. One of his portfolio companies, OMGPOP, which created the game Draw Something, was acquired by Zynga earlier this year for a reported $200 million. His blog is at bijansabet.com.
We talked about:
Areas of opportunity right now
- Is the interest in "Enterprise 2.0" among investors eclipsing consumer Internet investing?
- His investment in Academia.edu, a social network for researchers
- Warby Parker & Kickstarter as examples of designing and manufacturing things -- and bringing them to market -- without much interference from others
- The proliferation of sensors (Nike Fuel, Runkeeper, Under Armour)
- What he's seeing too much of (like "Instagram for video," or digital couponing)
- His take on the gaming business (including his first reaction of Draw Something)
- The best time for an entrepreneur to come pitch him
The audio runs about 15 minutes:FULL ENTRY
I surveyed 91 entrepreneurs over the past week to create a list, from their perspective, of the "go to" VCs in Boston in five different categories. It turned out to be easier to determine the top dogs in software and the web than it was in fields like life sciences or semiconductors.
I solicited entrepreneurs to participate primarily by e-mailing people in my contact database who have started companies and raised venture capital before... but I also invited people to respond via Twitter. My question was simple: "Who is the first VC in Boston/New England you'd pitch?" I asked people to weigh in only on fields where they'd had experience:
- Social, mobile, consumer web, and games
- Enterprise-oriented software, services, software-as-a-service
- Life sciences, healthcare, and medical devices
- Cleantech, energy, sustainability, LEDs, and batteries
- Semiconductors, telecom, materials, robotics, and other "hard" technologies that don't fit into the cleantech category.
There was far more consensus on the first two categories than the last three. Top vote-getters in those categories received more than a dozen votes, while winners of the other categories rarely received more than three. That's both because I received fewer responses from entrepreneurs in fields like life sciences and cleantech, and also because votes were spread over a longer list of investors, especially in the life sciences category (where 44 respondents gave votes to 23 different VCs.)
David Skok and Antonio Rodriguez of Matrix, pictured above, were among those who made the list:
But the group, SideCar Angels, won't accept business plans or solicit pitches from entrepreneurs. Instead, it'll add its capital to investments that have already gotten the green light from other local angel groups like CommonAngels and smaller VC funds like NextView Ventures. The group has already put its money into an investment in ezCater.com, a referral site for catering services, alongside with LaunchPad Venture Group.
"SideCar Angels was formed to fill out syndication rounds with angel groups, micro-VCs and superangels," explains co-founder Rick Lucash, right, "enabling its members to join with well-regarded investment groups on the same terms." The group has a "central fund" of about $100,000, slices of which can go to any investment opportunity that gets approved by a majority of the group's members. "Any members who like a particular company can invest additional sums at their discretion," Lucash explains. Lucash has long provided legal services to the startup community; he's currently a special counsel at McCarter & English in Boston. The co-founder of SideCar Angels is Jeff Stoler, a senior partner at the same firm. (Stoler is a member of LaunchPad Venture Group, and Lucash was a co-founder of the group, but is no longer an active member.)
As for which sectors the group will focus on, "the one thing I don't see us doing is biotech or pharma, because it takes so much money," says Lucash, "but we'd definitely look at Mass Medical Angels healthcare deals, or consumer deals," he says.
Lucash says the group has 10 members and is "actively recruiting" others. SideCar held its first meeting in September, and closed on the ezCater investment a few days later.
"Meetings for the rest of this year will be ad hoc as deals present themselves," he says. "Thereafter, we're targeting a combination of 6 meetings per year to start, with ad-hoc or online [meetings] when we're presented with an attractive deal that requires very quick turnaround."
Sigma Prime wrapping up new $150 million venture capital fund, following break-up with west coast office
The new Boston firm will be known as Sigma Prime, and sources in the VC industry tell me that the partners expect to have finished raising a $150 million fund before the end of the year. Sigma Prime may not hit that $150 million target, but my sources tell me they expect the new fund to wind up in the $120 million to $150 million range, and invest primarily in business-to-business technologies and services. Partners Bob Davoli, right, Paul Flanagan, and John Mandile will oversee investments out of the new fund, with help from Raju Rishi, a venture partner based in New York City. (While based in Boston, Mandile also follows the Atlanta startup ecosystem closely.) As I reported back in August, former Sigma principal Richard Dale is out trying to raise his own fund, Big Data Boston.
Flanagan told me that he couldn't say much, because of the on-going fundraising process, but he did confirm the partner new line-up for Sigma Prime. "We're constantly trying to find interesting people and ideas to back," Flanagan said, adding that two of his recent investments (out of the final Sigma Partners fund) have been hardware companies: Rethink Robotics and iWalk, a Bedford-based maker of prosthetic devices. Sigma Prime unveiled a new website over the summer, but it has since been taken down for re-tooling.
The Sigma Prime partners have already made two investments out of the new fund, one in New York and one in Massachusetts, according to my sources. They've also made several seed investments as individuals, in startups like Evoqu.
"I don't think as a firm they are looking to do a lot of seed investing," says Eric Hjerpe of Kepha Partners, a Waltham firm that has often invested alongside the old Sigma Partners. "I think they'll continue to be great Series A investors, and they're most comfortable with B2B stuff."
We're about to find out. The new HBS Alumni Angels of Boston and New England group holds its first meeting on Monday, and it's open to any Harvard alum -- not just from the business school -- with an interest in making investments in fledgling companies. The group plans to meet quarterly, and hear presentations from seven to ten entrepreneurs each time.
The co-presidents of the new group are Paris Wallace, right, a founder of Ovuline (currently in the TechStars Boston program) and Good Start Genetics, and Tarlin Ray, a managing director at the consultancy Triple Threat Advisors.
"We've been getting a surprising amount of interest, and we expect the event will attract 100-plus people," Wallace says.
The group hasn't yet defined what kinds of business it'll invest in. "We're gonna see what kind of plans come in," and what industries the group's members have experience in, Wallace says. "As with any angel group, capital-efficient business models make more sense." He says the group expects to see plenty of tech, web, and mobile startups, but may shy away from companies developing drugs, medical devices, and diagnostics.
There are more than a dozen other HBS angel investing groups around the world, but Wallace says there has never been one in Boston. Ray had previously been involved with the Southern California chapter.
Wallace says that the group hopes to collaborate with other local angel groups like CommonAngels and TIE Angels, and that some of the HBS Angels members may also participate in those other local angel collectives.
Dale told me he couldn't comment on his fundraising efforts, but he was willing to talk about the big data sector in general, and his departure from Sigma. And he did note that he has made some recent investments as an angel, in two recent TechStars Boston startups: Mortar Data and Ginger.io.
"My observation about the term 'big data' is that that it's data with volume, velocity and variety that is growing faster than Moore's law," Dale says. "In the old days, most data problems could be solved as computing speed caught up. Now, there's this deluge of new kinds of data which is growing faster than Moore's law. It can be sensor data, like images, or behavioral data, like clicks on a website. We've basically broken what Moore's law can cope with, and so we need a bunch of new technologies to get on the right side of that again."
Dale did confirm that he's "transitioning out" of the Boston office of Sigma, which recently separated from its Silicon Valley office, set out to raise its own $150 million fund, and rebranded as Sigma Prime. But it sounds like there are no hard feelings: the three managing directors of that firm have committed to invest in Big Data Boston, sources tell me.
So has local angel and entrepreneur Andy Palmer, who has helped start a handful of big data companies, including Vertica. "I believe that one of the very few successful new models for venture investing is the small and 'hyper-focused' fund model," he writes via e-mail. "Richard is hyper-focused on big data/analytics startups in Boston."
But that was before many of the VC firms decided to relocate closer to the city: starting in 2009, a half-dozen firms that were once in Waltham and Lexington moved to Boston and Cambridge. (Even a few that have remained in Waltham, like Polaris Venture Partners and Matrix Partners, set up satellite offices in the city.) Most said they wanted to be closer to the action around MIT and Harvard, rather than forcing promising young entrepreneurs like Mark Zuckerberg to take $50 cab rides to Mount Money.
So now the real estate firm that owns the Bay Colony Center, a four-building, 1 million square foot complex atop the former Mount Money, is planning to spend north of $25 million to make it more attractive to tech companies, law firms, consultancies, and other tenants. It's a risky bet on the 'burbs, given how much energy there is right now around Kendall Square and Boston's Innovation District. But Bay Colony's new owner, Boston Properties, bought the complex for a song in 2010 (Boston Properties paid $185 million, most of it in assumed debt, just three years after Bay Colony had sold for $366 million.) And the giant REIT has the benefit of learning about new kinds of collaborative workplaces from local tenants like Google, Microsoft, Biogen, and the Broad Institute.
"We are obsessed with the revolution in how people work, and we're trying to redesign this complex to meet the needs of the knowledge worker," says Brian Koop, Boston Properties' regional manager in Massachusetts. (Koop is on the right in the photo, with leasing VP Jason Fivek on the left.) "If you are a company that is chasing those A players, and wants to retain them, you can't be in some B minus property."
Here's what's going on...FULL ENTRY
"Over the past five years, we've been spending time increasingly in New York, and we have several portfolio companies there now," says Aronoff, mentioning startups like 10Gen, a database company, and 33Across, in advertising technology. "Our deal flow in New York has really risen, and for the past couple years we've been holding one of our partner meetings every month in New York." (Aronoff adds that several of Flybridge's Boston-based portfolio companies, like Dataxu, also have sales and marketing offices in Manhattan.)
While the New York tech scene in the late 1990s may have "turned out to be a mirage," Aronoff contends that this time, it's different: "It's a really interesting ecosystem of entrepreneurs, and we're seeing things that are keeping us interested."
The Flybridge office is in SoHo, not far from where the TechStars New York accelerator program is located.
(As an aside: well worth a read is this recent blog post from Jeffrey Bussgang, a colleague of Aronoff's at Flybridge, which compares the recent IPO and M&A track records of New York and Boston.)
Shoebuy founder Scott Savitz launches new venture capital firm, Data Point Capital, with $50 million
According to the press release, Data Point will invest in "mobile, gaming, social networks, payments, comparison shopping, e-commerce and emerging technologies." And the firm will be "stage agnostic, allowing for investments in seed, early stage, mid-stage, late stage or controlling-interest deals."
Savitz says he is close to signing a lease for office space on Atlantic Wharf in Boston. "We haven't made any investments yet," he says, "but we will announce our first one in three to four weeks."
Shoebuy was acquired in 2006 by Barry Diller's InterActive Corp. Last year, Savitz purchased a school lunch delivery company founded in Charlestown, Smart Lunches, where he serves as executive chairman.
What does it take to raise that next round? Founders of Kinvey and Backupify, which just collected $14 million in total, weigh in
So I asked two Cambridge entrepreneurs what they thought the critical factors were in raising their most recent round. Both Sravish Sridhar of Kinvey (pictured at right) and Rob May of Backupify announced new funding today: $5 million for Sridhar's company, and $9 million for May's. Sridhar's new money comes from Avalon Ventures and Atlas Venture, both with offices in Cambridge, and May's includes Symantec, the security software biggie, as well as Avalon, General Catalyst, and Lowercase Capital.
Setting goals and hitting them is crucial, says Sridhar. His 14-person company, Kinvey, handles much of the back-end infrastructure required by mobile app developers, offering it as a subscription service.
"After our seed round last August, one goal was getting our first 2,000 users," he says. "We beat that by three months earlier this year. Another was creating partnerships with companies like Adobe, Urban Airship, and Microsoft. Despite not having a vice president of business development, we got them to sign up to work with us." A third milestone was making the Kinvey service available to any user — not just beta-testers. Finally, he says, investors wanted to see that the company could bring on board technical folks who had experience scaling up complex systems — and Kinvey managed to hire veterans of Akamai, Raytheon, Brightcove, and Fidelity. One of the company's investors, Rich Levandov of Avalon, told Sridhar that he though the founder's sense of humor was helpful in building the team: "He said being funny and charismatic could help our company hire just about anyone." He also invited the company's early investors to just about any significant company meeting, to keep abreast of Kinvey's progress.
Kinvey's $5 million in funding today is considered the company's A round, following last summer's $2 million in seed investment. The company participated in the 2011 TechStars Boston program.
At Backupify, which helps companies and individuals make backup copies of the data they create with various online services like Google Apps or Salesforce.com, May says one obvious thing investors like to see is metrics heading in the right direction. "We pulled into the low single-digit millions, in terms of revenues," he says, "and we crossed 5,000 paying business customers." But he also says that demonstrating that a company has figured out how to effectively sign up profitable customers is vital: "I think we showed that we could take money, hire sales reps, do advertising and grow our monthly recurring revenues." When sales reps talk with prospective customers and demonstrate the Backupify service, May says, "they have close rates of 40 to 50 percent." The company has 30 employees, and is now "mostly hiring salespeople, but also some engineers," says May. Backupify's latest $9 million in VC money represents the company's third round of funding; the company has raised almost $20 million so far.
PowerPoint presentations and promising prototypes may help entrepreneurs raise their initial capital, but clearly metrics and momentum are what matter when it comes to keeping the money flowing.
New England VC Association ending supervision of CriticalMass, Kendall Square shared space for entrepreneurs
NEVCA director C.A. Webb, who wasn't running the trade group when CriticalMass got started, tells me that managing the comings and goings of entrepreneurs created too much of a headache: "It was operationally just really intensive." The Cambridge Innovation Center will now manage the space, and CIC chief executive Tim Rowe says that "we do have a model for on-going VC engagement with it." So far, over 30 entrepreneurs have taken advantage of the space.
But some of the original firms that underwrote CriticalMass aren't yet signed on for continued support. At Flybridge Capital, marketing vice president Kate Castle says her firm's future involvement is "TBD at this point." At Highland Capital Partners, another early sponsor of CriticalMass, senior vice president Michael Gaiss says that the firm will also evaluate its continued financial commitment, but notes that the firm was located in Lexington when CriticalMass first opened, and has since moved its offices to the same building. Highland is "actively hosting events" in Kendall, and also houses 18 entrepreneurs in its penthouse digs at One Broadway, Gaiss adds.
Webb sent out an e-mail to the original CriticalMass sponsors today, encouraging them to continue underwriting the space, and individual entrepreneurs, even after the Cambridge Innovation Center has taken over management responsibility. We'll see how that goes. Webb says she plans to continue working out of the space, located on the fourth floor of One Broadway, just down the hall from the Venture Café.
Jamie Goldstein, the partner at North Bridge who is currently chair of NEVCA, says that giving up day-to-day oversight of the CriticalMass facility will free up Webb to focus on other priorities. In particular, he mentions that the association wants to do more to trumpet the successes of venture-backed New England companies, and encourage more recent graduates to stay in the region and start companies (or work for startups) here.
Bird has also scraped together $14 million in new funds to invest in tech startups. Much of it comes from money that MassDevelopment, the state's economic development agency, has asked MassVentures to manage. About $3 million comes from liquidity events in MassVentures' prior portfolio companies, Bird says, and another $6 million comes from the state's new START program, announced earlier this year.
Over its 36-year lifetime, the MTDC invested about $83 million in 133 companies. "What we want to do is complement what the private sector is doing," Bird says. "I think our role is to go in with the angel groups, help capitalize the deal appropriately, and then help the company transition from that backing to a being venture-backed company. That's absolutely what happened at companies like LifeImage and uTest."
Bird says that the new MassVentures will remain focused, as the MTDC had been, on sectors like software, hardware, telecom, and robotics. "We're trying to make the statement that we're looking at things other than clean energy and life sciences, from the state level," Bird says.FULL ENTRY
Lynch told me yesterday that he felt compelled to sign on with a VC firm because he'd been swamped by a tidal wave of prospective deals. "I totally underestimated the amount of action I'd get based on my commitment to invest in big data startups," Lynch said. "I was getting more than 20 inquiries a week, primarily from Boston companies, but also from places like Austin and San Diego. There were just more quality deals than I could handle on my own. The numbers were just overwhelming, in terms of how many good deals there are to do — and to support over time."
Lynch had been an entrepreneur-in-residence at Atlas before he joined Vertica, which sold database software, and which was acquired by Hewlett-Packard for $350 million last year. (Atlas wasn't among the firms that invested in Vertica.) His résumé includes stints at many of the biggest players in telecom and IT, including Cisco, ArrowPoint, Acopia Networks, Lucent, Bay Networks, Wellfleet Communications, and Digital Equipment Corp.FULL ENTRY
Noah Heller, who'd previously been based in Santa Monica, is moving to Boston. "I liked the energy here a lot," he says, "and I wanted to go where it was a little more blue sky" — meaning that the gaming industry isn't as well-developed locally as it is in places like Los Angeles, San Francisco, or Austin. Mentioning Boston's "awesome" schools, he adds, "I kind of look at Boston as a new market for gaming. That's not to short-shrift the guys at Harmonix who are knocking it out of the park, but I want to be part of the core here as it expands."
Heller's last day at Activision is today; he'd been the product director for "Call of Duty Elite," a subscription-based service linked to two games in the "Call of Duty" series, and had also worked on the company's first iPhone product, "Call of Duty: Zombies."
As for what's next, Heller says, "I have a pretty good foundation in blockbuster games, but the open web has been really intriguing to me. I like the idea of sending someone a URL to get them into a game session." As an example, he mentions a new racing game that can be played within a web browser, demonstrated by Gradient Labs at the recent PAX East conference. "The idea is that I can send you a link, and all of a sudden we're in an arena, building cars, and playing in a demolition derby — all these things that shouldn't seem to work in a web browser, with no plug-ins or software to install."FULL ENTRY
The top ten venture capital firms in Boston, based on their digital profile and social media presence
But ten other local firms made it into Heardable's top 50 list, which considers things like how much content a firm publishes, and how frequently that content is shared by others; how mobile-friendly the firm's website is; and how many fans and followers it has on Facebook and Twitter. Here are the ten Boston-area firms that appear in Heardable's rankings:
1. Openview Venture Partners - Boston
2. Polaris Venture Partners - Waltham
3. Matrix Partners - Waltham
4. Point Judith Capital - Boston (formerly Providence)
5. Battery Ventures - Waltham
6. Charles River Ventures - Cambridge
7. Prism VentureWorks - Needham
8. Volition Capital - Boston
9. Highland Capital Partners - Cambridge
10. New Atlantic Ventures - Cambridge
(Note: I'd originally left Volition off the list. Their inclusion bumped off Bain Capital Ventures, which would be at #11.)
The three local firms I'm most surprised not to see on this list? Spark Capital, Flybridge Capital Partners, and NextView Ventures. All three are newer brands in the VC world, but they all do a great job of creating useful content for entrepreneurs and sharing their thinking in the social mediasphere.
One left, one stayed. One was founded by a first-time entrepreneur, the other by an entrepreneur who'd built a public company before. One wasn't able to raise money here, and one was. One focused on consumers, the other on solving a business problem.
Facebook's forthcoming IPO is expected to value the company at about $100 billion. Brightcove will be worth somewhere around $300 million when it goes public.
I asked Todd Dagres, founder of Spark Capital in Boston, for his take on why Boston can be so hospitable to start-ups like Brightcove while it gives fledgling companies like Facebook a cold shoulder.
Here's his take:
"Great. One more VC who actually understands what it's like to try to grow a business."
"Rats. One less entrepreneur building a business in the Boston ecosystem."
I mentioned those points of view to Nabeel Hyatt yesterday, when we spoke about his decision to leave the Harvard Square outpost of Zynga, the Internet games developer, and join Spark Capital as a venture partner. He'd previously been the chief operating officer at Ambient Devices, a pioneering maker of information displays, and Teamtalk, a sports media start-up.
"I do think it's important to ask yourself the question, 'Does the world need another VC?'" Hyatt said. "But in Boston these days, there are a lot more start-ups being founded, more angels, more VCs — and that's overall a positive thing. But I see a real problem in companies being successful at scaling. There are problems when things start to work, start to move, and you need to expand beyond just the founding team. I felt like joining Spark was the best way for me to influence that stage of things, to help entrepreneurs in making the transition from a nice good idea that might be starting to get a little traction, to astronomical growth, and something you can talk about becoming a billion-dollar company one day." (I should probably note here that Hyatt's last start-up, Conduit Labs, didn't manage to produce a hit game, and was acquired by Zynga for an undisclosed sum. The office grew from about ten people to 45 after it became Zynga Boston.)
Hyatt says he'll focus mostly on consumer-oriented companies. "I have a huge passion in mobile. It's still very much the wild, wild west there. Social and the web are also very interesting. Generally, the job is about looking for disruptive opportunities — something that changes in the market and allows a start-up to grow incredibly fast." He adds that he's also interested in the ecosystem of companies, like Zynga, that are using Facebook to reach an audience.FULL ENTRY
Like Microsoft in the 1970s, Facebook was, in the first decade of the 2000s, gestated on the Harvard campus, and key moments of its early history took place in Harvard Square. Bill Gates and Paul Allen had been inspired by an issue of Popular Electronics they purchased at Out of Town News featuring an early personal computer, and Mark Zuckerberg and Eduardo Saverin had their first meeting with a venture capitalist at Henrietta's Table.
Both companies, of course, left Massachusetts, creating jobs and enormous wealth in Seattle and Palo Alto, respectively.
As Facebook's long-anticipated IPO approaches, I've been thinking both about the company's Cambridge roots, and also some local people and institutions who will make bags of money from the public offering.
The money first...
A Boston-area VC firm, Greylock Partners, one of the grand-daddies of the venture capital industry, led Facebook's second major round of funding in April 2006. The round gave Facebook $27 million in funding, and valued the company — which at the time had just seven million users — at roughly $500 million. (As of January 2012, the site had about 800 million users.)
"That was a way out-on-a-limb investment — a very controversial deal," one local venture capitalist told me this morning. "There were arguments within Greylock about why it could be a bad investment."
While the Greylock investment in Facebook's 2006 round was led by David Sze, a partner in the firm's Silicon Valley office, another Boston VC told me that Bill Helman, a Greylock partner in Waltham, did some key analysis that showed "that Facebook had a reasonable amount of revenue, and was growing like a weed. His position was, 'I can guarantee you 100 percent that we aren't going to lose money.' Of course, no one would've thought the up-side was going to turn out to be what it was." Greylock's 1.5 percent stake in Facebook could be worth a billion dollars or more after the IPO. (Helman didn't want to comment on his involvement in the Facebook investment.)
Who'll get a share of Greylock's winnings? Harvard's endowment, for one, which has been an investor in Greylock since the firm's founding in 1965. (Ironically, Harvard could've made much more: the university's money managers had been consistent supporters of Accel Partners, the Silicon Valley firm that led Facebook's very first round of venture capital funding in 2005, but decided not to participate in the Accel fund that made the Facebook deal. Accel owns 11 percent of Facebook, compared to Greylock's one percent and change.) Amos Hostetter, the Continental Cablevision founder, is another who'll benefit. Bill Kaiser and Bill Helman, the two investing partners in Greylock's Massachusetts office, will pocket handsome sums, as will Henry McCance, Greylock's chairman emeritus. (Helman sits on the board of the Harvard Management Company, which oversees Harvard's endowment.) In 2009, three years after making the Facebook investment, Greylock moved its headquarters from Massachusetts to Silicon Valley, and the firm's center of gravity is most definitely out west now.
The three-person office is headed by Axel Tillmann, who'll also oversee a new Silicon Valley office of the Russian Venture Company. Here's what Tillmann said when I asked him via e-mail about his goals for RVC's first year in Boston:
RVC-USA plans to establish the necessary contacts in the U.S. business, academic, and political community to strengthen the economic relationship between the U.S. and Russia. Moving forward, RVC-USA aims to become a primary resource for U.S. companies that are interested in exploring opportunities in Russia. Our goal is two-fold. We?re trying to help U.S. start-ups and venture capital firms enter the Russian market, and at the same time showcase the value that Russian engineers can deliver to U.S. entrepreneurs.
RVC hasn't yet made any investments in local companies, but Rusnano, a nanotechnology-focused investment fund created by the Russian government, has. Last October, Rusnano put $50 million into two Massachusetts biotech companies, BIND and Selecta BioSciences. RVC, however, has been a sponsor of the MassChallenge start-up competition.
Tillmann says that RVC "fully intends to" make investments in Boston companies that will do business or establish a presence in Russia. RVC "was established in late 2011 and intends to start making direct investments later this year when our own fund is established," he says.
The official launch party for the Boston office happens next month at the Four Seasons.
Boston venture capitalists on... The IPO market, deals they regret not doing, sectors they're interested in, and the health of the Boston ecosystem (with audio and photos)
I'm posting the audio below; it runs for about an hour. The quality is good, though audience questions are tough to hear. The speakers started off in this order: Fred Destin of Atlas Venture, Jonathan Seelig from GlobeSpan Capital Partners, Rob Go from NextView, and Jo Tango from Kepha Partners.
Among the questions I asked:
- What was your most successful investment, and what was a deal you didn't do and lived to regret? (Among the companies they passed on: Groupon, lululemon athletica, and HubSpot.)
- What was the most important thing that happened in 2011, in the world of tech and venture capital?
- How would you assess the health of the Boston VC scene?
- How can Boston produce more individual angel investors, and be less reliant on venture capital firms?
- What themes or sectors are you interested in right now?
- What happens to all the start-ups that have done $1 million seed rounds over the last two or three years?
The audience asked about the way the structure of VC firms might change... the attitude toward investing in consumer Internet companies in Boston... whether angel groups are passé...and the Stop Online Privacy Act.
And here's the audio. You can click play, or click "mp3" to download the file for later listening.
Cambridge's Flagship Ventures announces new $270 million fund focused on healthcare and sustainability
Flagship managing partner Noubar Afeyan told me last night, "I think the remaining limited partners who want to be in venture capital" — the pension funds, wealthy individuals, and university endowments that give VCs money to manage — "are looking for differentiated strategies, and they're looking for track records."
Two Flagship-backed companies went public in 2010 and 2011: AVEO Pharmaceuticals and BG Medicine. Big acquisitions from past Flagship funds included Accuri Cytometers (acquired by Bechton Dickinson for north of $200 million last year) and Adnexus Therapeutics (acquired by Bristol-Myers Squibb for $430 million back in 2007.)
"For 11 years, we've operated as though it's a tough capital environment," Afeyan says. "Fortunately or unfortunately, we've been more right than wrong. We haven't adjusted our model of de-risking things before we pour a lot of money in. It's just a discipline that serves early-stage ideas well."
In addition to the typical early-stage investing that Flagship has done in the past, a portion of this new fund will be dedicated to later-stage investments. "In some cases, it can take longer for a company to get the product ready, or the investment syndicate may not be willing to continue, and there's a moment in time to join in where the value proposition for investors can be much higher," Afeyan says. "We see an opportunity to get in, it has been de-risked, and we're not paying a premium to get in. We're not talking about restarts and recapitalizations. We're talking about where there's an opportunity to capture value over a shorter period of time. Those are the investments that allow a fund to return value earlier in the life of the fund. The reasonable complaint that limited partners have had in the early-stage VC world has been, 'I'm getting nothing for four or five years.' They may not need huge returns, but they'd like something. You're trying to create a balance in terms of timing."
Flagship has six investors on staff that focus on finding worthy investments, and eight people focused on internal company-creation projects as part of Flagship VentureLabs, which has cultivated start-ups like Seventh Sense Biosystems.
As for venture capitalists fleeing from the energy industry, Afeyan says, "I don't think the level of activity has gone down. I think that the level of noise has gone down. There was a time in cleantech when people were just spraying money around indiscriminately. What we've seen is that cleantech has turned out to be more like biotech. You need patient, flexible execution to generate reasonable companies."
Flagship had raised its prior fund in 2007; that one totaled $235 million, and was invested in 24 companies including Joule Unlimited, Agios, and Selecta Biosciences, a start-up developing an anti-smoking vaccine that I covered last year in my Globe column.
Update: As of December 2012, the firm has ceased operations in Cambridge. Former SVP Daniel Behr explains that it "had a terrific 18-month run during which we made three biotech investments in a market hungry for early-stage investors. However, the group was dismantled in December because Access Industries (our funder) decided to fold BridgeGap’s portfolio into an Israeli biotech venture firm in which it acquired a controlling interest last June."Investors may be growing wary of the life sciences business, where companies cultivating new drugs and medical treatments can require hundreds of millions of dollars and a decade or more to get a new product across the finish line. But not Len Blavatnik, a Moscow-born industrialist who ranks at #32 on the Forbes list of the wealthiest Americans. He expects to deploy $75 million through a new Cambridge-based investment group that will scour academic labs for breakthrough research that could serve as the kernel of new companies.
The new firm, Access BridgeGap Ventures, will be headed by Daniel Behr, who previously worked at the Harvard University Office of Technology Development, which helps the university spin out companies and license its research. Behr had also recently worked at Allied Minds, a Boston investment firm that hunts for promising technologies at universities and government labs. Working alongside Behr is Ben Bronstein, a long-time executive in the medical device and biotech industries. Jess Barnes will be responsible for due diligence at the new firm.
Access BridgeGap is described as the "entrepreneur-run life sciences investment arm" of Blavatnik's New York-based conglomerate, which owns chemical companies, real estate, and the Warner Music Group. Behr says it will fund three to five companies per year.
Behr says he started thinking about a firm that could help shepherd promising research from academic labs into the commercial sphere in 2005, "but I couldn't raise the money for it then." Through Behr's Harvard connections, he got introduced to Blavatnik, the sole investor in Access BridgeGap. Behr says Blavatnik has committed to investing $75 million over the fund's first few years, but could add more. (Blavatnik earned his MBA at Harvard Business School, and in 2009 donated $10 million to the university.)
"Our focus is on early-stage therapeutics — treating or preventing disease — not devices or diagnostics or imaging," Behr says. The firm will consider new drugs developed in academic labs and at early-stage start-ups, as well as those developed at bigger biopharma companies that may not regard a particular disease area or approach as core to their strategy any more. Access BridgeGap may also invest in more mature companies where the early investors are tapped out, and there's an opportunity to put money in at an appealing valuation.
"We're being a little contrarian by investing in early-stage therapeutics," Behr says, "but we think the likelihood of having an early exit is higher there.
Behr says the firm is on the verge of making its first investment — it'll be a Boston-area start-up — but he wasn't ready to share details.
Advisors to the firm include Isaac Kohlberg, the top licensing officer at Harvard's Office of Technology Development; Manuel Navia, a one-time senior executive at Vertex and Merck; and William Koster, a former head of drug discovery research at Bristol-Myers Squibb.
Need a whiff of energy? Cambridge-based Breathable Foods is getting ready to launch inhalable caffeine shots
Two Boston-area venture capital firms are getting behind a Wonka-esque concept: that instead of sipping coffee or nibbling on a chocolate bar, consumers might prefer to take a hearty huff. Breathable Foods, based in Cambridge, recently raised $8.5 million from Flagship Ventures and Polaris Venture Partners, and it is planning to launch its first product, AeroShot Pure Energy, in the U.S. early next year.
The company was founded by David Edwards, a professor of biomedical engineering at Harvard who earlier in his career was involved with Advanced Inhalation Research, a start-up that worked on turning drugs like human growth hormone into powders that could be inhaled, rather than injected. (That business is now known as Civitas.) Another Edwards company, Pulmatrix, is developing inhalable drugs to fight respiratory infections.
AeroShots will cost $2.99, and they contain a blend of caffeine, Vitamin B, natural sweeteners like Stevia, and natural lime flavor, all distilled into tiny particles that are about 10 microns in size. (At that size, they dissolve in your mouth and are swallowed, rather than entering your lungs, the company says.) Each lipstick tube-sized inhaler contains between 4 and 6 puffs. You can use it a puff at a time, or all at once if you're feeling especially dilapidated. One AeroShot contains about 100 milligrams of caffeine — roughly the same as an average cup of coffee.
Breathable Foods will also market another product Edwards developed and launched in 2009: Le Whif, a calorie-free chocolate inhaler. Edwards tells me that without much marketing, 400,000 Le Whifs were sold in 2010, mainly to women. Another product in development is Le Whaf. "It's a carafe that you can pour a liquid like orange juice or a martini into, and it forms a cloud of flavor that you can put into a glass, and sip out with a straw," Edwards explains. "When you use it with something like whiskey, it gives you the essence of the experience, while the alcohol content is small."
Edwards says the company will be developing other products that can deliver flavor without calories, or nutritional supplements without having to pop a pill. Edwards says that Breathable Foods' products are intended to appeal to people "interested in the new."
Noubar Afeyan, managing director at Flagship Ventures in Cambridge, says that his firm invested in Breathable Foods because "we think that the platform could be used to deliver nutrients and health-related products" in a convenient way — and in a product that isn't stringently regulated by the FDA, as are many of the biotech and pharma companies Flagship usually backs. (The FDA considers Breathable Foods' products to be GRAS substances, or things "generally regarded as safe.")
Terry McGuire of Polaris calls Breathable Foods "a novel approach to an enormous industry... Proof that we as venture capitalists should always be on the frontier of where science meets life." His firm is also invested in Living Proof, perhaps the only MIT spin-out company, ever, to make hair care products.
I just got a few AeroShot samples delivered to my office; I'm planning to try one tomorrow morning instead of my morning cup of coffee. I'll let you know how it goes...
But beyond saying that the new firm will operate in Boston, New York, and San Francisco, and that it will invest between $50,000 and $750,000 in a company's earliest round of funding, Hirshland left a lot of the details hazy. At Polaris, Hirshland was best known for helping create DogPatch Labs, a free workplace for start-ups, and also investing in Automattic, the company that operates the popular blogging platform Wordpress. He also started an annual digital media summit held in Park City, Utah.
Hirshland didn't respond to multiple requests for comment, but according to a federal filing, he's hoping to raise a first fund of $25 million. While the document indicates that he hasn't raised anything yet, several sources in the venture industry tell me Hirshland has collected soft commitments for about half of the $25 million.
Hirshland's new backers, I'm told, include his old bosses: Polaris co-founders Jon Flint and Terry McGuire. And the new one-man firm is based, for the time being in, Polaris' Waltham offices. (Though most people I know who've spotted Hirshland recently have run into him in New York.)
"We're being very supportive — I'll leave it at that," says McGuire. Comparing Resolute's approach to the seed investing that Polaris does through Dogpatch, McGuire says, "The way Mike intends to invest is more of a super angel approach."
Know more about what Hirshland is up to at Resolute? Post it if you would.
1. Suburban firms migrating into the city (Highland Capital Partners, Charles River Ventures, Bessemer, ATV, etc.)
2. Boston-area VCs setting up outposts in the Bay area (Highland, Polaris Venture Partners, General Catalyst, Third Rock Ventures, etc.)
Bain Capital Ventures is joining that second movement, with a new six-person office in Palo Alto, near that city's main drag, University Avenue.
"I'm the only partner here for now," managing director Ajay Agarwal tells me, "but we're looking to add some others over time." Agarwal, a Stanford alum, moved west in August. While he was still based in Bain's Copley Square office, he made investments in start-ups such as Kiva Systems, Skyhook Wireless, Memento, and Rave Mobile Safety.
"We've been investing in California companies for the last ten years, but it has been by getting on planes," Agarwal explains. "That limits you to making Series B investments and later. When we think about early-stage geographies, Boston and New York are exciting, and we have coverage there, but we had no coverage in California, which is also exciting. It's not a statement that we think the east coast is not a great geography anymore. It's an 'and' statement, not an 'or.'"
Agarwal, who earlier in his career was an executive at Trilogy in Austin, says, "The Silicon Valley community, for better or worse, is all tech, all the time. It's in the water here. Whether you like it or not, you can't get away from it."
The water must be having an effect: shortly after moving west, Agarwal decided to start a blog.
PE Hub reported earlier this year that Bain Capital Ventures was planning to open a Silicon Valley office, but Bain didn't confirm the decision then. The firm, an affiliate of the Bain Capital private equity business, raised a $525 million investment fund last year.
The winds shifted a bit in 2011, with Polaris announcing that it had raised a new $375 million investment fund — much smaller than the $1 billion it had collected in 2006. (The firm had initially hoped to raise a tidy half-billion, but the market didn't cooperate.) Shortly after that, partners began to splinter off from the firm, including Mike Hirshland, the guy who'd developed the Dogpatch Labs concept in the first place.
Also, over the last two years, while about
150 75 companies have circulated through the Dogpatch Cambridge space, Polaris has found just one company in which to invest: Biff Labs, a stealthy search-and-social media related start-up that recently graduated out of Dogpatch and into its own Central Square office space. (Biff's founders had previously worked together at Microsoft's New England R&D outpost, on social media oriented projects like Bing.com's Twitter search.) For context, Polaris has put money into nine start-ups that gestated in the Dogpatch Labs offices in California and New York. [Update: Dogpatch has 40 alumni companies and 35 currently in the facility. The original 150 number earlier in this paragraph was my mistake.]
Dogpatch Cambridge is great for the local innovation scene, but is it meeting Polaris' expectations — and more importantly, those "limited partners" who give Polaris money to invest?
To see where things stand, I got in touch with David Barrett, the Polaris partner who oversees the Cambridge location. He served up some stats from the first two years, and underscored Polaris' commitment to keep supporting the space.
- While Polaris has made just one bet at Dogpatch Cambridge, 22 companies that have shacked up there have received seed funding so far, and 11 have raised bigger "Series A" rounds.
- Dogpatch Cambridge is currently home to 110 people working on 35 different companies. There are about 100 companies on the waiting list to get in.
- The typical length of stay is between six and nine months. Of the 40 companies that have moved out of Dogpatch Cambridge, Barrett says roughly 90 percent are still alive and kicking.
- The typical seed round for a company at Dogpatch Cambridge has been $500,000 to $750,000. Series A fundings for Cambridge companies have ranged from $1.5 million to $8.5 million.
- There are over 30 open jobs with companies at Dogpatch Labs Cambridge.
- Over $140 million has been invested in companies across all four of the Dogpatch Labs locations.
- While Polaris has only made one investment in a Dogpatch Cambridge denizen, other firms have rushed into the void, including Venrock, Spark Capital, Shasta Ventures, CommonAngels, and NextView Ventures. So the early worries about "signaling risk" — what will other investors think if I move into Dogpatch but Polaris chooses not to invest in my start-up — seem to have dissipated.
Earlier this month, Gus Weber, an entrepreneur-in-residence who helps Barrett run Dogpatch Cambridge, posted this status update, which reports on some recent fundings and new residents.
I asked Barrett how Polaris evaluates the success of the various Dogpatch locations (Cambridge, New York, Palo Alto, and Dublin). His reply:
We measure success by asking several questions:
We think the track record across each of these measures is strong.
- Is our DPL location a strong community, with residents and mentors supporting each other?
- What is the quality of ideas we are seeing?
- Have we created a magnet for other investors and repeat entrepreneurs?
- Are we contributing to a richer, deeper ecosystem in each community in which we operate?
- Are we seeing a good ratio of financings and acquisitions?
- Are we building deeper relationships over a “rationalized” period of time with entrepreneurs we find to be compelling?
...Dogpatch is attracting very high quality, repeat entrepreneurs that have typically shied away from traditional incubator/co-working type spaces.
For us, Dogpatch has proven to us that it's a great vehicle for meeting, building relationships with, and working closely with next-gen entrepreneurs. For potential investment now as well as down the road as they continue to progress.
For entrepreneurs, our “open source” construct has proven very attractive as it enables relationships to be built with a cross-section of investors, advisors and mentors.
...The feedback we’ve received is that all of our DPL communities are contributing to a richer ecosystem in each operating area. We believe you'd hear from folks in Cambridge that we've been active participants in the area’s ecosystem — and active partners in helping all DPL companies succeed (regardless of [Polaris] investment).
Lastly, as we look at potential DPL investments, it goes without saying that it’s about quality of fit — not quantity...
Dogpatch gives Polaris a view into the where/what/how compelling innovation is happening. It gives us a great opportunity to share networks, learnings and experiences with entrepreneurs. And to help catalyze them to do so with each other.
Bottom-line, we’re early stage investors with a long-term view. Building these relationships helps us to not only help support the community at-large — but also helps to make us better investors for Seed, Series A & Series B opportunities today and down the road.
I asked Barrett whether his firm is committed to keeping the Cambridge location going indefinitely. (Here I should note that Microsoft, as a sponsor of Dogpatch Cambridge, underwrites the cost of rent, with Polaris paying utilities and other operating costs... so the space isn't a huge commitment for the VC firm.) "We're 'all in' with Dogpatch Labs in Cambridge and the other Dogpatch Labs communities," he said.
What sorts of things can trigger it?
I was curious, so I asked a group of Boston venture capitalists and angels this week. Here's what they said.
Larry Bohn, General Catalyst Partners
Saying they are completely unique, and that there is no competition. Groan.
Elon Boms, Launch Capital
1. Giving a large chunk of the company away to an advisor or a ghost co-founder / someone who adds zero value.
2. Cold-calling our office line.
3. Begging for meetings after we pass. Better is to ask why we passed, and what metrics we need to see to make an investment. Then following up when there is new news.
4. Paying to pitch [at a conference or investor gathering.] I HATE those types of events.
5. Hiring an investment banker for [help raising] a seed round.
6. Not conveying expertise in their market.
Dina Routhier, Massachusetts Technology Development Corp.
I think the most common thing that pegs an entrepreneur as an amateur is when they come in and immediately start talking about their amazing new technology, and forget to start the discussion with, "What big problem in the market am I trying to solve?" If they don’t start with the problem, then I know they are green.
That, and coming in without any type of pitch deck, just to "talk" about their company.
Ajay Agarwal, Bain Capital Ventures
For early-stage entrepreneurs (as opposed to growth stage), here are some things off the top of my head:
- Using a banker to raise money or sending in something over the transom (cold e-mail). Good entrepreneurs can always find a warm intro to a VC.
- Overplaying your hand. Excessive gamesmanship:
Entrepreneur: "Firm XYZ is about to give me a term sheet." VC: "Have you presented to their partners yet?" Entrepreneur: "Not yet, but they say a term sheet is coming this week."
- Good entrepreneurs are honest and transparent about the fact the process is competitive; but they never over-sell where the other firms are and they don't reveal who else is in the mix. Not sure why an entrepreneur would do this – only weakens their hand.
- Having random advisors participate in negotiate term
sheet. Good entrepreneur negotiates everything directly (seeks advice behind the scenes)
- Name-dropping. This is the worst. Usually it's not true (e.g., You are not really good friends with Zuck) and even if it is true, it doesn't help your case with the VC.
Chris Sheehan, CommonAngels
Entrepreneurs shouldn't overly use buzzwords to describe the business. "We have a cloud-enabled, big data, social graph platform..."
Rob Day, Black Coral Capital
1. Revenue projections in the hundreds of millions in under 5 years.
2. Refusing to describe even high-level conceptual info about the technology or solution.
3. Not having heard of an obvious competitor.
4.[Company's valuation expectations are] based upon a discounted cash flow analysis of a pre-revenue company.
Izhar Armony, Charles River Ventures
Too much focus on the deal dynamics ("I need a term sheet in 24 hours," "I am expecting a term sheet from this or that VC any day," "Also, this or that angel is in the deal"), and not enough focus on the product and how you're gonna build a big business.
Paul Maeder, Highland Capital Partners
- Projections labeled YR1 and YR2 instead of 2011 2012. If you aren't convinced of when it will happen, please don't ask me to join.
- "These projections are conservative." They always are, but rarely enough. Nothing is easy.
- "Finshed developing the product and gave ourselves a bonus becaus that was the hard part." Oh no it wasn't, dude. And products are never done.
Bill Warner, Co-Flow Investing
Sending out the message that they know everything, as opposed to having stuff to learn. The thing I'm most looking for is people who are thirsty to be learning.
Lee Hower, NextView Ventures
Asking [me to sign an] NDA is probably the most common.
Another is to try to dictate terms early in a first meeting. Occasionally you meet folks who within 10 minutes say, "We're raising $X at $Y valuation," before you've even had a chance do get to know them or understand their business at all. I don't mean that investors will dictate terms. It's all a negotiation, but it's very much putting the cart before the horse, in my opinion, early in a conversation.
Also, getting introduced through a service provider (legal counsel, accountant, etc.) usually comes off pretty JV. Even if it's a reputable firm, if that's the best intro an entrepreneur can get, it's usually a signal they're not very experienced. I think a lot of investors would almost prefer entrepreneurs try to reach out to them directly or try to meet at event.
Todd Dagres, Spark Capital:
1. "We outsource tech."
2. "We don't really have any competition."
3. "We have a verbal term sheet."
Joe Caruso, Bantam Group
They say, "We have three patents," when what they mean is, "We have filed three patents." BIG difference.
Jeffrey Bussgang, Flybridge Capital Partners
Here's one pet peeve of ours: when entrepreneurs show financial projections that in the out years (say, years 4-5) show a business that has fatter profit margins than Microsoft or Google. 50 percent EBITDA margins are reserved for monopolies, the mafia and Microsoft — not a brand new start up fighting for growth and leadership!"
So when do entrepreneurs get a chance to give tips to those all-powerful Keepers of the Checkbook? Hardly ever, is the answer. Offering honest feedback to a VC or angel investor — whether they've put money in or passed — can sour the relationship. Besides, aren't venture capitalists infallible?
TheFunded, of course, has collected anonymous ratings and comments about venture capital firms and individual partners since 2007. But after a serial entrepreneur e-mailed me earlier this month to vent about a local VC who had neglected to so much as visit his Web site prior to the meeting, I thought it might be a good idea to gather some feedback from Boston-area entrepreneurs, intended for Boston-area investors. (Though much of what they had to say probably applies to start-up investors anywhere.) My criteria: everyone I asked has been successful in raising money from angels or venture capital firms, so there's no hostility here from entrepreneurs who were unable to find backing.
I granted everyone anonymity, since few entrepreneurs want to burn any bridges with VC firms or angel groups. Here's what they had to say. (And I posted my favorite response in its entirety on my "Read Scott's E-Mail" blog.)
- One software entrepreneur told me about a group of angel investors who visited his company, but decided not to invest. Instead, they began pitching their services as consultants. "I cannot stress this enough: The worst thing on this planet is a consultant disguised as an angel/VC. And they are everywhere. Atrocious."
- A serial entrepreneur who successfully sold his last two companies told me about a meeting last month with a Cambridge venture capitalist who spent most of their first meeting looking at his phone. "Our meeting was apparently an email-checking session," he wrote. "I wish I'd known; I could have gotten some work done."
- A serial entrepreneur working on a new mobile start-up complains about VCs who don't keep negotiations confidential. "I've had it happen where I was congratulated by someone thousands of miles away on receiving a term sheet from a firm — hours after I got it." (The term sheet outlines the details of a proposed investment.) "When an entrepreneur is in heavy negotiations with a VC firm, keep those negotiations private. The entrepreneur is."
- "A VC on Winter Street [in Waltham] was trying to convince me why his firm would be a great partner for my next venture. I commented that the disruption caused by sites such as Craigslist would impact traditional media and local advertising. His response was, 'Fascinating. Tell me more about this Craig's List.'" The meeting took place in 2002; Craigslist had been founded seven years earlier. "Why would an entrepreneur feel that this VC could add value, beyond money, if they don't even follow the domain closely?"
- "Answer our emails. Our memories are long, and we’re just getting started."
- An entrepreneur who successfully raised about $2 million last year writes, "One immediate VC behavioral problem jumps to mind: saying 'no' in a way that sounds like 'yes.' For example, VCs often end a meeting by saying, 'It sounds like you have an amazing product, and we'd be very interested in talking once you have more traction with some larger customers.' Then, once you return with more traction with some larger customers, the VC ends the meeting by saying. 'It sounds like you have an amazing product, and we'd be very interested in talking once you have more traction with some larger customers.' It's a cowardly hedge to say what the entrepreneur needs to do to get your interest, then to show no interest when they meet that goal. Instead, be honest, and say, 'Beneath my self-certain facade, I have no idea which companies will be successful and which won't. I missed Facebook and Google, and bet on some real losers. So, in case I'm wrong about you too, I'd like you to come back to me when you no longer need my money so I can jump on the train as it's leaving the station.'"
- One entrepreneur who recently sold a venture-backed company writes that she has to chuckle when a venture capitalist asks to see her business plan. "I have never met a VC that read my business plan. Ever. Even the ones who funded me didn’t read it. What a waste."
- Several venture capital firms often band together as a "syndicate" to put money into a start-up. One entrepreneur writes, "In 2008, I was fortunate enough to have a VC who wanted to invest in my start-up. They wanted to create a syndicate, and introduced me and my chief technology officer to a large local VC firm. We visited this firm, and I asked if their diligence process was any different having come via a partnering VC. Their response was, 'We own the VC industry. We don't care who introduced you or who wants to invest with us. If we don't invest, you're dead.' Why would any entrepreneur want to work with that [jerk]?"
- A female entrepreneur who has raised about $1 million for her current start-up recalls trying to raise money for a previous venture. One investor, she says, "played 'Mr. I Was An Entrepreneur Too' to win our confidence. We trusted him and opened up. Once he figured out that we very short of cash, he lowered the valuation and changed terms on us because he figured we were desperate. We walked away and got money from another VC."
- "Don’t say you are a cleantech investor unless you are actually investing in cleantech companies. We wasted a lot of time talking to VCs who weren’t actually making investments in the space and lacked a fundamental understanding of the industry."
- Often, more senior VCs ask their less-experienced colleagues to screen prospective investments, especially when a company is run by a first-time entrepreneur with no strong links to the firm. One such entrepreneur writes, "I once had a call with a prominent seed stage firm in New York. I worked to get two separate intros to one of the partners, only to get bumped to a new associate. When we got on the call, first thing he asks is 'When is the site going to go live?' We already had several thousand customers and hundreds of thousands in revenue. Even though he was interested in recommending us on, I stopped the relationship there, because I didn't want to work with someone with that kind of judgment."
- "It’s a cliché already, but east coast VCs apparently like to show their prospective investees how important they are."
- "My VCs we great about the money, but over the ten years I worked with them, they did not send me one new client, one new strategic partner, one PR contact, or one new employee. Their website is all about how they add value, but they are basically finance guys. Well-intentioned, but just finance guys."
- After a VC firm had decided to invest in a company, but before they'd announced the deal, one of that company's competitors came in to pitch, writes one entrepreneur. "The VCs took the meeting 'just to learn more about the market and competitors,' which definitely crossed ethical bounds, in my humble opinion. I know the story because I knew one of the principals who subsequently left the VC firm. VCs maintain that they are ethically squeaky clean, yet when greed comes in the way, they breach their own ethical bounds."
- One entrepreneur selling a product whose sole purpose is to help save money in the transportation industry writes, "We can tell when you ask questions whether you’ve actually paid attention to anything we’ve said. For example, after describing how I can save a customer money, a VC asked 'so what’s the value proposition?'"
- One entrepreneur chastises "VC firms that sneak terms into the documents, or change things last minute. After a term sheet is signed by the entrepreneur, a VC might propose changes last minute during the quiet period (when the entrepreneur has agreed, in writing, to not seek out other suitors). This is a dirty, dirty trick and some first-time entrepreneurs get snared by it." Another entrepreneur tells me that he'd "had an investor try to renegotiate terms an hour before the closing, to squeeze a little more out of the deal."
- "I spoke to a 12-person angel group based in Portsmouth, NH. It was for a few hundred thousand dollars, and I ended up going to Portsmouth twelve times, talking to various individuals and sub-groups. They never said 'no.' The conversations just petered out. After that, I never spoke to any investors, angels, or VCs. I’ve decided that customers are the best investors."
- "As an entrepreneur, at the top of my list of VC losers are the folks who don’t use the tools. If I’m a social media person and you don’t use Twitter or Facebook … come on! I don’t care how rich or old or experienced you are, it takes about one morning to figure out how to tweet. Ask the summer intern to show the senior partners wassup!"
- "The best VC meeting I ever had was one in which the partner said, 'You know, this isn’t for me or my firm, and here’s why…' Closure at the first meeting. I totally respected that. Look me in the eye and provide a well thought out, articulate decision. I totally respect that. What I don’t respect is, 'Let me discuss this at my partner meeting on Tuesday.' What that really means is, (a) I didn’t understand a word you said; (b) I can’t make a decision by myself; or (c) I’m kind of a wussy and would rather break up via e-mail. All are unacceptable. Be a man and make a decision."
- "My angel investors took a lot of the early risk and have provided incredible value to get me to this point. If your [VC firm's] philosophy is to limit their involvement and crush their ownership position, please pass" on the deal, writes on entrepreneur who worked for several years at a VC firm. He adds, "If your deal structure or your board style will make me feel like an employee and not an owner, please pass."
- "Early stage (seed-level) VCs shouldn't be digging in to a conception-stage company's unit economics. If that's the kind of diligence you want to do, then invest at a later stage. At such an early stage, you're really betting on the market and the team (and perhaps the product). If you get those three things right, you'll find a way to make the economics work before you need to raise a later round of capital."
- "Over the years, I have come across a couple people who meet the stereotype of the newly-minted VC firm associate. They are usually about 27, just graduated from Harvard Business School, and have no experience in operations or creating a product, having spent their early career in management consulting or finance. But their inexperience is inversely correlated with their opinion of themselves. They think they are well qualified to pontificate and give stern advice on matters they don't yet fully grok. To these new associates, I would advise trying to remain humble, and to consider their interactions with entrepreneurs from the standpoint of, 'What can I learn from this person?' followed by 'How can I help?' After they've invested in a few successes, or, even better, created one, maybe they'll have more wisdom to offer." Another entrepreneur adds, "If you are junior, be fascinated! Ask the incisive questions! Do the analysis! Or at least, if you want to give us advice, be humble and consider starting a sentence with, 'You may have thought of this idea already, given that you’ve been at this for a year…'"
- "As a woman entrepreneur, I have to say I know many wonderful VCs and I appreciate and respect their help and intelligence most of the time, but shockingly there are the still the locker room slip-ups where I’m the only woman in the room [for a] meeting, and some guy thinks it’s appropriate to tell a sexist joke. Hello!?" This same entrepreneur also shared an anecdote about a male partner at VC firm who couldn't figure out how to get a new LCD projector to work during a meeting. When his female assistant couldn't figure it out, either, "he spent a good 10 minutes in a board meeting completely demolishing [her] in front of the assembled crowd (all men and me.) ...He certainly did demonstrate how well he could abuse a woman, showing off what a boorish, nasty, butthead he was by treating this excellent woman in such an unprofessional way."
- Once a venture capitalist has invested in a company, he often takes a seat on the board, and chimes in on strategic or operational issues the company ought to approach differently. One entrepreneur writes, "Keep in mind that...this thing you have an opinion on, that I should do in a different way? Well I do it every freaking day. I get up, have my coffee, go to work, do this thing to best of my ability for 10, 12 hours consistently; then I go home, answer e-mail for a few more hours, and go to bed. Then I get up, and do it again. Then I get up really early, fly to Columbus, and do it some more. This does NOT mean I'm entirely right about the best way to do it. I know this. A little objectivity might be exactly what I need, to get the result we both want to achieve. But please... for the love of Pete... keep in mind when you tell me how you'd do it — whether you have actually done it yourself or not — keep in mind that I do it every freaking day, and that even if I could be doing it better, that deserves a little respect."
- A first-time entrepreneur who has raised nearly $5 million for her start-up writes, "My biggest concern for the health of the start-up economy is the avoidance of any kind of original thinking by VC's. It just isn't rational to fund the fourth, fifth or seventeenth copycat business. I love what Floodgate's Mike Maples and Ann Miuro-Ko say about their preference for funding non-conforming ideas because they usually turn out to be the biggest ones. They say if an company is a hot deal it is rarely a home run because it's not original enough. The real '10+ baggers' are the investments no one would touch — the ones they had to defend the first few years."
- Standing up for the honor of the venture capital industry was one entrepreneur whose company has raised north of $50 million. "I think they get a worse rap than they deserve," he writes.
What do you think?
The Flybridge crew put together this "SNL" parody video, shown during the party. (Toward the end, there's a cameo from yours truly, standing in for Seth Rogen.) The break-down:
0:30 - "Weekend Update"
4:00 - "Mr. Bill Raises Venture Capital"
6:05 - "Digital Short: Like a VC"
OpenView targets software and Internet companies that have already created a product or service, and begun generating revenue. "We look for companies that have around $5 million in revenue when we invest," Maxwell says, "so it's really expansion investing, giving them the resources they need for growth." OpenView will invest in start-ups anywhere in the world, Maxwell adds, "but the company needs to have a North American strategy." Often, that entails setting up a new headquarters in the U.S. and hiring a CEO here. OpenView's current fund totals $233 million, Maxwell says, and typically the firm puts about $7 million or $8 million into a company as its initial investment.
While a partner at Insight (a Manhattan-based firm), Maxwell brought three companies — Astaro, Imceda Software, and Acronis — to Burlington from Germany, Australia and Russia, respectively. Intronis, a cloud-based back-up service that started life in New Jersey, is now operating out of OpenView's Fort Point Channel office, and Zmags, an online merchandising company founded in Denmark, is now headquartered in the same neighborhood. Two other companies, Exinda and Open-e, have established headquarters in Boston after raising money from OpenView.
Most of the companies are still relatively small; all told, they account for perhaps 250 jobs in the state, according to OpenView's figures.
"Boston is just the best place to set these companies up," Maxwell says. Often, they start by using space in OpenView's offices.
"It's really difficult to grow a company in Silicon Valley," he continues. "There's too much competition for hiring, the costs are high, and people in Massachusetts work a lot harder. For business-to-business companies, the labor pool is incredible here, and there are plenty of salespeople. And I say all that as a California native."
But while the MTDC hasn't invested a staggering sum over its lifetime (about $83 million in 133 companies), and it boasts a 16.5 percent internal rate of return, its future always seems to be in doubt, given its reliance on money from Beacon Hill.
This summer is no different, says Jerry Bird, who took over last month as executive director. "The legislature approved $5 million for us about a year-and-a-half ago, but it's not yet in our bank account," says Bird. The hang-up? While the state has already issued bonds to raise the money, there's a technical issue related to freeing up that money to make equity investments, Bird says.
If the money doesn't come through, he says the MTDC might be able to do one new deal this year, reserving the rest of the roughly $7 million in its bank account for follow-on investments in existing portfolio companies. Then, the quasi-public entity would have to cut staffing and pray for some big exits among its current portfolio companies to replenish its coffers.
Among the companies MTDC has backed recently are Illume Software, which makes an app intended to curb distracted driving, and Harvest Automation, which is designing robots that can assist with agricultural work. Bird says that MTDC partner Dina Routhier "worked with Harvest for over a year to help them find other funders for the round."
Bird has been holding a series of dinners with venture capitalists and entrepreneurs to try to understand how MTDC can best support the local ecosystem, and he has also set up an online survey to solicit opinions on the role that MTDC should play.
He shared some preliminary results with me (they've collected about 90 responses so far.) Eighty-two percent of respondents believe there is a "shortage of equity capital in Massachusetts for start-up companies," particularly those founded by first-time entrepreneurs and those in "underserved industries," like robotics or material science. Nearly 70 percent of respondents said that funding from MTDC helped make start-ups more attractive to other investors.
But respondents were split on whether MDTC could be an "effective catalyst in the innovation economy" if it didn't supply money at all, and instead provided only educational events and investor match-making to start-ups. Fifty-three percent believed it could, and about 43 percent said it couldn't.
If you've got an opinion on what the future of MTDC ought to be, you can fill out the 20-question survey here.
Highland Capital Partners announces ten collegiate start-up teams participating in 2011 'Summer@Highland' program
This afternoon, Highland is revealing the ten start-ups that were accepted into this summer's program. (More than 225 applied for admission.) Six teams are based in California, and four in what will soon be Highland's new headquarters in Kendall Square.
The descriptions below were provided by Highland; I've listed the four Cambridge teams first, and added their university affiliations.
- Tivli – building a platform to deliver TV, DVR and VOD cable services to any device over the Internet [Harvard and University of Michigan]
California teams (Highland offers space in San Francisco and Menlo Park):
- 27Bards – a site where people create, offer and go on unique tours
- AdRaid – enabling brands to reach a captive audience through innovative product placement
- Clinkle – software-based mobile payment platform
- Imprint Energy – redefining the limits of energy storage with entirely printed, rechargeable batteries
- Lemonwi.se – online product review and social media solutions for consumer facing brands
- Waddle – mobile photo-journal for groups of friends
From Highland's press release:
For 2011, teams benefit from over 40 forums and events involving top serial & young entrepreneurs and thought leaders in business, design, legal, product, talent and technology. Speakers in this year’s program include founders and CEOs from Airbnb, Dropbox, Gemvara, Quattro Wireless, RentJuice, SCVNGR, session M and WePay. Also lending their expertise are serial entrepreneurs/founders Steve Blank (“Four Steps to the Epiphany”), Desh Deshpande, Naval Ravikant (founder of AngelList) and Bill Warner, along with business & technology experts from Amazon, Engine Yard, Google, HumanLogic, IDEO, KAYAK, Russell Reynolds and WilmerHale.
Cambridge-based Launch Capital turns portfolio company execs into scouts, starts hosting 'unconferences'
Launch managing director Elon Boms dubs the new Launch Capital Referral Program a "game-changer." It turns the founders and executives at Launch's portfolio companies into a network of scouts helping Launch find new investments. Boms writes via e-mail, "We are offering a meaningful piece of the upside" — IE, equity — "in any business that we invest in that has been referred in by someone in our immediate portfolio network. We have, effectively, created venture partners out of all 75 of our portfolio companies." Many of the companies, Boms says, already introduce Launch to promising new start-ups. But by formalizing the program, he says, "we hope to also create a tighter network of companies that are collaborating with one another and learning from each other — since they will be aligned in each other's upside."
Launch also began hosting summits for its portfolio companies last fall — something many venture firms do — but Boms says they're different in that they follow the "unconference" format. "The companies create the agenda and drive the meeting," he explains, without a pre-set agenda or speakers. On the horizon are several more summits, on topics like "Customer Acquisition Strategies for Internet Companies" and "Being a Female Founder."
The firm is headquartered in Harvard Square, but has outposts in Connecticut and California as well. It makes investments ranging from $25,000 to $250,000, with an average investment of about $150,000, Boms says. Launch invests in non-tech start-ups, too, like Voltage Coffee & Art, a café in Kendall Square, and the Nanny Caddy, a vending machine for parents on the go that dispenses diapers and pacifiers.
"We've been calling it a shared space," says Ashai. "The only reason I don't call it an incubator is that people have very different ideas about what an incubator is." There's no official moniker for the 3,500-square foot space yet, he says.
"We're looking aggressively at cleantech investments," says Ashai. "That could be interesting consumer Internet opportunities, which is what Earth Aid is, or smartgrid companies, or service-related ideas within transportation or the deployment of solar or wind technologies." In Boston, Ashai says, "you have companies like EnerNOC, which has been successful, and some major utilities, and a great university network. All those raw materials, we think, can create some really disruptive innovation in energy efficiency, too."
Ashai says Point Judith isn't likely to back capital-intensive efforts to, say, develop a new zucchini-based biofuel or convert beach sand into 93-octane gasoline. But interestingly, it has been doing some deals alongside big-name strategic investors in the energy industry (which he says he can't yet name.)
Ashai says he collaborates on energy-related deals with Jeffrey Weiss, a Point Judith "operating partner" (not a full-time employee of the firm) who is also active with the angel groups Boston Cleantech Angels and Clean Energy Venture Group.
The current Point Judith outpost in Boston doesn't have space to house many more companies, Ashai says, but "we may eventually look to expand it if we can find the right space."
Ashai earned degrees in business and public policy from Harvard, and before joining Point Judith was a senior associate at Good Energies in New York, another investment firm.
Also leaving Battery are Matt Niehaus, a partner in Menlo Park who focuses on communication services and infrastructure technologies, and a senior associate in the Waltham office whose name I haven't yet learned. Niehaus had put a big chunk of Battery's cash into mobile operator Pocket Communications, an investment which didn't pan out.
In March, Satya Patel left his full-time job at Battery's Menlo Park office to join Twitter as its director of product management. (Patel is now a "venture partner" at Battery.) And in February, Ramneek Gupta left Battery's west coast office, where he'd been a partner focusing on digital media and financial services, to join Citi Ventures.
I had been hoping that Tom Crotty, the top dog at Battery, might shed some light on the significance of all this: is the firm deliberately trimming its partner ranks... changing its sector focus... looking to do different types of deals?
Crotty sent me an e-mail confirming that one general partner and one senior associate in Waltham "will be transitioning out of Battery over the next months," along with one partner in Menlo Park. But "that is all we'll be able to comment on," he wrote.
Battery raised a new $750 million fund last year.
Matrix Partners, the Waltham venture capital firm that has backed companies like Apple, Netezza, Apollo Computer, and HubSpot, is setting up a "branch office" in space at 101 Main Street occupied until last month by BioVentures Investors.
The Matrix Kendall Square Project is being spearheaded by partners David Skok and Antonio Rodriguez (pictured below). The new space will serve as home base for a new series of events for entrepreneurs that the pair have dubbed Startup University. While Matrix isn't vacating its Waltham offices atop lofty Mount Money, the Cambridge foray could lead to a wholesale move of the firm in the coming years. (Rodriguez and Tim Barrows, another Matrix investor, both live in Cambridge.)
The new Kendall Square space, totaling about 3,000 square feet, will have offices for the four partners who normally work out of the Waltham office, but there isn't sufficient room for the rest of Matrix's support staff. It will, however, have a "living room" area for casual hang-time; two conference rooms; desks for two or three start-ups that Matrix is supplying with seed capital; and event space big enough for groups of 40 to 50 people. Skok says the first start-up to use the space will likely be GrabCad, an Estonian start-up that has been participating in the TechStars Boston program, which wraps up next week.
Of Kendall Square, Skok says, "This is the area that's the real hub of things that are going on with the community," though he believes that significant companies will still get started and built out in the 'burbs.
He and Rodriguez hope that their free Startup University series of events will help newer entrepreneurs build their skill sets. "We think that there are plenty of great events are Boston, but they're somewhat random," Skok says. "They miss some of the learnings that start-ups need to have, which are not taught at universities. TechStars does some of this, but they also take six percent of your company in return. We're thinking about topics like learning to hire, search engine marketing and search engine optimization, managing engineers, and customer acquisition." Already signed on to serve as adjunct lecturers at Startup University are local entrepreneurs like LogMeIn CEO Michael Simon, Performable CEO David Cancel, Constant Contact CEO Gail Goodman, CloudSwitch CEO John McEleney, and HubSpot CTO Dharmesh Shah.
Matrix hopes to occupy the new Kendall Square office next month.FULL ENTRY
The latest Waltham venture capital firm hunting for office space in Boston and Cambridge is Advanced Technology Ventures, which invests in healthcare, IT, and cleantech. The firm was founded in New York in 1979 by a veteran of Venrock, another VC firm. It moved its east coast office to Boston in 1984, and then out to Waltham in 2001.
ATV hasn't yet decided when the move will happen, but it'll likely take place this year. "Their motivation is to be closer to the entrepreneurs, labs, etc.," says Donna von Halle, the firm's spokesperson.
Earlier this month, I noted that Charles River Ventures (located in the same Mount Money office complex as ATV) is also shopping for more urban digs.
In 2009, I wrote a blog post titled "Why Waltham Doesn't Matter," which posited that "the new core of Boston venture capital has moved in closer to the city, toward Copley Square and Harvard Square." The migration has only gained momentum since then. (Many people would observe that VCs can sometimes exhibit herd-like behavior...)
The best comment on that piece came from Howard Anderson, a senior lecturer at MIT's Sloan School and one of the founders of Battery Ventures (born on Battery Street in downtown Boston, but now located in Waltham), who wrote:
Most venture capital in the Boston area got started within 2 stops of the Red Line...Venture Capitalists moved to Waltham... to be closer to their golf clubs.
There is an inverse relationship between the success of a firm and its distance from MIT's Golden Dome. There is something magical about the ability to have an MIT/Harvard Professor able to jump from his lab to his startups office and back again. Also, the people you want to hire are Ph.D. students.
Golf has been the undoing of more great venture capital companies in Boston than Silicon Valley. I hear that for every round of golf that a VC plays, his IQ goes down one point.
Also worth reading is this post by Larry Cheng, a former Battery principal, which tells the story of how Facebook's founders had to pay for their cab ride from Cambridge to Waltham... and how Cheng gave them a lift back to campus.
Worried now that Mount Money may be turning into Vacancyville...
The firm hasn't signed a lease yet, and their lease in Waltham doesn't expire for a while, but Armony says the move will likely happen this year. He says that he and the other CRV partners who focus on Internet, mobile, and energy investments have been spending a lot of time at the new CriticalMass space in the Cambridge Innovation Center (which opened earlier this year), and he observes that "70 percent of our current portfolio companies are in Cambridge and Boston."
Charles River once had offices in Post Office Square in downtown Boston, and several of the firm's original partners lived in the city. But Armony says the firm moved to the western 'burbs in 1995 to follow the communications and IT entrepreneurs Charles River was backing. "Those companies were built out on Route 495 and 128," he says. "And I still think most of the storage and communications entrepreneurs we work with are going to be out there." Just one example: Affirmed Networks, the new wireless company from Sonus Networks founder Hassan Ahmed, is out in Acton.
But in Cambridge, CRV will be much closer to portfolio companies like Performable, Vlingo, OpenMile, CampusLive, Heartland Robotics, and 24M Technologies — all of which are in Boston or Cambridge.
In other VC real estate news, I recently updated this post about Highland Capital Partners trading their Lexington digs for Kendall Square. While the firm still won't confirm it, several sources tell me they've found space on the top floor of One Broadway, the MIT-owned building that also houses the Cambridge Innovation Center. And at least one other suburban VC firm is sniffing around Cambridge, I'm told.
Over the last two years, Bessemer Venture Partners, Atlas Venture, and Greylock have moved to Cambridge from the 'burbs, and Lexington-based CommonAngels has opened a satellite office in the Cambridge Innovation Center. (Some might also consider Dogpatch Labs in Kendall Square a satellite of Waltham-based Polaris Venture Partners; that space opened in September 2009.)
Zixi brings in $4 million in first venture round, to market new technology for high-def video delivery
Zixi is selling software to broadcasters and manufacturers of television set-top boxes that delivers video more reliably — especially high-definition video. The Internet, observes Zixi CEO Israel Drori (pictured at right), wasn't designed to deliver video. That's one reason we all spend so much time waiting while video "buffers," or watching pixilated movies because Netflix has determined that our connection isn't fast enough.The new transmission protocol and server-to-client synchronization system Zixi has developed makes more efficient use of the available bandwidth, Drori says.
Zixi's approach, he explains, delivers video without getting tripped up if a chunk of data here or there gets lost or delayed (which is inevitable on the Net.) And the demo is pretty dazzling. The company has mounted two side-by-side flat-screen TVs on the wall of a conference room; the left one shows video delivered normally over the Internet, and the right one shows it using Zixi's software. Whether watching pre-recorded content, or a live stream of CNN, the screen on the right always started playing three or four seconds sooner than the non-Zixi screen, and it was never subject to freezing or stuttering.
Key to Zixi's technology is a way to use more of the available bandwidth for video delivery, and less for acknowledging that certain chunks (or packets) of video data were received, or recovering packets that got lost or waylaid.
Drori says that he and chief technologist Uri Avni bootstrapped the company for the first five years. "We knew that longer-form video was coming, that quality would be important since people were buying these big flat-screens, and that TVs and set-top boxes would have Internet connections," Drori says.
The funding round took place in late 2010, just before New Year's. It includes Boston-based Schooner Capital, as well as individuals like Sidney Topol, former CEO of the set-top box maker Scientific Atlanta, and Maurice Schonfeld, a former top exec at CNN and the Food Network.
"At the first meeting, I was extremely skeptical," says Ted Henderson, managing director at Schooner. "I talked to every one of their customers. But at the end of the process, we said, 'This is off the normal radar screen,' but we like things like that. We also felt that the timing of what Zixi is trying to do was finally right."
The company now has nine employees in Waltham, and another eight in Tel Aviv, Israel. Since the funding, Zixi has hired sales and marketing executives from Samsung and Netgear. Now, the company's focus is on selling its technology to media companies and set-top box manufacturers. They're marketing it both as a way to deliver video among a network of partners (for instance, a cable channel getting its content to a cable system in Australia, without paying for satellite delivery), and also directly to the consumer.
Zixi's customers include Thomson Reuters and 20th Century Fox, and its software was integrated into a Netgear set-top box last fall.
I'm told that Highland Capital Partners is planning to abandon their suburban digs alongside Route 2 in Lexington for Cambridge. They'd join venture capital firms like Atlas Venture, Greylock, and Bessemer Venture Partners in leaving the 'burbs behind for the bustle of the planet's smartest city.
It sounds like Highland hasn't yet signed a lease, but has been mainly looking in Kendall Square. One source at another venture firm told me he thought Highland might wind up at Four Cambridge Center or One Broadway, the MIT-owned building that also houses the Cambridge Innovation Center. Update: Real estate industry sources say that Highland has zeroed in on the top floor of One Broadway.
Paul Maeder, a Highland co-founder, wasn't saying much this afternoon, beyond confirming that the firm was in the market for new space, and noting that partner Sean Dalton is handling the search. He's working with Bill Anderson of Cushman & Wakefield.
Maeder and Highland's other founder, Bob Higgins, both reside in Cambridge, as does partner Dan Nova. Back in the dot-com days, when I profiled Nova for Boston Magazine, Highland was headquartered in downtown Boston, at International Place.
InnoSight, the consulting firm founded by Clay Christensen of Harvard Business School, will be moving into Highland's current space in Lexington.
The New England Venture Capital Association and five of its member firms will sponsor free Kendall Square desks for early-stage entrepreneurs, starting March 31st. The 2,500 square foot space will be part of a new co-working facility — where numerous start-up teams share open space instead of hermetically-sealed offices — called CriticalMass that will be part of the Cambridge Innovation Center.
Nancy Saucier, a spokesperson for NEVCA, says that the five firms sponsoring the space will choose the entrepreneurs who get "golden tickets." (Others can pay $250 a month to have access to the same space.) The current sponsors will cover the costs for about 48 entrepreneurs a year to get three months of free rent, but Saucier says other NEVCA members have expressed interest in getting involved with the program, and she expects that as many as 100 tickets could be handed out annually. Sponsoring VC firms will also have conference rooms with their names on the door, which they'll use periodically to meet with entrepreneurs (but which will otherwise be open to CriticalMass denizens.) CriticalMass will also host Q&A sessions with angel investors, as well as "how to" workshops geared to entrepreneurs.
How will entrepreneurs get a "golden ticket"? They'll be doled out by the venture capital firms underwriting CriticalMass. Saucier notes that entrepreneurs who take advantage of a sponsored pass to the CriticalMass space won't be under any obligation to the sponsoring firm.
The initial sponsors of CriticalMass are Charles River Ventures, Highland Capital Partners, North Bridge Venture Partners, Bain Capital Ventures, and Flybridge Capital Partners. Many of the partners of those firms have been participants in regular "office hours" sessions that the NEVCA has held at the Cambridge Innovation Center's Venture Cafe. I'm told the idea for CriticalMass came about when Saucier, Cambridge Innovation Center CEO Tim Rowe, and Jamie Goldstein of North Bridge and the NEVCA began talking about how to take those weekly office hours sessions a few steps further.
A grand opening for the new space is scheduled for March 31st.
Highland Capital Partners SVP Michael Gaiss tells me that after a one-year hiatus, the venture capital firm is bringing back its Summer@Highland program for student entrepreneurs. The program will take place both in Highland's Lexington office, and in rented space in San Francisco. The goal is to have four to six teams in each location.
"We definitely think about this as an entrepreneurship program, not a seed program," Gaiss says. "That means we're really looking for teams that are three, six, nine or even twelve months away from raising a seed round."
Highland is specifically looking for tech-focused teams, which the firm describes as "SaaS, internet/digital media, infrastructure, energy efficiency, robotics, advanced materials & semiconductors."
Of the start-ups that participated in the three previous Summer@Highland programs, Gaiss says that Highland has funded two (the custom jewelry site Gemvara and video analytics specialist Affine Systems), and three others have raised money from investors other than Highland. (Fifteen teams in total have participated in prior editions of Summer@Highland.)
Each team receives a $15,000 stipend, free office space, plus access to Highland partners and the entrepreneurs in their network. Highland doesn't take equity in the companies that participate, and there's not even a requirement to give the firm first crack at funding. At least one member of each team must be a current student, or have graduated no earlier than December 2010. The application deadline is April 7th.
Today's Globe column focuses on three new seed stage firms in the Boston area: NextView Ventures, Project 11 Ventures, and Boston Seed Capital. All three plan to invest in Internet and mobile start-ups; all three started making investments within the last year; and all three have yet to finish actually raising their first fund. NextView seems to be targeting $15 million, and Project 11 aiming for about $5 million. Boston Seed hasn't been specific about a target number yet, but I have a feeling it'll be somewhere in the middle there.
Here's a bit of bonus material...
- All three of NextView's founders left local VC firms in 2010: David Beisel split from Venrock's Cambridge office, Lee Hower took off from Point Judith Capital in Providence, and Rob Go departed Spark Capital. They told me this month that they're especially interested in mobile apps and services; software-as-a-service; and ad tech and analytics. They've made nine investments so far (some were made as individual investors, and then rolled into the NextView fund), though two are still in stealth mode. Six local entrepreneurs, including the founders of CSN Stores and Dataxu, serve as venture advisors to NextView. Beisel is best known as the founder of Web Innovators Group, the demo-fest where he still serves as the host. (Here are some fun posts from the very first Web Innovators gathering in 2005.)
- The two founders of Project 11 Ventures, Reed Sturtevant and Katie Rae, have made a few small investments using their own checkbooks in recent months. (Locately, ScriptPad, and PeerTransfer.) They will likely do a first close on their first fund in the coming weeks, and start making investments out of that in the first quarter, I'm told. Sturtevant sees the other two firms as allies: "We will need them as co-investors or follow-on investors, and vice versa," he says. "It helps that there are more of us, for syndication." He says that he and Rae view themselves as product-oriented executives who've had experience working within start-ups (Idealab, Eons) and larger companies (Lycos, Lotus, Microsoft), as opposed to traditional venture investors. (Here's my original post from last summer on the firm.) Rae was recently named the managing director of TechStars Boston, which will enhance her visibility in the start-up scene here; Project 11 has also run several workshops for entrepreneurs, so it's worth watching the firm's Twitter feed for news about upcoming events.
- Boston Seed Capital (actually based in Wellesley) is run by Nicole Stata. Stata spent just over a decade building Deploy Solutions, a human resources software company acquired by Kronos in 2007. Stata is also the daughter of Analog Devices co-founder Ray Stata, who runs another local VC firm, Stata Venture Partners (it has no Web site.) Serving as a venture partner at Boston Seed Capital is Peter Blacklow, an executive vice president at the Game Show Network (no kidding), who earlier worked at Worldwinner, Converse, and Monster.com.
Nicole Stata says she is helping to bankroll the firm, as are other individual investors (though not her dad.... at least not yet). "We'll focus on companies that may need a $1 million A round, and we'll contribute anywhere from $100,000 to $300,000," she says. "The company might need anywhere from $3 million to $5 million in total funding."
"The software-as-a-service model is something we'll focus on, given my background," she says. "How can we bring real value to an enterprise, without the long-term costs of the sales process? How can we bring gaming techniques and social techniques to the enterprise?"
The TechStars finishing school for start-ups is announcing today that Katie Rae will be the new managing director of the program's Boston operations. Rae was previously an executive at Microsoft Cambridge, Eons, Lycos, and AltaVista, and for the past few months she has been working with Reed Sturtevant to try to launch a new micro-venture capital firm, Project 11 Ventures.
(Rae was one of 11 people I put on my list last week, "Who Should Run TechStars Boston Next?")
TechStars offers promising start-ups $18,000 in seed funding, plus guidance from seasoned entrepreneurs, in exchange for a six percent stake in the company.
Rae told me last night that she first met TechStars CEO David Cohen and co-founder Brad Feld when they launched the program in Boston in 2009, and she helped bring the TechStars "Demo Day" (when the participating start-ups present to a large audience of prospective investors) to Microsoft's NERD Center in Kendall Square. Both she and Sturtevant, who worked together at Microsoft's Startup Labs, have served as mentors to the start-ups in TechStars' first two Boston classes, when Shawn Broderick was running the program locally.
Rae says she started talking seriously about the gig with Cohen and Feld earlier this month, at the "TechStars for a Day" event in New York.
As the new managing director in Boston, Rae says she plans to "spend the next month listening to people who've gone through the program and have served as mentors, and just ask how we can make this better. The philosophy is one of continual improvement." She says she hopes to bring on more mentors, and another to-do will be finding new office space for the program, which has so far been based in Central Square.
She says that she'll continue working with Sturtevant to get Project 11 up-and-running, noting that the heads of several other TechStars chapters are also early-stage investors.
Update: Here's Rae's blog post (her first) about the new gig.
OK, let me be straight: as someone who is not a software developer, there is much I do not understand about CloudBees. The company is involved in cloud computing, as its name implies, but also Nectar, and Hudson, and virtualization, and platform-as-a-service, and continuous integration. CloudBees is excellent at generating buzzwords.
About all that is utterly clear to me is that they've raised $4 million in funding, mainly from David Skok at Matrix Partners, and they are setting up shop somewhere in the Boston area, though the CloudBees crew is currently strewn across the globe.
I sat down with Skok last week for a quick explainer.
Skok had been an investor in JBoss, an open source middleware company that was acquired by RedHat for $350 million back in 2006. CloudBees founder and CEO Sacha Labourey was the chief technology officer of JBoss, and individual investors in the new company include two other JBoss veterans, Marc Fleury and Bob Bickel.
CloudBees, Skok explains, is a development, testing and production environment for Java code that can be rented by the month. "The benefit for start-ups is that it's a way for them to reduce their IT staff," he says. "In even a small company, you usually have one or two people who focus on setting up maintaining the infrastructure for Java development." Key is that the production environment provided by CloudBees is an exact mirror of the development environment, so code doesn't need to be tweaked when it migrates from testing to real-world use. As with other cloud-based services, a customer can start small and scale up as demand dictates. The CloudBees investment fits into Skok's thesis that "more and more of computing is being outsourced to the cloud."
The company was founded in January of this year, and only emerged from stealth mode in August.
Labourey says that Java development is the company's first focus, but that CloudBees may eventually support other programming languages. He writes in an e-mail:
The cloud as we know it today enables great things, but is still way too focused on "virtual machines," "servers," and is pretty raw. While you don't need to walk around with servers and cables anymore, you end up actually doing more IT operations in the cloud than you use to on-premise, since you essentially have to find ways to stabilize an environment that is highly dynamic by definition — and this in a fully automated fashion. That's still IT. Let's get rid of that. What matters are applications, that is the unit of work that eventually delivers value, not whether you installed the right Java virtual machine or how you do your backups. It is only when the cloud infrastructure will be abstracted away with application-level constructs that the true cloud revolution will take place for companies — big or small — as it will significantly impact their ability to innovate, faster and cheaper.
It sounds like the CloudBees deal was fairly competitive, with General Catalyst, Atlas, and Benchmark also in the hunt.
Skok says the company will soon hire a chief operating officer and lease some office space in the Boston area. "This is a great place to find marketing and sales and support talent — people who really understand deep technologies," he says.
Labourey works out of Neuchatel, Switzerland, and doesn't have plans to move to the U.S. Other CloudBees team members are based in New Zealand, Australia, France, Texas, and California. Labourey writes, "We have a chance to hire the best of the best, keep them where they like to live, and we then extensively rely on tools (Skype, IRC, etc.) to work together." But Boston, he's clear, will be the central hive for CloudBees. "...While a lot of innovation takes place in California," he writes, "I think a lot of the *consumers* of that technology (enterprises, etc.) are actually on the East Coast: this helps East Coast companies to be very much customer-focused."
Today's press release suggests that the $4 million round is only the first in a "multi-stage investment." My favorite quote in it comes from JBoss founder Fleury: "Just as JBoss provided a streamlined and usable alternative to BEA and IBM, CloudBees will be providing innovation and ease-of-use compared to VMWare's bloated cloud stacks."
Sounds like fightin' words...
Peter Thiel, Facebook’s first big backer, thinks the future of global innovation may hinge on more entrepreneurial college drop-outs
I had a chance to spend some time on the phone yesterday with Peter Thiel, the PayPal co-founder, venture capitalist, hedge fund manager — and early Facebook investor. He’s speaking at MIT this coming Tuesday night, at an event organized by the MIT Enterprise Forum of Cambridge.
We talked about Thiel’s new fellowship program, which will provide twenty $100,000 grants to potentially world-changing young entrepreneurs in the for-profit and non-profit sectors; why it might be better for would-be entrepreneurs to drop out of school today than it was when he attended Stanford; whether Facebook could have thrived if it had stayed in Boston; what Thiel sees as a dearth of innovation globally; and the risk tolerance of Boston investors.
(Incidentally, Facebook co-founder Mark Zuckerberg was twenty when Thiel first met him, so he wouldn’t have been eligible for the new Thiel Fellowship, which is open only to people who haven’t yet ticked out of their teens.)
Here's a very lightly-edited transcript of our conversation.
Scott Kirsner: So what will you be talking about Tuesday at MIT?
Peter Thiel: The objective is really just to give a general talk about technology entrepreneurship in the U.S. It’ll basically be a bit of an overview of my thinking about how to start companies. I’ll talk about my PayPal experience, and offer some perspectives on what I see going on in the technology industry in the decade ahead.
And I will probably talk about this fellowship program we just announced for twenty students under twenty to take a couple years off of school and work in a technology start-up-type context.
SK: You’ve gotten a good amount of criticism for the program, which some see as encouraging students to leave school. You went to Stanford, and finished, and then went on to law school and got a degree there, too.
PT: There are certainly a number of things that are quite different from when I went to college a quarter-century ago. The big issue we zeroed in on – which really hit me over the last year or so –is the extraordinary amount of student debt that people are racking up, and the ways that is effectively changing the kind of decisions they can make later in life. When you rack up enormous amounts of debt, it sort of tracks you toward the higher-paying job, but away from something that is less remunerative in the short run, but maybe more entrepreneurial – or a non profit – or something that’d be socially useful.
I think there’s a very significant set of problems around the debts people are amassing. One of my concerns is that that is starting to discourage genuine entrepreneurship. People get super-tracked toward safe things, so they can pay off their debts.
I basically graduated with no debt. I was lucky to have parents who were middle class and could pay for my education.
[For me,] there was a way in which getting educated was actually a way of deferring thinking about the future… Part of our effort is to encourage some thinking about why are people being educated – what is the purpose?
SK: Well, what about someone who is studying chemistry or molecular biology? That seems like an important foundation if you want to develop a new drug.
PT: It depends a lot on the subject matter and the field. But I’m actually not convinced that even in some of these harder technology type areas, the incremental value [of advanced education] is quite high.
SK: So you’re saying that after high school, a kid might be ready to develop an important new cancer drug?FULL ENTRY
General Catalyst managing director Hemant Taneja confirmed this afternoon that the Cambridge venture capital group will be opening an office in Palo Alto sometime next year, a project that Taneja is overseeing. He says he may not move out to California permanently, as I'd heard earlier today, but that "we need to hire a bunch of people there, and it's hard to get that done unless there's someone senior enough on the ground." Taneja, who does all sorts of deals at the firm — ranging from cleantech to Internet to medical diagnostics — adds that he's in the midst of wrapping up a significant new investment here in Boston.
General Catalyst already has at least one new partner on the ground in Silicon Valley: Chris Farmer, who started at General Catalyst just this month, according to his LinkedIn profile. (Farmer isn't yet listed on the General Catalyst Web site.) Farmer's LinkedIn page says that he will focus on "early stage investments in consumer Internet, software, and mobile." Farmer had briefly run an executive search firm, and before that was a vice president at Bessemer Venture Partners, another venture capital firm.
Even before joining General Catalyst as a venture partner, Farmer had been helping the firm "do some people-sourcing [in the Valley] as part of his previous gig," Taneja says. [ Update: General Catalyst managing partner Neil Sequeira will also be part of the Silicon Valley team, according to AllThingsDigital. ]
He adds that the managing directors at GC aren't yet sure how big the Palo Alto office will be, but that the firm didn't want to simply hire people by remote control hope for the best. "We felt it was too risky to get some random set of investors you don't know, or have any cultural connection with," he says. Thus, Taneja will spend significant time there to help get the office going.
"Sometime later this year, we'll deal with how we think about numbers [of people in Palo Alto] and the type of team we want to put down there," he says.
Taneja says he hopes to continue co-teaching an MIT course on entrepreneurship called "The Founder's Journey." He is also a founder of the New England Clean Energy Council, a trade group.
I should point out that most Boston venture capital firms have a presence in Silicon Valley; General Catalyst had been unique for a long while, in having its entire team based in Cambridge. GC is investing out of a $715 million pair of funds it raised in 2007.
The most recent other local VC firm to set up a West Coast outpost was Third Rock, which focuses exclusively on life sciences.
I heard last month, but couldn't confirm, that Bob Metcalfe of Polaris Venture Partners had taken a teaching gig. What surprised me was that my source told me it wasn't at a school in New England.
Metcalfe, though a native of Brooklyn, came here to earn degrees at MIT and Harvard. After a stint at the famed Xerox PARC research lab, where Metcalfe and David Boggs invented the Ethernet networking standard for linking computers, he founded 3Com Corp., the pioneering networking firm that sold Ethernet gear. But for most of the 1990s and 2000s, Metcalfe has been a resident of Boston and Lincolnville, Maine — first as a publisher and columnist at InfoWorld, a trade publication, then as a co-founder of Maine's annual PopTech Conference, and then as a general partner at Polaris Venture Partners. (Here's the 1998 profile I wrote of Metcalfe for Wired.)
Today, the University of Texas at Austin will announce that Metcalfe has accepted a post as "Professor of Innovation" at UT's engineering school. Metcalfe starts in January. As a result, he'll ramp down the investing he has been doing at Polaris since joining the Waltham firm in 2001.
How'd it happen? Metcalfe says he gets the urge to change careers about every decade, and he had spent the last one as a venture capitalist active in the energy and IT sectors. When he began exploring the possibility of an academic position, he spoke to several schools locally, including Harvard, Boston University, Olin College. But at MIT, Metcalfe — who is a lifetime trustee of the university — says he told Susan Hockfield that he wasn't interested in joining the faculty. "I didn't want to put them through the embarrassing situation of having to reject a trustee," he says. "But the principal reason was that one of my motives is a change of scenery. And I really appreciate being a trustee at MIT, which is a position that has tenure, and I'd have to give that up if I were on the faculty."
Texas, he says, "is already a top 10 engineering school in the U.S., and arguably the largest school in the U.S. It is plunked down in the middle of Austin, which has been a tech center for a very long time. There's a lot to work with there." While the school has had some success in spinning out start-ups, Metcalfe says there is the potential to do even better.
Metcalfe says he will spend the spring semester working on a book, which he is calling "Metcalfe's Law," and will begin teaching next fall. He says he doesn't plan to sell his townhouse in Back Bay, though he did recently sell his 150-acre farm in Maine.
As for the change in Metcalfe's role at Polaris, he says that the most he will be doing is making one new investment a year (and perhaps as few as one new investment for each Polaris fund.) Polaris is in the middle of raising a new $400 million investment fund that will be less than half the size of its last fund. Smaller funds, obviously, don't need as many partners out sprinkling capital. Metcalfe says of his decision to try teaching and down-size his role at Polaris that the smaller fund size was not "a factor, but a correlation."
About his ten years in venture capital, which started as the dot-com era was crumbling, Metcalfe says, "Many people have told me that this last decade was probably the worst ten years in venture capital's history." Of Metcalfe's own portfolio investments, two imploded (GreenFuel Technologies, which bred algae that produced biofuels, and SiCortex, a Maynard start-up that developed energy-efficient supercomputers). Another, Acton-based Mintera Corp., a maker of optical networking gear, raised more than $80 million in venture capital but was sold over the summer for just $12 million (with another $20 million attached as potential milestone payments.) Metcalfe says that while none of his portfolio companies has yet had an IPO or dazzling acquisition, he's hopeful for those that remain, including solar tech developer 1366 Technologies and Ember Corp., a manufacturer of chips for wireless networking.
The University of Texas press release announcing Metcalfe's appointment includes this quote from Rudy Garza, chairman of the board of the UT's alumni association: "Today we can celebrate recruiting a world-class talent in Bob Metcalfe who is a catalyst for innovation and has excelled at the nexus of science, engineering and entrepreneurship. Bob's expertise of bridging science and technology into thriving businesses of the future will speed the success we all will experience as we work hard to spur innovation, build world-class businesses and create wealth and jobs in our great state."
Metcalfe says he believes that innovation can, in fact, be taught: "Innovators are more made than born." Here's an e-mail Metcalfe sent me about beginning his "fifth career" as a professor. He writes:
Innovation makes the world go round. It brings prosperity and freedom. It is a high calling. A current problem is that everybody says so — we are in something of an Innovation Bubble. In changing careers, I aim not to leave but enthusiastically go meta on innovation. The world needs a better understanding of how to encourage innovation. And innovators need to get better at it. Sign me up.
Metcalfe says he expects to spend summers back in Boston, and at an island camp he still owns in Maine. He reckons that about 60 percent of his year will be devoted to teaching, and 40 percent to venture capital and other activities. He says that while he has never been to the massive South By Southwest Festival in Austin, he expects that this year, Polaris will have a presence at the event. "It'll be like a temporary Dogpatch Labs," he explains, adding that Polaris doesn't have any plans to open up a permanent Dogpatch facility in Austin.
Not bad: video infrastructure player BNI Video in Boxborough is announcing a $10 million round this morning, bringing its total raised since June of last year to $16 million. Co-leading this round are Waltham's Castile Ventures and Time Warner Cable.
The press release is laden with buzz-phrases that say just about nothing about what BNI is up to: they will "drastically reduce time to market," "lower total cost of ownership," and "deliver richer, more personalized subscriber experiences." Oh, and the technology is also "simple, flexible, and scalable."
I asked CEO Conrad Clemson (pictured at right) how he'd explain what the company is doing if he were at a cocktail party. "We want to help companies like Comcast or Verizon get to every Internet-connected device in your house, whether that's your Xbox or your laptop. Our question is, why can't video reach you on all sorts of devices other than your TV? You should be able to find content on your laptop, surfing through a TV schedule, and ask that the content be shown on your TV set, because you want to go back to doing e-mail. We're creating the intelligence to do that." Today, he says, many customers may find that same flexibility by using services like Hulu on their laptop, or the Netflix service built into a Blu-ray player; Clemson wants to help cable companies and telcos stay competitive.
It's a big deal that BNI is backed by a mix of venture capital firms and strategic investors like Time Warner, Cisco, and Comcast Interactive Capital.
"This is a challenging business, and our customers are the video service providers," Clemson says. "Getting them as customers is like elephant hunting for a small company. The best way to make sure that we're lined up with them is to make them our partners."
Clemson says the company raised nearly $7 million last June from Charles River Ventures (where he'd been an entrepreneur-in-residence), Comcast, and Cisco. BNI has about 15 employees in Boxborough, ten in Philadelphia, and 35 in Beijing ? most of the company's engineering team.
Clemson's last start-up was Broadbus, where he was SVP of technical operations. That company was sold to Motorola in 2006 (for a reported $186 million), and Clemson went to Charles River Ventures for a time.
I asked him if that stint at CRV was in part to sit out a non-compete agreement with Motorola before starting his next venture. "That might've had something to do with it," he admitted.
Clemson is a first-time CEO, and he tells me that working with Broadbus CEO Vin Bisceglia "was like CEO school for me. I also picked up some from Bruce Sachs and the CRV guys. They said, if you really want to be a CEO, you've got to go out and get an order from someone."
Clemson started his career in tech while in high school at Philips Exeter, writing diagnostics for Stratus Computer, when that company had just 20 employees.
Today's Globe column collects advice from local investors and entrepreneurs about raising money — specifically for first-time founders.
People shared far more insight with me than could fit into the printed column, so I'm posting some "bonus material" here.
- David Beisel, Founder, Web Innovators Group; partner, NextView Ventures
The one piece of advice I most often share with entrepreneurs fundraising is: tell a story. Even the most analytically-driven investor will ultimately base his decision on an emotional connection to the vision of the company. Fundraising shouldn't be just telling the what and how of the endeavor, but also the why. Of course all of the fundamentals must be in place for the company to succeed; but the deeper a narrative is intertwined in the pitch, the more likely an investor will become excited about the human element which is inherent in every startup.
- Laura Rippy, board member and advisor to start-ups; former CEO, Handango; former GM, Microsoft
...One [piece of advice] is to take a page from investment bankers' playbook and "make a market". Prepare your pitch, your network, your targets beforehand. Reach out simultaneously to multiple investors. Then, create a sense of urgency so that multiple offers line up at the same time. It makes you look like a hot property and is the best strategy for a good valuation, best ancillary terms, and full syndicate. I have seen a few entrepreneurs take a slower serial approach instead, and backfire, as the first investors get tired of waiting.
- Angel investor Joe Caruso of Bantam Group
Entrepreneurs too often think their first task is to raise money......and waste a lot of time during the early months of their venture pitching an incomplete idea to people who need a lot of convincing....
Instead, much of that time is better spent convincing customers.... or at least talking with prospective customers. The feedback from them... the questions and suggestions.... will be somewhat similar to the kinds of conversations they have with prospective investors, but will be FAR more productive.
1. The feedback will be knowledgeable
2. You will learn a lot if spend more time asking questions than "pitching" your product/service
3. As your offering morphs, and you get a few people interested, you might get some early revenue (or at least early commitments for revenue)..... which will make money raising MUCH easier....
While not an accurate algorithm, I suspect what initially might be a 6-9 month money-raising effort, if preceded by 6 months of customer activity, will become a 90 day money-raising effort..... making overall time to raising money about the same, but you'll have a company with a vetted product, and maybe even some market traction....
...Entrepreneurs waste too much time pitching something unproven to the unreceptive....
- Christopher Mirabile, managing director, Race Point Capital Group
(1) DO: Research and network your way to potential investors. DON'T: Contact investors cold.
(2) DO: When pitching, set the table before jumping in - tell a story about who your customer is, and why your product helps them in a compelling way. DON'T: Jump into the middle of a detailed discussion of product features
(3) DO: Have some skin in the game, a rough prototype, and some solid market data. DON'T: Shop a PowerPoint business plan from the cubicle of your full time job.
- Jeffrey Bussgang, partner, Flybridge Capital Partners; author of "Mastering the VC Game"
A “do” would be establish both credibility and a relationship – investing is a game of trust and investors want to know that you know what you are doing, can trust you to do the right thing, and will enjoy sitting beside you during the wild roller coaster ride.
A “don’t” would be to oversell. There is a tendency for entrepreneurs to exaggerate or spin in order to sell prospective investors. There’s almost never a happy ending in those situations – either before or after due diligence is completed.
One story that sticks out in my mind – after signing a term sheet and before closing, one entrepreneur called me to tell me that his technical co-founder was moving out of the country for personal reasons. He was understandably nervous to tell me about it, but by proactively letting me know the news and his adjusted plan going forward, he earned my respect and, eventually, the investment.
- Dharmesh Shah, angel investor and co-founder, HubSpot
1. DO Be honest with yourself and talk to someone that's done it. Very few ideas and very few entrepreneurs are venture-fundable. If you don't fit the profile, you are going to experience unnecessary pain and frustration and most importantly take time away from actually building the business.
2. DON'T raise venture capital as a response to a competitor raising a large amount of funding. Although it's scary when that happens, in practice, their odds of beating you don't dramatically change as a result of the additional capital. Focus on your strength (which may just be that you're scrappier, hungrier and care about customers more). Remember, raising money does not create value -- it simply provides the opportunity to create value. For example, for my first startup, we had 3 competitors that all raised over $25 million in funding. We were terrified. We hadn't raised a penny. Two of the companies cratered and the third we acquired for less money than I had spent on my car (granted, it was a nice car -- an Acura NSX).
- Paul Maeder, Managing Partner, Highland Capital Partners
1. Create scarcity. The best way to raise $15m is to ask for $7m. The
best way to raise $0m is to ask for $15m.
2. Say you are only looking for ONE new investor. They will think it's
a race and work hard. If you say you are looking for 2, they will wait
until someone else commits, which will never happen.
3. You need to have 3 purportedly independent, trusted people tell the
VC it's a hot deal before you ever call him. You need to "Pre Buzz"
4. Presentation: If you can't manage a meeting, I expect you won't be
able to manage a company. Right number of slides, topics are Mgt.,
Mkt., Product, Deal in that order. 1.5 hours in total. End on time
having covered all your key points, including banter about sports with
5. The best meetings never get to the slides.
6. Remember, you are selling your company, not your product.
7. Objective of the first meeting: a second meeting, and nothing more.
Stop selling once you achieve that. The happiest dinner guests are
those that leave the table a little hungry for more.
- Bob Metcalfe, general partner, Polaris Venture Partners
My fundraising for 3Com in 1980 turned more productive in 1981 when I finally got that VCs wanted me to tell them how they were going to get their money BACK. I had focused on what I would do in the unlikely event that they gave it to me.
Do not run on about what [jerks] you think all those other VCs are.
Do not ask a VC to sign an NDA because your idea is way too easy to steal.
Do not explain how you plan to be capital efficient by having your Dad rent you the space and your wife be CFO.
Do start the meeting by thanking your VC for inventing Ethernet, even if it was before you were born.
- Brian Shin, CEO, Visible Measures
You need to decide on a funding route: 1) bank loans/credit cards 2) friends and family 3) angels 4) angel groups / super angels 5) venture capital - it largely depends on how much money you (and your team/advisors) think you need to raise based on your vision and your plan.
It also depends on your risk tolerance & your tolerance for pain. Simple rule for me is this: If you want to go big, and go fast, and you know you're going home if it doesn't work, then try to raise Venture Capital. If you are going to most "formal angel groups" then imho you might as well go for venture capital since it's practically the same level of diligence for less money. If you have an in with some so-called super angel or micro-vc (in boston that'd likely be Founder Collective or NextView Ventures) then I'd take that route over an angel group (easier diligence, faster process). If you can get a check from a legit angel (someone who has done an angel investment before in a true tech startup), I would almost always take it b/c it validates, takes a little pressure off of you, and the first money in is always the hardest money to get.
No matter the route, these tips apply:
A) Think about "building the onion" - adding layers to your pitch such that you are constantly improving and building momentum. Have a hole in experience? Recruit a partner or an advisor. Not sure about the market need? Talk to prospects. Want to validate the solution? Get a customer. Bottom line is that you want to the building blocks (big market, big idea, strong team, aided by a convergence of market trends making it seem like you MUST start this company now), combined with a perceived trajectory.
B) Don't be unrealistic or greedy - pushing valuations up or trying to solve for retaining a certain amount of equity should not be key goals. Your goals should be to get the best partner and get the best funding terms possible (liquidation pref, participation, drag along, board, etc).
C) Create competition. Investors see a lot of deals and are looking at a lot of stuff or working on other stuff all the time. There needs to be a sense of urgency. Competition for a deal creates urgency. Part of the supposed "AngelGate" situation was folks talking about how competitive deals have gotten. A good deal should have multiple suitors. That is the best possible situation for a startup. But again, don't focus too much on getting a sky-high valuation. The higher the valuation, the harder your job is going to be and the higher the expectations. I'd rather set the expectations low and go from there :)
D) Solve for the best long-term partner for the business: you really do have to pick the person (angel, vc or otherwise). Do your homework. It's OK to ask for references from a VC.
E) Have a coach - an advisor or a friend who can be your Yoda...investors look at a lot more deals than you have ever pitched, so you need a little guidance to off-set.
F) Negotiate everything before signing a term sheet. if you have competition for a deal, you can ask for stuff before you sign. Once you sign, you are sort of locked up with that investor for a while...all the leverage shifts away from you. So ask early and often. But see point B above :)
Village Ventures, a network of small VC funds based in Williamstown, was having one of their periodic meetings of investors yesterday in Boston. I stopped by to conduct an on-stage conversation with Antonio Rodriguez, the tech entrepreneur who joined the team at Matrix Partners earlier this year; Rodriguez also announced his first investment as a member of the Matrix team on Monday. (On Twitter, he's @antrod.)
I asked Rodriguez if we could keep at least some of our conversation "on the record" (most of the meeting was "off"), and we agreed that we'd shift into "off the record" mode just for the Q&A period so he could answer audience questions candidly.
We talked about Rodriguez's areas of interest at Matrix; his entrepreneurial past at Abuzz, Memora, Tabblo, and MyPublisher; big companies innovating through acquisition (Rodriguez's most recent start-up was acquired by HP); his investment in The Echo Nest, a digital music company; and about a very colorful run-in with Apple CEO Steve Jobs.
The audio runs about 20 minutes. Crank it up, since it was recorded on my iPhone.
Dispelling rumors that the Munich-based venture capital firm TVM Capital might be turning out the lights at its Boston office, a TVM spokesperson tells me this week that the firm plans on maintaining a presence here for the foreseeable future.
But it's a smaller presence than in the past, with just one life sciences partner (Jens Eckstein) and one technology-focused partner (Edward Braginsky.) And TVM quietly shut down a small New York outpost late last year, which had been opened only in 2007.
One life sciences partner who had joined the Boston office in 2007, Marios Fotiadis, has moved back to Europe and is now focusing on the Middle East, where TVM just began doing deals this year. Others, like Gert Caspritz and Stephen Hoffman, peeled off from the firm several years ago.
TVM raised a $300 million life sciences war chest in 2005, and is out raising a new fund now. The firm's last tech-oriented fund, totaling $121 million, was raised way back in 2002.
Shaking down prospective limited partners is rough right now for any venture capital firm, and one source tells me that Helmut Schüsler, a Munich-based managing partner of TVM, told the Boston office that he wasn't making any guarantees about continued support past the end of this year.
In life sciences, the Boston team has led investments in Sirna Therapeutics and Sirtris Pharmaceuticals (both of which went public and were later acquired), and Acorda Therapeutics (still publicly-traded.) On the tech side, Braginsky invested in ExtendMedia, a video software company in Newton that was bought by Cisco last month for a reported $80 million.
TVM spokesperson Nancy Saucier writes via e-mail that the firm's life sciences partners have and will continue to "source deals in the U.S. that fit our investment strategy, which is diversified in stage and sector, with a core European market, manufacturing, or development component."
"As with all VC firms, our team, in both Boston and Munich, will change over time with fundraising cycles and strategy changes to exceed the expectations of our limited partners," Saucier writes.
Would you start to sweat if you accidentally deleted a crucial spreadsheet you’d toiled over using Google Docs? Would your spouse wail if someone hacked into your Flickr account and deleted the years of vacation photos you’ve uploaded there?
Safeguarding an extra copy of files that you keep on Internet-based services is the simple idea behind Backupify, a start-up born in Louisville, Kentucky that moved into new offices in East Cambridge last week. The company offers a free service for consumers who might want to make sure they have an extra copy of that video they uploaded to Facebook, and a paid offering geared to businesses, many of which are required by regulations to archive something as seemingly innocuous as a Twitter message. The free offering stores up to two gigabytes of data, and the higher-end paid offering, at $60 a year, stores up to 25 gigabytes of data and makes a new back-up copy of everything once a week.
The company is planning to announce a $4.5 million A round this week, led by two Cambridge investors: David Orfao of General Catalyst Partners and Rich Levandov of Avalon Ventures (that’s on top of just over $1 million the company had raised previously). Also investing in the A round are First Round Capital and Lowercase Capital, founded by former Google executive Chris Sacca.
Backupify CEO Rob May says the company is mainly acquiring customers through social media, PR, and the Google Apps Marketplace. When Web-based services like QuickBooks go down temporarily, or the note-taking service Evernote loses some customer data, that only helps get people focused on the downside of storing their data on someone else’s servers. But May says that most of the times when someone has an experience that makes them grateful for having signed up with Backupify, it’s user error: they’ve accidentally deleted something important.
Backupify already can stash a copy of data from services like Blogger, Photobucket and Gmail. The company is working to make its backups of Facebook content (like a company’s Fan Page) more complete, and May says that a link to SalesForce.com and Evernote are in the works. Where does Backupify stockpile all of its data? Yet another cloud service: Amazon's Simple Storage Service.
The company is also developing its own API (application programming interface), to enable other cloud-based services to easily integrate with Backupify, adding data to the service or pulling data from it. One example May cites is a new start-up that wants to create online accounting software: it might find that prospective customers are more likely to try it if they know a copy of their data can be stored with Backupify. But another is enabling Backupify users to write code that would synchronize data between two Web-based services, or move their data easily from one service to another, dropping SugarCRM, for instance, in favor of SalesForce.com. “We are starting to position ourselves as less of a backup company, and more of a data liberation company,” May says.
The company now has three employees in Louisville and seven employees in Cambridge, where it plans to hire five or six Rails developers and database gurus with experience with the Cassandra distributed database.
Backupify’s first angel investor, in 2009, was Dharmesh Shah, co-founder of the Cambridge marketing software company HubSpot. Shah had previously bought a small application that May had written, which tried to analyze the value of a user's Facebook account. When May built the prototype of Backupify, which stored only Twitter messages, he e-mailed Shah to get his feedback. “It was really a side project,” May says, “and I never thought I’d raise money for it.”
Shah’s feedback was positive. "We chatted about the idea a few times," Shah writes via e-mail, "and ultimately, I agreed to put $25k in to help give him that final nudge" to pursue Backupify full-time.
The company began its move from Louisville to Boston in the spring, shacking up for a while in unused office space at General Catalyst’s Harvard Square offices. May says that one reason that Boston was more attractive to the company than New York or San Francisco is that many potential acquirers and distribution partners are here, including EMC, Iron Mountain, and Carbonite.
While the company began by targeting consumers, Backupify’s strategy now focuses mainly on enterprises. “We want to be the market leader in office productivity backups for SaaS offerings,” says May.
Sunday's Globe column focused on Rue La La, one of the most successful e-commerce companies to come out of Boston since... well, ever? The company was acquired last year for a sum that could hit $350 million if the company meets certain milestones, and it'll hire more than 100 people in Boston this year.
In working on the column, I talked to David Fialkow, a managing director at General Catalyst who invested in Rue's predecessor company, SmartBargains, and then also ponied up more when Rue CEO Ben Fischman pitched him on a management buy-out and restart. Rue was born in 2008 (the actual company name is Retail Convergence) and sold to GSI Commerce the following fall. Fialkow called it "a monster return." General Catalyst and other investors put $25 million into the revamped company (about half of it to purchase the assets from the prior group of investors, and some to fund the business re-start).
Other Rue backers included David Mugar; Breakaway Ventures, the investment firm of former Reebok chief executive Paul Fireman; and New England Development, the real estate firm run by Stephen Karp and Steven Fischman (who happens to be Ben Fischman’s father.) The investors got $180 million back about 18 months later — half in GSI stock, half in cash. The earn-out lasts through fall 2011, but they could receive another $170 million.
It was interesting to hear Fialkow list the challenges he thought Rue would face; we spoke last week.
1. "Would I as a customer want to get pushed e-mails, and would people tell their friends? Would it be obtrusive, or would I like it?" In 2008, when Rue launched, conventional wisdom said that no one was paying attention to e-mail marketing.
2. "Would the top brands be willing to play? The site had to have today's fashions, not yesterday's." SmartBargains hadn't been working with high-end labels as consistently as Rue La La would.
3. "The operational dynamics. Can you take orders online, can you pick, pack, and ship, and can you handle customer service and returns?"
4. "The competitors." Fialkow knew the most about Gilt Groupe — since it had been co-founded by Alexis Maybank, who had been an entrepreneur-in-residence at his firm earlier in the decade.
Issue #2, Fialkow said, was his biggest concern: "The business wouldn't work unless you could get the best brands to play with you." And yet another issue was whether customer acquisition costs would chew up the company's profit margins.
But Fialkow had been a co-founder of the Vacation Outlet, a last-minute discounter of travel packages, so he had a sense that creating similar urgency around purchasing prestige-brand apparel could work. And he had confidence in Fischman, who had worked at General Catalyst as an entrepreneur-in-residence, and earlier had started Lids, the mall-based hat retailer.
I asked Fialkow if he felt Rue might've sold out too soon. He didn't think so, of course, and Fischman told me the company hadn't been hunting for a sugar daddy when GSI expressed interest in Rue: "We were politely ignoring all the calls." The acquisition, in his view, was more a way "to globalize the business in a really dominant way. It wasn't an exit strategy, but a way to ensure long-term success."
Manhattan-based Gilt, Fialkow noted, has taken far more in venture capital funding than Rue: about $83 million so far. One of Gilt's big investors is Waltham-based Matrix Partners, where Nick Beim is on the board.
Which company will turn out to generate the best returns? "Time will tell," Fialkow said.
Third Rock Ventures, the life sciences venture capital firm based on Newbury Street, is planning to open a small San Francisco office next month. The new office, in the city's Mission Bay neighborhood, will house a principal and a partner who are moving out from Boston, and a new partner being hired on the west coast, according to chief financial officer Kevin Gillis. Third Rock, founded in 2007, launched with a $378 million investment fund, and is currently out raising a $400 million fund.
Third Rock principal Jake Bauer will move out to San Francisco, but Gillis wasn't ready to name the two partners who'll run the office, saying that a press release is planned for early September.
Two current Third Rock investments, Ablexis and Afferent Pharmaceutcials, are based in Northern California, and Gillis says the firm will likely make another California investment this year. "Our comfort zone and our networks are stronger here in the Cambridge area," Gillis says, anticipating that the firm will do about one deal a year in the Bay area. "In addition to just doing deals, the San Francisco presence is also about recruiting people for our companies," he says.
There still isn't much on the Web site to describe what Project 11 Ventures will do, aside from "invest in and assist early stage companies." The fledgling firm's Twitter account has so far had just two messages posted to it.
But I'm told the firm, founded by ex-Microsofties Reed Sturtevant and Katie Rae, is looking to raise a small first fund of under $5 million, mainly from established and wanna-be individual angel investors, and will make investments in the $10,000 to $50,000 range in Internet-enabled businesses that can prove their business models with a couple hundred grand, not millions.
Sturtevant spoke with me this morning, discussing how the firm will try to differentiate itself in Boston's seed-stage investing scene. He also mentioned that he and Rae have made a first investment using their own capital (putting $10,000 into a company he wouldn't yet name), and may do a few more small deals this fall as they work to raise the Project 11 Ventures fund.
Sturtevant and Rae are stressing their "operational expertise" working inside start-ups, incubators, and big companies. "We believe we can do executive coaching, and help people think about rapid product design and their go-to-market strategy," he said. They plan to get to know entrepreneurs — and help the entrepreneurs in whom they've invested — by holding a series of invite-only seminars. One took place yesterday at the Cambridge Innovation Center, walking participants through a half-day of exercises like creating a product road map, and understanding the different constituents (customers, partners, vendors, etc.) who will play a role in a given company's business.
Rather than listening to PowerPoint pitches in a board room, Sturtevant suggests that "you can find a lot out about how people deal with things by working with them on a real issue."
As for Project 11's investment focus, Sturtevant says he's interested in themes like "manufacturing as a service, the democratization of creative design, and people having a closer relationship with producers, like you see with Etsy and the local food movement." He also added that ideas that tap into the processing power of smartphones are appealing.
Rae is especially interested in software-as-a-service and freemium business models, "but I also love things where you really care that they're actually going to make the product — because it might improve healthcare or the way we communicate."
"All I've really done in my career is stuff that has a social and community aspect to it, and usually some kind of game mechanics," Rae continues, adding, "I really care about businesses actually making money."
Rae spoke to me from her mobile phone outside the Peet's in Newton Center; I met with Sturtevant earlier today at Crema Café in Harvard Square. "We have a list of the best free places to work," Rae jokes.
Before Microsoft, Rae and Sturtevant worked together at Eons, the social networking site for baby boomers founded by Jeff Taylor of Monster.com. And previously, Rae worked at Terra Lycos and AltaVista, and Sturtevant was at the Boston office of Idealab and Lotus Development. Both were cut loose from Microsoft in a re-org last fall.
The pair have been active in all sorts of local start-up activities this year, reviewing business plans and serving as mentors at Angel Boot Camp, TechStars Boston, and MassChallenge. They've been out to Boulder to meet with the TechStars companies there, and plan to be in Providence next week for the Betaspring start-up demo night. Sturtevant says that their primary geographical focus will be start-ups in the Boston area and New York City.
Rae and Sturtevant will also be teaching a new course at MIT this fall with Sir Tim Berners-Lee, the inventor of the Web.
Project 11's name, of course, is a reference to the most excellent mockumentary "This Is Spinal Tap," in which guitarist Nigel Tufnel shows off a special amp that goes all the way up to 11. "If we need that extra push over the cliff, you know what we do? 11. Exactly. One louder," Tufnel explains.
(Photo above by Chris Herot. Used with permission.)
Big government contractor picks up Mass.-based Reveal Imaging, maker of explosives scanner for airports
One of the investors in Bedford-based Reveal Imaging tells me this week's purchase of the company by Science Applications International Corp. is "a very positive acquisition," though the price wasn't disclosed.
Reveal makes a special automated scanner that airports use to check bags for explosives; in 2004, just two years after its founding, the company won approval from the Transportation Security Administration, which became its biggest customer — spending nearly $80 million in stimulus money to purchase the scanners. The company's compact CT scanners are also used in Israel, Mexico, and China.
Reveal, with just over 100 employees, was #284 on the Inc. 500 list of fast-growing private companies last year, and I mentioned them in a recent column about IPO prospects. (Guess that won't be happening.) Reveal's 2008 revenue was $47 million, and the company ("nicely profitable," according to the investor with whom I spoke today) could surpass $100 million in 2010 revenues.
Investors including General Catalyst, Greylock Partners, and Flybridge Capital put just under $25 million into the company.
IVR is an evil acronym: it stands for interactive voice response. Most times you call an 800 number with a question about your credit card bill, or a problem with your laptop, you're dealing with an IVR system that asks you to speak a phrase or punch a key to get one step closer to an answer — if all goes well.
According to Mike Iacobucci, chief executive of Franklin-based Interactions Corp., people forced to interact with an IVR system report being satisfied about 18 percent of the time. That's one of the reasons that Paul English, co-founder of the travel Web site Kayak.com, created his GetHuman site: it's a list of short-cuts on major IVR systems that will connect you quickly to a live human being.
Interactions wants to bring a human back into the equation — but they don't actually want the human to have a real-time, back-and-forth conversation with you. Instead, they use human beings listening to snippets of speech as a kind of air traffic controller, ensuring that you get the information or answers you are looking for. It's a way of applying human understanding to your needs, while keeping the cost of handling the call low. The company, previously headquartered in Indiana (and originally founded in New Jersey in 2002), moved to Franklin, Mass. after Iacobucci was hired as CEO last year. Iacobucci replaced founder Michael Cloran. (Guess this 2006 plan to create 200-plus new jobs in Indiana didn't exactly work out.)
Today, the company is announcing a new round of funding (a $6.3 million series D), bringing its total raised to $36 million.
"We're trying to create a really human-like conversation at a call center or on a Web site," says Iacobucci, who was recruited to the company by Boston-based Sigma Partners, one of Interaction's investors.
When he joined last January, Iacobucci says the company had a few early customers, but was struggling. "We totally redesigned the software and infrastructure," he says.
How does it work? Human operators (the company calls them "intent analysts") sit at a computer wearing headphones. They hear snippets of speech from a caller — "some jerk stole my wallet this morning and I need to cancel my credit cards" — and without responding verbally, click on the screen to direct the caller to the right pre-recorded voice response. For security and efficiency reasons, the same intent analyst doesn't handle the entire call; that way, they don't hear both your phone number and Social Security number, for instance, and while you are speaking your account number or listening to a response (like the address of a service center near you), they can be directing another caller to the right information. Iacobucci says many of the intent analysts are young, and they tend to be avid gamers with fast reflexes. They earn a higher hourly rate based on their speed and accuracy. Iacobucci says that some surveys have found that callers report a higher satisfaction rate when they've dealt with Interactions' system than speaking with a traditional live operator.
You can listen to some sample calls on the company's Web site.
Iacobucci has been hiring executives and building out the office in Franklin, including a CFO (Joesph Gildea), CTO (Yoryos Yeracaris), and head of professional services (James Nolan). He expects that Interactions will employ as many as twenty people in Massachusetts this year, in addition to offices in Carmel, Indiana and Austin, Texas.
As far as off-shoring the call analysis to bring down costs, Iacobucci writes in an e-mail: "...We've tested in low-cost labor markets overseas. But to date we've found a good, available workforce in the States (we've created jobs here), and our clients like — and some are requiring — U.S.-based labor. It's an option down the road as we expand."
This Sunday's Globe column focuses on Bob Davoli, a Boston venture capitalist at Sigma Partners, and in particular his investment in GlassHouse Technologies, a Framingham data center services company hoping to go public this year.
Here's the interview I conducted with Davoli on June 29th at his home office in Lincoln (he mostly works from home, as opposed to Sigma's downtown Boston digs.) We talked about his strategy as a VC; some of his past and current investments; his feelings about analyst firms and other VCs; why companies fail; his relationship with CEOs; and what he thinks of "capital efficient" start-ups. (I asked my Twitter followers for questions in advance of the interview, and got a chance to ask all of those questions.) It is very lightly edited; I removed a few profanities and some off-the-record comments.
And here are a few articles about Davoli worth a look if you want to know more.
- Davoli's official bio on the Sigma Partners Web site.
- BusinessWeek profile by John Byrne, July 20th, 2000: "How a VC Does It"
- "Seven Deadly Sins of the VC": Blog post by Richard Dale, one of Davoli's colleagues at Sigma Partners
- "It's About Time": Boston Magazine feature on Davoli's custom-built home in Lincoln
- Davoli Q&A with Angel Mehta of Sterling Hoffman
Since news of a possible deal first started leaking out in April, lots of people have been wondering whether Cambridge-based ITA Software, which gathers and organizes data about airfares and helps airlines run their Web sites, would be acquired by Google, stay independent and possibly go public, or get bought by someone else.
The deal went down this week — with Google paying $700 million in cash — just as travelers were packing their suitcases for the Fourth of July holiday.
Update: According to a General Catalyst document I obtained, that firm (one of the local investors that put money into ITA in 2006, when the company was already nicely profitable) invested $18 million in the company at a post-money valuation of $310 million; Battery Ventures of Waltham was the lead investor. The General Catalyst document indicates that ITA's investors made about 2.25 times their money on the ITA investment — not a home run, but an OK return for an investment that they held for just four-and-a-half years. (General Catalyst partner Joel Cutler hasn't yet responded to my request for comment.) The document indicates that, in 2006 at least, ITA's EBITDA margin (earnings before interest, taxes, depreciation and amortization) was in the 50 percent range, and that ITA's cost structure was "less than one quarter of the closest known competitor." The document went on to say that the company had already entertained numerous acquisition offers, and that General Catalyst also believed that ITA could "be a public company given its large market, disruptive technology and strong financial performance." (Well, that didn't happen.)
Here are five links related to the deal, ITA, and its founder, Jeremy Wertheimer:
- Google's official announcement: "Taking off with ITA" (also worth a look is the company's page on "Facts about Google's acquisition of ITA Software," which seems especially crafted to counteract fears that Google could become too big and powerful in the travel industry.)
- Back in April, I took a look at the cultural similarities and differences between Google and ITA.
- ITA founder and CEO Jeremy Wertheimer was on a panel I moderated last December about the "travel tech" cluster in Boston.
- In February, Fast Company wrote about the company's long-running project to create a brand new airline reservation system from scratch (not yet launched), in a story headlined, "Ready for take-off: At last, a flight check-in system that doesn't suck."
- In 2006, ITA brought in its first outside funding: $100 million in venture capital, from Battery Ventures, General Catalyst, Sequoia Capital, and others.
Pixable makes it easy to print photo books and calendars using images that are stored on Facebook, Flickr, Picasa, and other popular photo-hosting services. Bob Davis, the former chief executive of Lycos, and now a general partner at Highland, will join Pixable’s board. Pixable is Highland's third investment in a New York start-up since February. (Yesterday's Globe column was all about Boston VCs putting money into Manhattan start-ups.)
A team of MIT grads started the company last year, and were briefly squatting last summer in conference rooms at the school’s Sloan School of Management, but they moved to an office SoHo last summer. “We didn’t have a very strong preference between Boston and San Francisco and New York,” says Iñaki Berenguer, Pixable’s CEO. “But New York is famous for media, advertising, and events, and you could say we’re a media company, and that photos are mainly about events.” He adds that New York is “a good place to mix long working days with having fun on the weekends.” The company has ten full-time employees, and a dozen interns.
Pixable plans to enhance its site with other features related to aggregating and organizing photos from various photo-hosting sites, but Berenguer wasn't ready to be more specific.
Berenguer tells me that several sites, like Shutterfly, Kodak Gallery, and Snapfish, don't have APIs allowing services like Pixable to work with their photos. But he says that each of those sites host about a billion photos each. That sounds like a lot — until you learn that Facebook hosts about 50 billion photos, and is adding about 4 billion more every month. "Flickr has about five billion, so you could say that every month, a new Flickr is built on Facebook," Berenguer says.
Here's a company-produced video that offers an introduction to Pixable's service:
Waltham-based North Bridge Venture Partners is announcing today that it has chosen two winners of the venture capital firm's first-ever seed capital competition: Manhattan-based Profitably, a Web-based business intelligence app for small and medium companies, and Magoosh, a multi-media test prep company in San Francisco.
North Bridge had initially expected to dole out just one prize ($50,000 in funding, $25,000 in services, mentorship from North Bridge's partners, and six months of free office space), but decided to double that based on the quality of the entries the firm received, says principal Cali Tran.
Of the eight other finalists in the competition, several are based in Boston, including MobileMob, a site that helps consumers save on wireless services; Somerville-based Ubiqihealth, which offers up online tools for migraine management (see the demo video below); Bizstro, offering social media marketing tools for small and medium-sized businesses; and DPL Health Games, a stealthy company run by Laila Partridge that is "building next generation social networking games to aid dieting and healthy living," according to a description on LinkedIn. Other finalists have team members spread out across the country. Datalette, for instance, "the marketplace for data," has a Boston-based CEO in Eric Moriarty, but other team members in San Francisco and Austin.
One issue Tran and I discussed yesterday was how entrepreneurs view competitions like North Bridge's, or incubation programs like Polaris' DogPatch Labs. One concern I hear often is that if a start-up participates in one of these programs, but the sponsoring venture capital firm doesn't choose to invest further, that can create the perception that the company is damaged goods. Essentially, "No one knows you better that North Bridge/Polaris/Acme Capital, and if they decided not to keep funding you, why would anyone else?"
Tran acknowledged that he'd heard that question, too.
"It's a valid concern," he says. "People wonder if it's like the Scarlet Letter."
I asked Tran how North Bridge would look at a start-up in that situation. "It's a mixed answer. You want to learn why, but it's important to remind ourselves that the nuances of why a fund does or doesn't do a deal involve that particular fund's constraints and focus. We'd love to learn why they're passing, but that doesn't necessarily dramatically impact our evaluation of the business."
Tran (based in San Mateo, Calif.) says the competition, which he started with Waltham colleague Dayna Grayson, could become an annual tradition at North Bridge, and that the firm may experiment with how prizes at higher and lower levels affect entrepreneur interest. This time around, Tran says roughly one-third of the applications came from California, one-third from New York, and one-third from the New England region. For North Bridge, he says, the competition was "a new way to communicate with new entrepreneurs that we don't have a relationship with yet."
Here's the video from finalist Ubiqi Health, using the Web and mobile phones to combat migraines (they're also competing in the MassChallenge):
Surprising news in this SEC filing today: Waltham's Polaris Venture Partners, one of the more active local firms investing in tech, cleantech, and life sciences, is planning to raise $400 million for its next fund. That's less than half the value of the $1 billion fund Polaris raised in 2006.
That'll obviously lead to a change in the pace (and/or size) of new investments that Polaris makes, but I'm not expecting there to be any radical reductions in Polaris' line-up of investors, or its commitment to its Dogpatch Labs incubator space in Boston, San Francisco, or New York. So far, Polaris has raised $233 million of the new fund, its sixth. (I spoke to Polaris co-founder Terry McGuire this afternoon, who said he couldn't comment on the fundraising process or the impact of a smaller fund on the firm.)
Here's some audio from last Friday of McGuire being interviewed by fellow venture capitalist Ansbert Gadicke of MPM Capital; McGuire was following Scott LaGanga of PhRMA, the pharmaceutical industry trade group, who was talking about what happens in the wake of the healthcare reform legislation. (The audio comes from the Convergence Forum, an annual life sciences event that I'm involved with as an advisor.)
Some of McGuire's comments, and one slide shown during the session:
"Limited partners [who put money into VC funds] are a little bit weary of life sciences venture capital, and somewhat skeptical...There is probably going to be even less capital that's available for early-stage life sciences investing."
"It's going to be a challenging decade. Will there be capital around for life sciences investing? Yes there will, but there will be fewer groups doing it." McGuire, until recently the chairman of the National Venture Capital Association, predicted a sharp decline in membership of that group. He also said he thought the expectation that venture capitalists would raise $18 billion in new funds this year (see chart below, from the law firm WilmerHale) was overly bullish.
McGuire said, "Historically the biotech world has depended on the public markets to be there," and if there is no appetite for life sciences IPOs, that will result in a lack of capital to keep moving new drugs toward FDA approval. Gadicke, who at MPM is also out in the market raising a new fund, estimated that there are about 20 to 25 "interesting" (read: non-fire-sale) M&A transactions each year in life sciences, and joked that MPM and Polaris both hope those transactions will only involve their portfolio companies.
McGuire also talked about "capital efficient" start-ups, which is a concept you hear about more often in tech than biotech, where companies routinely require $50 million or more in funding to cultivate new drugs to the point where they're interesting to bigger partners in the pharma industry.
Despite the depressing predictions, McGuire several times said he is an optimist by nature. He also said, "Darwin was an optimist — good things come out of severe moments."
A123 Systems co-founder (and serial entrepreneur) Ric Fulop is joining North Bridge Venture Partners this summer as an investing partner, managing director Ed Anderson tells me. A123's 2009 IPO was one of the Waltham VC firm's big hits in recent years, and Fulop left the Watertown battery-maker back in February.
"We're thrilled to have him as a part of North Bridge," Anderson says. "He's an energetic guy, a guy with a really broad view, and we think he's going to be a huge plus for North Bridge and the region." Anderson says that Fulop pitched his first company to North Bridge's partners when he was about 18, but adds that North Bridge passed on every deal until A123, founded in 2001. (Fulop is wearing the orange shirt in the photo, surrounded by the other members of the A123 founding team.)
What exactly Fulop will focus on as a North Bridge partner isn't yet determined. (The firm invests in sectors that include materials, semiconductors, healthcare, and services, and Fulop's previous ventures range from wireless services to software to semiconductors to, with A123, a new kind of lithium ion battery.) "We really expect our partners to become leaders in their domain over time," Anderson says.
In his low-key manner, Anderson crows about three of his firm's recent successes — A123, Starent Networks, and Acme Packet — returning $350 million in profits to North Bridge's investors over the last year. All three are based in Massachusetts. "We really believe that Boston still matters," Anderson says.
Update: When I spoke with Fulop, I asked him why he'd decided to join a venture firm as opposed to starting another company. "I like doing lots of things, and I felt like this would be a great way to be involved with lots of things," he said. As for why he left A123 earlier this year, Fulop said he'd made 12 trips to China in 2009, where he was overseeing about 1000 employees at five different manufacturing facilities. "This is probably better for the family," he said.
At North Bridge, "70 percent of their deals are at the seed stage, so they're really about starting new things, and that's what I enjoy the most," Fulop said. "I have ideas for three or four things that I think should be companies, and we'll go through the vetting process and see if they're real opportunities."
Flagship Ventures managing partner Noubar Afeyan says his Cambridge firm is expanding its summer program for scientists with an entrepreneurial inclination; piloted in 2009 with just two Flagship "entrepreneurial fellows," this year it will grow to about 15 graduate students and recent alums. The firm doesn't exactly put out an open call for applicants — there's no information about it on Flagship's Web site, for instance — but rather circulates a call for applicants selectively, in places like MIT's chemical engineering department (where this job description appeared earlier in 2010.) "It's not something that's open for all comers," Afeyan says. "But we've reached out broadly across the U.S. We broadcast it across many different universities."
The fellows will spend the summer working with Flagship on the creation of a handful of new companies as part of what the firm calls the Flagship Venture Labs, an internal start-up factory that Afeyan says has spawned 22 businesses so far, including companies like Helicos Biosciences, Joule Unlimited, LS9, and BG Medicine. One sustainability-related company that last year's fellows worked on, Afeyan says, has since gotten seed funding from Flagship (less than one million dollars), though it's still in stealth mode.
The summer program, Afeyan says, "continues to be an experiment. The idea was that we should see if we can take some folks who have scientific and other backgrounds that are pertinent to the projects we're interested in, and get them working on this intense start-up activity."
This summer's fellowship program kicks off early next month.
With abundant seed capital, entrepreneurs are free to test ideas. Many will fail miserably, to be sure, but a few will succeed gloriously, and with that success will spawn dozens or hundreds more entrepreneurs and angel investors.
I've been hearing for a few weeks now about an expansion-in-the-offing for Dogpatch Labs Cambridge, a start-up gestation space in East Cambridge run by Polaris Venture Partners. But Polaris' Dave Barrett was only willing to confirm the news this morning — and the expansion is bigger than I'd expected.
The current Dogpatch space, available rent-free to a handful of chosen start-up teams for stays of about six months, fits about twenty desks (and is roughly 2100 square feet.) The expanded Dogpatch, at more than 7000 square feet, will have room for closer to fifty desks. Plus, there will be "hangout" space for entrepreneurs and techies who haven't yet secured a permanent spot at Dogpatch. The new space, on the fourth floor of the American Twine Building, will be online in early May.
"We're trying to really foster a community that's not just a Dogpatch community," Barrett says. The new space will also enable Dogpatch to hold larger workshops and meet-ups, he says. There's "quite a bit of demand" for desks at Dogpatch Cambridge, Barrett says, and the expansion will bring Cambridge up to about the same size as the two other Dogpatch Labs, in New York and San Francisco.
The other big news this week is that Dogpatch has its first "sponsoring partner" in Microsoft, which will hold some events at all three Dogpatch sites, and also introduce (subtly, I'm sure) Dogpatch denizens to various Microsoft tools and technologies. (Barrett sits on a board of venture capitalists who provide advice to senior Microsoft executives.) Barrett says he expects to announce a couple other sponsoring partners this year, who will help Polaris cover the operating expenses of the three labs.
Barrett says the Cambridge space currently houses eleven start-up teams; two ventures have so far raised outside funding — though Polaris itself has yet to fund a start-up at DPL Cambridge. (Polaris has supplied seed funding to five start-ups at the other DPL locations, however.) Barrett says there are a few companies that have team members working in more than one of the DPL locations, such as Assured Labor (Cambridge & New York) and kWhOURs (Cambridge and San Francisco.)
Residents of Dogpatch don't formally promise Polaris a right-of-first-refusal to invest in their companies. Barrett says his measure of whether DPL is a success is whether entrepreneurs get financial backing "by anyone — not just Polaris — that allows these seed projects to get to the next step." Polaris' only commitment to residents is the free office space.
Barrett says DPL Cambridge has already been home to a wide range of start-ups, in areas like energy, life sciences, social media, and software-as-a-service. He and Polaris principal Jonathan Lim hold office hours there every Thursday afternoon (2 to 5 PM — sign up on the Dogpatch blog or just show up), and other Polaris partners like Bob Metcalfe, Kevin Bitterman, and Amir Nashat are occasional visitors.
How do you gain entrance to Dogpatch as a start-up? "The route that seems to be really compelling," Barrett says, "is when current Dogpatchers recommend folks, or if you know people at TechStars or DartBoston or some of the other entrepreneurial communities in town." The preference is "not just for cool people with cool ideas, but people who want to share — who want to mentor and be mentored. Chemistry is a big factor, too," says Barrett.
For the first time tonight, DPL Cambridge is holding an invite-only "demo night" for investors, who will get a chance to see what the Dogpatchers have been working on. (Two of the presenting companies aren't based at Dogpatch.) Lim, who helps run DPL Cambridge, says demo nights will take place a couple times a year.
DPL Cambridge originally opened last September.
Localytics founder Raj Aggarwal has been a resident since then; his mobile analytics company is one of the two Dogpatch start-ups that has raised outside funding. "It's nice to be in a space where you've got some cool companies, and can bounce ideas off them," he says, "and you also have access to the Polaris guys, who have been helpful in terms of introductions." Localytics, with five employees now, is just about to hit the six-month mark at DPL Cambridge and is in the market for new space.
Not really talking much about this except to say that we are definitely very active now in working on new, exciting projects and spending time in and around Boston, NY, and California, especially as [we have] some great relationships and great opportunities in front of us right now. No formal plans/announcements, etc.
Angel investing groups from around the region will gather in Cambridge next Wednesday for their 14th annual meeting. It's organized by CommonAngels and Hub Angels, two Boston-based groups of wealthy individuals who can provide anywhere from a few hundred thousand to a few million dollars to start-ups they deem worthy.
I spoke with James Geshwiler, managing director of CommonAngels, yesterday morning to get a sense of what they'll be discussing.
"The #1 issue is sufficiency and availability of capital," Geshwiler said, adding that groups want to be sure they can keep funding start-ups as they grow, not just hand them initial seed money. "We're looking at a venture capital industry and a population of high-net-worth individuals that is contracting. So we're increasingly putting emphasis on collaboration between different angel groups."
I asked how angel groups in New England have weathered the recession. "Clearly, everyone has lost members, and we had higher attrition in 2009," he said. But CommonAngels has also added a few new members, and Geshwiler says that if you look at a longer time frame than just the past year, "we're probably ahead by a little bit."
Also encouraging was a training seminar held earlier this month in Waltham under the auspices of the Angel Capital Association, intended to familiarize new investors with the world of angel investing. "Forty or fifty people showed up," Geshwiler said. "Some were new to angel investing and haven't joined one of the groups, and others were relatively new members of a group."
When the New England angel groups began gathering, one goal was to "improve the syndication process," making it easier for them to collaborate on initial investments and follow-on rounds. "Among angel groups, I'd have given our syndication work a C- then," Geshwiler said. "We've moved up to a B or maybe B-plus, but you can always do better."
Andy Marcuvitz is heavyset. He wears badly fitting suits. He has no discernible personality, sense of humor, or compassion. All of which are ideal traits for a venture capitalist. During 18 months of extremely intense interaction, we never had a personal conversation, I never heard him make a joke, and he rarely smiled. Indeed, a smile from Marcuvitz is not a good sign. In arguments he's relentless: His voice remains even, he never loses his temper, and he can dig in for hours. If I had known when I started Vermeer that Marcuvitz was going to be one of the most important people in my life, I would have seriously reconsidered the whole thing. And yet, he was good for me, and, in a slightly twisted way, I respect him a great deal.
Project Concord: Stealthy video start-up has raised 'several million' from Andy Marcuvitz, formerly at Matrix Partners
How's this for bouncing back?
It's December, and that means it's mandatory for journalists to start cranking out "year-in-review" lists.
So for this week's Friday5, my list is the five Boston venture capital firms that had the most impact on the local scene in 2009. Disagree? Think I've left off an important firm? Add a comment if you would...
- Founder Collective, Cambridge and New York. The newest firm in town: a $40 million seed-stage venture fund run by entrepreneurs, not career investors. Founders Eric Paley and Chris Dixon had big hits selling companies to 3M and McAfee; David Frankel built Africa's biggest Internet service provider. (Covered by this blog back in July.) Boston's Flybridge Capital Partners gave Founder Collective a boost, and housed the firm for a stretch earlier this year.
- North Bridge Venture Partners, Waltham. Super-secretive, stodgy North Bridge continues to be one of the most active and broadly-focused firms in town, putting money into areas like solar cells, stretchable silicon, virtual currencies, quantum dot display technologies, and open source software. North Bridge was the largest shareholder in A123 Systems when the Watertown battery-maker went public in September; though North Bridge can't unload its shares for six months, the A123 IPO at least proved that North Bridge could find an exit with a cleantech investment, something most other VC firms have yet to do. Also in 2009: Starent Networks, a North Bridge company that was already public, was acquired by Cisco for $2.9 billion.
- Polaris Venture Partners, Waltham. Opened Dogpatch Labs Cambridge, a free incubation space for entrepreneurs, in September. Polaris portfolio company LogMeIn, based in Woburn, went public in July, and Polaris was the second-biggest shareholder (after Needham-based Prism VentureWorks.) Athenix, a Polaris portfolio company making biotech products for agriculture, was acquired for $365 million by Bayer CropScience in Germany. And despite the high-profile shut-down of GreenFuel Technologies in May, Polaris continues to place bets at the intersection of biotech and cleantech, with companies like Sun Catalytix. Most people expect Polaris to go to its investors to raise a new fund in 2010, and it'll be interesting to see how that plays out.
- Spark Capital, Boston. Boston techies are interested in one Spark investment in particular: Twitter, where partner Bijan Sabet joined the board last year. The San Francisco company has raised $155 million so far, but has yet to start offering, um, a service or feature that someone might pay for. (The company is already making some coin from its search deals with Google and Microsoft.) Sabet also helped introduce the weekly OpenCoffee gathering to Boston, and he's an active blogger and Twitter user. Spark partner Rob Go has been an early advocate of Open Office Hours, when anyone can come meet with him to get feedback on a business idea. All that said, Spark is very much focused on New York and California, with only three active investments (VeriVue, Linkwell, and 8DWorld) in the Boston area. Spark also helped bring the TechStars program to Boston.
- Third Rock Ventures, Boston. Third Rock, founded by veterans of Millennium Pharmaceuticals, launched in 2007 with a $378 million fund. Taking a very hands-on approach to launching life sciences companies, Third Rock has backed seven start-ups thus far, in areas like obesity, epigenetics, cardiology devices, and health monitoring. (Two more nascent companies, in devices and protein therapeutics, haven't yet been announced.) In July, Third Rock brought three new partners on board, including the former CEO of Interleukin Genetics and a recruiting expert from Cubist Pharmaceuticals.
It's great to see a third Boston-based venture capital firm joining the Open Office Hours Movement, Siemens Venture Capital.
Open Office Hours is a grass-roots initiative aimed at bringing down the barriers that typically separate early-stage and first-time entrepreneurs from getting good advice, or capital, from more established entrepreneurs, execs and investors.
Anupendra Sharma of Siemens Venture Capital notes that his group typically makes investments in smartgrid technologies, water, wind, solar, diagnostics, imaging, healthcare IT, manufacturing software, lighting, and transportation. (The same sectors that the German parent company operates in.) They're planning three Open Office Hours dates at their Back Bay offices. Sharma writes:
When: 2nd Fridays from 10-11:30 AM for the next three months (Dates: Dec 11, Jan 15, Feb 12)
Who: Anupendra Sharma, Eric Emmons and Andrew Jay, Partners @ SVC Boston office
How: Email Tina Gibson: firstname.lastname@example.org.
What: Send Tina a) short description b) short pitch you can run through in 20 minutes / she'll have it ready to go so email it to her in advance c) names of who may attend d) what are you looking for / asking for help with. We'll provide coffee. Plan to be here for 30 minutes. If we can go longer, we will.
Do post a comment about others you know about...
Earlier this month, I promised that this blog won't become obsessed with the real estate decisions of Waltham's venture capital firms, but -- just one more tidbit...
I'm told that Atlas Venture has been sniffing around Cambridge office space. The firm moved from Back Bay to Waltham only in 2002, but tech/cleantech partner Jeff Fagnan (who lives in Brookline) seems interested in nudging the office back to the city; chief financial officer Kristen Laguerre, who lives in Sudbury, will also be a key decision-maker. Atlas' lease in Waltham is up next year, and it's absolutely possible that the firm could opt to stick around Waltham or another western 'burb, though spokesman Matt Burke notes that many of Atlas' life sciences investments are in Cambridge.
Earlier this month, Waltham-based Greylock announced that it will be moving in to Harvard Square come January.
I've gotten some tips recently that two other Waltham venture capital firms have been considering a move to Boston and Cambridge. This comes in the wake of Greylock's announcement last week that they're taking space in Harvard Square.
I promise this won't become a blog obsessed with real estate, but...
...I put in a call this morning to Bob Hower, the partner at Advanced Technology Ventures in Waltham who is responsible for their lease. They're one of the firms that has been nosing around Boston and Cambridge, weighing their options.
"We've been talking about it," Hower told me. "But it's more in response to other people expressing some interest in our space [at the Bay Colony Center], which started six or seven months ago." Hower says ATV has a couple years left in its current lease, and "it's very unlikely we'd go anywhere before that."
But as a resident of Cambridge, he acknowledges the allure of being closer to the urban core. "The traffic around [Waltham] is horrendous, and it seems like the construction is never going to stop," he says. Hower also mentions that one reason that many Boston and Cambridge VC firms moved out to Waltham in the first place was to be at a "mid-way point" between the city and companies located out on Route 495, or up north on Route 3. But there's noticeably less action in those areas these days.
"It wouldn't surprise me" if more Waltham firms started to boomerang back to the city, Hower said.
Know who the other firm is that has been hunting for space in Boston or Cambridge? Do post a comment, or send me a private e-mail using the contact form on the right...
Can governments spark start-up activity and job creation by getting into the venture capital business? Or do they just waste taxpayer money whenever they try?
Those are the two questions that animate the new book from Harvard Business School prof Josh Lerner, "Boulevard of Broken Dreams: Why Public Efforts to Boost Entrepreneurship and Venture Capital Have Failed -- And What to Do About It."
Much of Lerner's book focuses on all the things that can go wrong when governments try to pour taxpayer money into the gas tank of their region's innovation economy.FULL ENTRY
The venture capital firm Greylock Partners announced today that they've just raised a new $575 pool of capital, one of the biggest of 2009, and that they've added LinkedIn's founder as a new west coast partner. Greylock has invested in LinkedIn, Facebook, Red Hat, Digg, and Zipcar.
And Bill Helman, one of Greylock's partners, called me this afternoon to add a little tidbit to the news: while Greylock made waves earlier this year when the firm relocated its headquarters from Waltham to Silicon Valley, Helman said that Greylock's local outpost will move from Waltham to Cambridge as of January 1st.
The tireless crew at DartBoston, which already organizes a weekly gathering and Webcast for young entrepreneurs, is debuting a new event this month called Capitalize. I love the concept: it's a chance for a young entrepreneur to get into a local venture capital firm, pitch their business, and receive candid feedback. And other entrepreneurs get to be there to observe. There will also be a live Webcast, since most VC boardrooms won't fit more than 15 or 20 people.
I suspect tickets to the monthly Capitalize event will be tough to get; one of the DartBoston organizers, Cort Johnson, says they'll be given out to people who go to their weekly Pokin' Holes event, or who watch the Webcast.
As to how companies will be chosen for the chance to pitch a VC, he writes in an e-mail:
...[We] are hand-selecting all of these companies to the extent that they believe they are ready to raise capital and they have some participation level in Dart like going to a Family Dinner or Pokin' Holes.
The company that will be pitching at Venrock is RiotVine and they're going to be on PH next week...
Capitalize will take place at Venrock this month (where Cambridge partner David Beisel is also the organizer of the monthly Web Innovators Group gatherings); Flybridge Capital Partners in December; and Bain Capital Ventures in January.
Interesting, is it not, that all of the VC firms who've decided to make themselves more accessible to young entrepreneurs are in Boston and Cambridge, not Waltham...? (The stodgy residents of Mount Money insist I'm painting them with too broad a brush, but I'd argue that they're doing the painting themselves.)
Update: Kepha Partners in Waltham has just signed on to host Capitalize in February.
Did you recognize one of those skeptical, skin-flinty investors from ABC’s reality show “Shark Tank” as a denizen of the Back Bay?
I’d seen a few episodes of “Shark Tank”’s inaugural season over the summer, when it scored some decent ratings. In the show, entrepreneurs pitch a panel of five investors who ask probing questions – and sometimes simply mock the contestants, in time-worn reality show style. But occasionally, the investors decide they want to put their money into one of the businesses, and then there’s a fast-paced negotiation over deal terms. Season one of the show wrapped up just last week.
But it didn’t connect for me that Kevin O’Leary, now chairman of the asset management company O’Leary Funds, had been the chief executive of The Learning Company, an educational software firm with operations in Cambridge that he sold to Mattel for $3.6 billion back in 1999. Recently, though, someone mentioned that O’Leary still has a home on Marlborough Street, and was recently spotted at a fundraiser for the Berklee College of Music. I pinged O’Leary with an e-mail, and he confirmed that he splits his time between Boston, West Palm Beach, and Toronto.
We caught up by phone this week; I was curious how the investments on the show actually worked, and whether there would be a second season.FULL ENTRY
Jeffrey Beir, a former entrepreneur who had been a partner with Waltham-based North Bridge Venture Partners, sent out an e-mail last week announcing that he is leaving the firm. Beir had been with North Bridge for five years. He's still listed as part of the team on the venture firm's Web site, and North Bridge -- one of the more secretive and low-key firms on Mount Money -- hasn't yet issued a press release about Beir's departure. (Beir is at the far left of the photo.)
When I bumped into Beir this week, he told me he hasn't decided what he's going to do next. My sense is that it could be another start-up, or the creation of a new investment entity of some sort. In his farewell e-mail last week, he described the decision to leave the firm as "a very personal decision for me as I think about...what I enjoy day-to-day."
"Whatever role I take on next," Beir continued, "I will be actively involved with early stage companies, helping entrepreneurs build great teams going after big markets -- and having fun while doing it."
Here's more background on Beir's departure:FULL ENTRY
A source in the venture capital industry tipped me off to an interesting, invitation-only gathering of VCs held in Manhattan this Tuesday and Wednesday. It was called "VC 2.0," and it brought together about 30 new-ish venture capital firms from around the country to talk about issues like compensating portfolio company executives, raising funds from limited partners (like pension funds and university endowments), portfolio management, and emerging investing trends.
Who was there from Massachusetts? Fairhaven Capital, .406 Ventures, and Kepha Partners. (Also Point Judith Capital from Providence.) Spark Capital has participated in the past, but wasn't there this year. Boulder-based Foundry Group, which helped get the TechStars Boston program off the ground, was also represented.
Maria Cirino from .406 told me that most of the investors who were there manage funds of $200 million or smaller, and invest in early-stage companies. She told me that the sessions she found most interesting dealt with triage (figuring out where to focus one's efforts in a portfolio of start-ups, and where to cut one's losses) and the fundraising environment. The participants heard from venture capitalists who've been out trying to raise money in 2009 (something .406 hasn't had to do.) "It was interesting to hear from people who know where the bodies are buried -- who has money, and who doesn't right now," she said.
All of the speakers were VCs, including Alan Patricof of Greycroft Partners and Art Marks from Valhalla Partners. "Art and Alan have forgotten more about venture capital than most of us know," Cirino quipped.
"I know you segment the venture world between Waltham and non-Waltham," my source wrote via e-mail. "My cut is that another segmentation is VC 1.0 versus VC 2.0." He described the VC 2.0 cohort as high-energy, and full of innovative, forward thinkers (many of whom blog... though he doesn't.)
Know any more? Do comment...
One year after it opened an incubator in San Francisco that offers free space to selected entrepreneurs, Polaris Venture Partners is bringing the concept to Cambridge. The Waltham VC firm is formally announcing Dog Patch Labs Cambridge tonight at a special event at Fenway Park’s EMC Club – which will also mark the successful IPO this summer of LogMeIn, a Polaris-backed start-up.
The San Francisco version of Dog Patch (located at Pier 38 on that city's waterfront, left) was the brainchild of Mike Hirshland, a Polaris partner based in Waltham who focuses primarily on digital media companies. Hirshland describes it as “a frat house for geeks” that offers free desks, connectivity, coffee, and grub to entrepreneurs that the firm dubs interesting. Unlike a traditional incubator, there’s no formal agreement that gives Polaris equity, or even a right-of-first-refusal on investing in any companies hatched at Dog Patch. But Polaris has put money into two West Coast ventures thus far: Thing Labs (formerly Plinky) and LOLapps.
Dog Patch Cambridge will be co-located with Allurent, a Polaris company that works on improving the e-commerce experience. Hirshland explains that the Lab will be a venue for dinners, brown bag lunch talks, workshops, and conferences –- and it’ll also serve as a hang-out for Polaris partners visiting the big city from their usual perch atop Mount Money in Waltham. Part of Hirshland’s plan is to create a bit of an exchange program between the Cambridge and San Francisco labs, so that entrepreneurs and Dog Patch Fellows (friends of the labs who may be experts on some topic, or more experienced entrepreneurs) can hop back and forth.
"The objective is to foster a vibrant community of entrepreneurs," Hirshland writes in an e-mail. "What we have to gain is being deeply immersed and engaged in the very early stage entrepreneurial ecosystem -- which we see as just an extension of what we are already doing every day..." Hirshland explains that Polaris doesn't "see [Dog Patch Labs] as a feeder system for Polaris investments -- though as it has worked out in SF that has been a nice side benefit."
Here's more about the new space:FULL ENTRY
We used to think of the placid plateaus of Mount Money in Waltham as the epicenter of our local venture capital industry. The office parks that loom high over the Cambridge Reservoir and Route 128 are home to more than a dozen venture capital firms, including Charles River Ventures, North Bridge, Matrix Partners, Advanced Technology Ventures, and Battery Ventures.
While they've funded many great local companies, I submit that they simply don't matter anymore, and that the new core of Boston venture capital has moved in closer to the city, toward Copley Square and Harvard Square.
Here's why:FULL ENTRY
Isn't it just like a venture capitalist to imagine that he's a super-hero, capable of saving troubled companies, forging strategic partnerships, and negotiating deal terms without breaking a sweat?
The guys at Flybridge Capital Partners in Boston throw a big bash in Maine every July, and one of the highlights is a Saturday night costume party. The theme this year was "Heroes and Villains"... and you have to give the Flybridge team credit for going all out. That's Jeff Bussgang as Batman, David Aronoff as Wonder Woman, Chip Hazard as Aquaman, Jon Karlen as the Green Lantern, and Michael Greeley as Superman.
The party also brought out Princess Leia, Pac Man, Cruella DeVille, Harry Potter, the Joker, the Ghostbusters, and Sarah Palin. I guess it depends on your politics whether you consider her a villain or heroine...
The photo album is here.
The newest venture capital firm in Boston doesn't yet have a Web site, a phone number, or an office to call its own.
It's called Founders Collective.FULL ENTRY
We talked about the shrinkage that the industry is currently experiencing… whether firms that have been having trouble raising new money will simply vanish, or try again… and possible changes at Polaris.FULL ENTRY
About Scott Kirsner
Scott Kirsner was part of the team that launched Boston.com in 1995, and has been writing a column for the Globe since 2000. His work has also appeared in Wired, Fast Company, The New York Times, BusinessWeek, Newsweek, and Variety. Scott is also the author of the books "Fans, Friends & Followers" and "Inventing the Movies," was the editor of "The Convergence Guide: Life Sciences in New England," and was a contributor to "The Good City: Writers Explore 21st Century Boston." Scott also helps organize several local events on entrepreneurship, including the Nantucket Conference and Future Forward. Here's some background on how Scott decides what to cover, and how to pitch him a story idea.
Subscribe via e-mail
More from Scott
December 9: Web Innovators Group
Demos of new mobile apps and web ventures at the Royal Sonesta Hotel in Cambridge. Free admission; cash bar.
December 10: Fintech Demo Day
Short demos from startups in the financial technology realm.
December 11: Unpitch
Entrepreneurs and investors sit down for lunch, advice, and feedback. Entrepreneurs must apply to participate.