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A peek inside Alphabet’s investing universe

21:10 | 17 February

Jason Rowley Contributor

Jason Rowley is a venture capital and technology reporter for Crunchbase News.

More posts by this contributor:
  • Raise softly and deliver a big exit
  • Mobile delivers high exit multiples despite broader market slowdown

Chances are high you have heard of Google. You are likely a contributor to one of the 3.5 billion search queries the website processes daily. But unless you’re a venture capitalist, an entrepreneur or a slightly obsessive technology journalist, you may not know that Google — or, more properly, Alphabet, the corporate parent to the search and internet ad giant — is also in the business of investing in startups. And, like most of what Google does, Alphabet invests at scale.

Today we’re going to undertake, if you will forgive the pun, a search of Google’s venture investments, its portfolio’s performance and what the company’s investing activity may say about its plans going forward.

Alphabet was the most active corporate investor in 2017

Taken together, Alphabet is one of the most prolific corporate investors in startups. In 2017, Crunchbase data shows that Alphabet’s three main investing arms — GV (formerly known as Google Ventures), CapitalG and Gradient Ventures — and Google itself invested in 103 deals.

(Crunchbase News contacted Alphabet for this story but did not hear back in time for publication.)

Below, you’ll find a chart comparing Alphabet’s investment activity to other major corporate investors, based on publicly disclosed deals captured in Crunchbase data.

For years, Intel and its venture arm Intel Capital topped the ranks of most active corporate venture investors. But for 2017, Crunchbase data suggests that Alphabet’s primary venture funds unseat the chip manufacturer. With 72 deals struck, Tencent Holdings and its venture affiliates rank second and SoftBank, which has a $100 billion pool of capital to slosh around, comes in third with 64 deals announced in 2017.

The Alphabet investing universe

As we alluded to earlier, Alphabet has a somewhat unusual setup for a corporate investor. Data shows that Alphabet makes the overwhelming majority of its equity investments out of four primary entities:

  • GV, formerly known as Google Ventures, is Alphabet’s most prolific venture fund.
  • Growth equity fund CapitalG invests primarily in late-stage deals.
  • Gradient Ventures, Google’s newest fund, is focused on artificial intelligence deals.
  • Finally, Google itself, has made a number of direct corporate venture investments.

Alphabet and its funds upped their pace of investing too, as the chart below shows:

In 2017, Alphabet’s equity investment deal volume topped historical highs from 2014.

In addition to these equity investment operations, Google operates the Launchpad Accelerator, which grants $50,000 equity-free to startups in Africa, Asia, South America and Eastern Europe. The company also issues grants and makes impact-oriented investments out of an entity called Google.org.

Taken together, here is what the Alphabet investment universe looks like:

The network visualization above shows the connections between Alphabet’s various investing groups and their respective portfolios.1 This graphic depicts 676 connections between six Google investing groups (labeled above in yellow), 570 portfolio organizations and 75 companies that acquired Alphabet-backed portfolio companies.

And, for the most part, there isn’t as much overlap as one may expect. CapitalG and GV only share two portfolio companies. GV invested in the seed round of Gusto, the payroll and HR software platform, and both GV and CapitalG invested in Gusto’s Series B round. GV and CapitalG also invested in Pindrop’s Series C round, although CapitalG led that round. Apart from those two companies, though, Crunchbase data doesn’t suggest any other portfolio overlap between GV and CapitalG.

Google and GV also share some portfolio companies. Google led INVIDI Technologies’ Series D round, in which GV was a mere participant. Google also led the Series A round of popular consumer genetics company 23andMe. Google followed on in the Series B round, in which Google co-founder Sergey Brin was also an investor. GV didn’t invest in 23andMe until its Series C. GV continued its investment all the way through 23andMe’s Series E. Google and GV are also investors in Ripcord, an early-stage company building robots that scan and digitize paper documents.

Shared exits

If there isn’t much overlap between Alphabet’s assorted funds and their investing activity, where is it then? The answer, it seems, may be in the exit data.

A wide range of companies have acquired startups in which one or more of Alphabet’s capital deployment arms invested. Crunchbase data shows that 81 entities have acquired 100 companies in which Google invested. Of those, it seems like Alphabet is its own best customer, as the chart below shows:

All in, Alphabet has acquired seven companies in which it had previously invested. Google itself acquired six companies it previously invested in, and its X unit (formerly known as Google X) acquired Makani Power, a company that developed airborne wind turbines, in which Google had directly invested. Other frequent trading partners with Google are Cisco, which has acquired six Google-backed companies, and Yahoo (now, together with AOL, part of Verizon-controlled Oath) with five acquisitions.

As an aside, Google invested in both SolarCity and Tesla, two companies with ties to Elon Musk. In 2011, Google invested $280 million in SolarCity, a company founded by two cousins of Musk. Google and its co-founders Larry Page and Sergey Brin invested in Tesla’s Series C round alongside Musk, Tesla’s co-founder. Tesla went public in 2010 and completed its acquisition of SolarCity, a $2.6 billion all-stock deal, in 2016.

And as the network visualization above shows, Tesla isn’t the only Alphabet portfolio company to go public. Alphabet funds struck venture deals with 11 other companies that have since gone public, including Baidu, HubSpot, Cloudera, Spero Therapeutics, Lending Club and Zynga.

Deals spanning A to Z

If one had to describe Alphabet funds’ collective portfolio of venture deals in one word, it would be “eclectic.” Unlike many corporate venture portfolios, there doesn’t appear to be a unifying, cohesive theme to Alphabet’s outside investments. The AI-focus of Gradient Ventures aside, Alphabet is just as likely to invest in a homeowners insurance company like Lemonade or a customer support platform like UJET (which Crunchbase News covered recently) as it is to invest in non-dairy milk producer Ripple Foods or African tech recruiting platform Andela.

The diversity of Alphabet’s venture investments echoes the diverse collection of businesses, initiatives and long-shot bets under its corporate umbrella. And just like it’s difficult to predict what kind of new project Alphabet will launch next, it seems that no amount of searching and sifting can say what its venture arms will embrace next.

  1. The network visualization was created using Gephi, an open-source software package used for making network visualizations, and the ForceAtlas2 layout algorithm.
Featured Image: Li-Anne Dias

 


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Startups are (still) making weird name choices

19:00 | 10 February

Joanna Glasner Contributor

Joanna Glasner is a reporter for Crunchbase.

More posts by this contributor:
  • Not a minimalist? Startups will gladly store, manage and deliver your items
  • The state of the unicorn

If the latest seed-funded startups have their way, this is what your future will look like.

You’ll find your mortgage through a company named Morty, refill your contact lenses with Waldo and get your cannabis news from Herb. (Which is not to be confused with Bud, the startup that handles your banking.)

Later, you can use Cake Technologies to pay the bar tab, cover fertility treatments with Carrot Fertility and get your workers’ compensation through Pie Insurance.

Afterward, rent your neighbor’s stuff with Fat Lama, manage your cloud services with LunchBadger and network your way to a better career with Purple Squirrel.

Notice any patterns here? Yes, first names, foods and animals have been quite popular lately with founders choosing startup names.

Those are a few of the top naming trends Crunchbase News identified in our latest perusal of seed-stage startups. The project involved parsing through names of more than 1,000 startups that raised seed rounds of $200,000 and up in the past nine months.

This data crunch was an update (see our methodology section below) to a prior overview of the often bizarre naming trends that startups follow. At that time, we found top trends included putting AI into your name, using popular first names and employing creative misspellings of common words.

Most of these things are still popular in startup naming, but some more than others. Adding AI at the end of a name, for instance, is still common, but seems to be waning some. Creative misspellings are still getting done, but less frequently.

Meanwhile, other naming styles are getting more fashionable. Below, we take a look at what’s hot now and what might be in vogue next.

First names and nerdy names

The first-name trend seems to be intensifying, diversifying and creeping into more sectors. Last year, we started noticing a proliferation of chatbot startups using first names. More recently, the first-name trend has pervaded insurance, cannabis, fintech and a whole lot of other spaces.

First names that startups are using are getting nerdier and less common. Morty, for example, is commonly short for Mortimer, which peaked in popularity in the 1880s. It was most recently ranked No. 12,982 on the list of most common baby names. Then there’s Fritz, a learning software developer with a name that also hit its peak in the late 1800s. Last year it ranked No. 4,732.

Another mini-trend that we’d like to see expand is the use of startup names based on textures.

This is a stark contrast with the chatbot crowd. They tended to go with popular monikers, like Ava, Aiden and Riley, that rank high on the latest baby name lists. Some of the more offbeat names, however, do tie into their sectors. Herb has been used as slang for marijuana. Morty, for instance, shares a first syllable with mortgage.

It’s also noteworthy that many startups go with single-word names. This is a shift from the old school practice of combining a first name with another word, as in well-known brands like Trader Joe’s and Sam’s Club.

Food names

Startups also like naming themselves after foods lately. Of course, this isn’t an entirely new phenomenon, and it has worked well before. Apple named itself after a fruit and later became the world’s most valuable technology company.

It should be noted that the food names we refer to here are for companies that, like Apple, have nothing to do with the food industry. Carrot Fertility, which raised $3.6 million in seed funding last fall, for example, offers insurance policies for employers to help cover costs of workers’ fertility treatments. MoBagel is a data science startup. Parsley Health provides primary care. The list goes on.

One of the nice things about naming yourself after a food is that these are general purpose nouns that don’t seem to raise a lot of copyright issues. Vegetables and baked goods aren’t going to sue you for misappropriating their names.

Animal names

Animal names are also good from a trademark perspective. Plus, with an animal name you can also create a cute logo featuring the creature.

Those may be some of the reasons why animal names are also in vogue lately with startups developing both consumer-facing and backend technologies. The formula is also pretty straightforward: pick an animal and then add another descriptive word.

There are plenty of textures out there that don’t have a funded startup associated with them, including spongy, slimy, gelatinous, puffy, gloppy, stringy, pasty, hairy and fluffy.

Of course, for most of the animal-monikered startups, mascots have nothing to do with the underlying businesses. MortgageHippo obviously doesn’t expect hippopotamuses to use its mortgage tool, and Purple Squirrel doesn’t cater to furry-tailed job seekers.

That said, we do worry about the animal kingdom theme getting a bit overused. For instance, MortgageHippo and Hippo Insurance were both funded in the past couple of years.

Other mini-trends we saw and liked

Another interesting trend is that many startups hopping on the fashionable name bandwagon are in the insurance sector. We’ve seen a huge spike in insurance startup funding over the past couple of years, with many upstarts looking to re-architect the industry to appeal to millennial consumers. They have names like Oscar, Lemonade and The Zebra.

Much of this activity is being bankrolled by the largest insurance companies, most of which are a century old and tend to have dull names that sound like, well, insurance companies. So don’t be surprised if the trendy new insurer is actually part-owned by the old boring one your parents complained about.

Another mini-trend that we’d like to see expand is the use of startup names based on textures. In the past year, both Fuzzy and Mush raised good-sized seed rounds.

It’s not too late to get in on this trend, either. An analysis of Crunchbase funding archives reveals there are plenty of textures out there that don’t have a funded startup associated with them, including spongy, slimy, gelatinous, puffy, gloppy, stringy, pasty, hairy and fluffy, to name a few.

Methodology

We altered the methodology for this naming piece since the last one. Previously, we looked at startups based on founding date. This time, we looked based on closed seed rounds of $200,000 or more in the past year for companies founded in 2015 or later.

Featured Image: Li-Anne Dias

 


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Scaling a bootstrapped business is next frontier of entrepreneurship for Evan Frank

00:17 | 7 February

Evan Frank was five years old when he first knew he was going to be an entrepreneur. While attending kindergarten, Frank crafted books and sold them to his teacher at a nickel to a dime a piece. “There was always this desire to build stuff,” he explained to me, and also clearly a desire to make some money on those projects to boot.

Frank, who lives in New York City, was a co-founder and eventual CEO of onefinestay, which sold in early 2016 to AccorHotels for $170 million. Now, he is embarking on the latest of his entrepreneurial endeavors, as the new CEO of Context Travel, a company that specializes in deeply-researched tours in cities around the world. Until recently, the 14-year-old company was bootstrapped by its founders Paul Bennett and Lani Bevacqua, before raising $5 million in private equity funding last September from Active Partners.

I wanted to understand how Frank, who I first met sharing a RideAustin taxi at a SXSW pre-conference, chose between starting a new venture and heading up an established business. I also wanted to get a sense of what entrepreneurship looks like as a career, rather than simply as a single job title or startup.

First, entrepreneurship is in Frank’s DNA. After starting a short-lived startup in the dot-com bubble and a couple of years working in investment banking, he moved to London to join a growth equity firm in 2005 called Kennet Partners. Frank wanted to “marry career progression and fun,” noting that “it was a lot more fun to do board meetings in Barcelona and Berlin rather than Pittsburgh.” The job allowed him to meet a lot of different entrepreneurs, and along with his bank training, understand the financing of startups.

Eventually though, he got the itch to return to being a founder himself. “I got married a few years before, and I realized that I wasn’t fully satisfied with VC work. I decided if I didn’t start a company now, when would I?”

His first attempt at a startup was to build a verticalized ecommerce brand known as BOX, which sold men’s underwear, shirts, and socks. “I was looking at what was happening with Bonobos at the time — and I wanted to apply that same philosophy of brand building,” Frank said. There were moments of absurdity, including “hawking boxers on Portobello Road in West London” — one of the largest antique markets in the world.

Eventually, Frank would shut down that business and sync up with Greg Marsh, who had been an investor at Index Ventures for three years and had recently started a business called onefinestay. Frank agreed to join the company, and became the last co-founder of the business.

For the next seven years, Frank would move with the company to its next scaling opportunities, starting out as head of commercial in London, and eventually becoming the head of U.S. sales for the company, which targeted New York City and Los Angeles as its key markets. Frank explained that “we were trying to bring standards and a brand to what was at the time a Wild West, which was urban vacation rentals.”

The company would go on to raise about $81 million according to Crunchbase across several rounds of venture capital. “We were scaling quickly, but never profitable, and somehow always dependent on the capital markets,” Frank said. The company would eventually sell to AccorHotels, and Frank would take the CEO position for a year as part of the acquisition and integration process. He left last September, looking to build a new startup.

Context Travel had been on Frank’s radar screens since 2010. Onefinestay and Context had a partnership by which customers of onefinestay would be recommended to Context in cities like Rome if they asked for a more personal and local tour experience. He continued to observe the business at a distance, and then in the last year was introduced by his co-founder Marsh to Bennett, who had founded Context. They had an on-going conversation to potentially join the company, and “We spent the fall getting to know each other,” Frank said.

In the end, Frank decided to join Context as CEO, while Bennett decided to step back after almost a decade and a half to return to his love of sailing. Frank sees similarities between his new business and his old business, and not just that they are both in the travel business. “onefinestay was the accommodation business for people who didn’t want to stay at a traditional hotel, and Context is a tour for people who don’t want to do a traditional tour.”

Frank explained that starting a company and joining a bootstrapped one have very different features. “When you start a company, you own the whole thing or whatever split you chose with your co-founders,” he explained. But there are serious challenges. “Certainly, from the onefinestay days, there is just this incredibly challenging multi-year period where you just don’t know whether it is working. When you are a founder or CEO, you are always telling people that it is working, but is it working if the business had to run sustainably and not spend money?”

Leading a formerly bootstrapped business though can solve many of those challenges. If it has been run properly, “you have taken an enormous amount of risk and time out of the business, and can work to scale above that.”

Frank argues that “I consider myself two parts entrepreneur and one part operator.” With Context, he gets to play both roles, building out an executive team while also continuing to learn about interesting places all around the world. His five year old self would likely approve.

Featured Image: Laszlo Szirtesi/Getty Images

 


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What Silicon Valley tech VCs get wrong about consumer investing

14:30 | 3 February

When I began fundraising for CircleUp six years ago, I encountered many investors whose eyes would glaze over when I mentioned “consumer.”

These investors would fidget uncomfortably or drop their gaze when I explained that our platform would only provide capital to small CPG companies. I would often hear the skeptical comments, such as, “an energy bar company can’t really get that big,” “baby food isn’t scalable,” and my personal favorite, “I can’t name a single consumer company” (real quote from a VC).

Today, of course, the tone is much different. Scroll through tech news and you’ll see everything from Greylock Partners singing the praises of CPG startups, Sequoia’s Michael Moritz joining the board of Charlotte Tilbury, to Lightspeed Ventures coinvesting with VMG Partners, a top mid-market consumer firm.

Alongside blockchain and AI, “technology-enabled” CPG startups are now a bona fide trend for Silicon Valley VCs. The uptick in tech VC dollars going to the CPG market is partly because tech investing is brutally competitive and saturated, and largely because these VCs are awakening to the strong historical returns in CPG, especially with the trend leaning towards small brands stealing market share.

Consumer is a massive market – about 3x the size of tech, as seen below.

Despite the size of the market, the early-stage has historically been underserved by investors due to market inefficiencies like the geographic dispersion of brands and a lack of structured information sources (i.e. there is no Silicon Valley for consumer, and certainly no Crunchbase equivalents – yet). In theory, the recent trend of VC dollars going to fill a capital gap in CPG should result in a win-win. In effect, many of the tech VC investments into consumer are misguided, and sometimes even harmful. Investors may lose money, but entrepreneurs can lose companies they’ve spent lifetimes building.

There are a few things that VC investors should keep in mind to ensure they invest in a way that benefits both them and the entrepreneurs they work with.

One company won’t rule its market

The heart of the problem with tech investors in CPG is that they operate under the assumption that one CPG player can rule its market. They believe this because in tech, it’s largely true. When you look at Uber and Airbnb, it is likely that one or two players could own 70% of their respective markets. Holding this assumption in the CPG space, however, in fundamentally flawed.

There has been a secular shift over the past 5-10 years where people now favor unique, targeted products catering to personal preferences. Today, even the act of selecting a beer or hand lotion is a form of self-expression. The result is a fragmentation with many brands that are more targeted in their offering. Many of these products are inherently smaller in scale and never intend to be mass market—yet do frequently get gobbled up by public consumer conglomerates. The M&A in consumer and retail was over $300 billion in 2017 according to PWC, vs. $170b for tech.

While the market grows more and more fragmented with small to mid-sized brands offering diversified products, we’re moving far away from the notion that one condiments or baby products brand can own 70% of its category.

Too-high valuations and large raises are harmful, not encouraging

Relatedly, putting too high a valuation on a CPG company and theorizing it could rule its market is counterproductive and unrealistic. It pushes the entrepreneur to unnatural and harmful tactics to meet this valuation, or to eventually fundraise again at a lower valuation – or at a higher valuation from whatever out-of-tune investor they can find to do – then seriously struggle to exit. Some of the spiraling is obvious, including inflated marketing campaigns that force growth, often long before the product is ready, and some are less obvious, including inflated numbers in investor decks behind the scenes.  

Ask anyone knowledgeable in consumer about why Unilever bought Seventh Generation instead of the similar, but far more trendy Honest Company. It’s largely because of valuation. By every account, the VCs involved in Honest Company put a valuation in previous rounds that made no sense relative to core metrics. Consumer companies shouldn’t raise $30m in equity to grow, let alone $300m. The result: Honest Company couldn’t get the exit it wanted, had to cut costs, and reportedly faced tremendous unrest among employees who were upset about the direction the company was heading.

Ultimately, CPG brands don’t need that much money to grow. Capital efficiency is one of the beauties of CPG. Consumer companies can typically raise $4-8m to get to $10m in revenue, where they are often profitable. Tech companies typically raise $40-50m to get to the same revenue range, and often fail to make a profit even at that point. SkinnyPop, RXBar, Sir Kensington’s and Native Deodorant are great examples of the lean operations characteristic of CPG.

A great brand isn’t as simple as a D2C model and a sleek website

In the past year I’ve had 10-20 tech VCs call me and say some variation on this: “we want to get into consumer, but it has to be tech enabled, because we told our LPs we’d invest in tech companies.” This over focus on D2C leads VCs to put too much money into the company at too high a valuation.

D2C is a channel. Just like the convenience store channel (i.e. 7/11), club (Costco), mass (Walmart) and grocery (Safeway). Like these other channels, DTC has pros and cons. It is not a Holy Grail. Too often, we see inexperienced VCs talk about D2C as “lower cost” when in reality the average D2C brand raises 10-30x the amount of brands in the offline world with massive overvaluations. Tell a D2C entrepreneur that their channel is cheaper than offline, and she will quickly explain to you that the Customer Acquisition Costs in the past 3-5 years have made that no longer true. If D2C is better margins, why did Bonobos raise $127m, Dollar Shave Club raise $164m and Casper raise $240m?

D2C is a channel, but it does not change the underlying fundamentals of what makes a successful CPG company. Those fundamentals, aside from margins and team, are brand, distribution and product differentiation. Product differentiation in consumer is necessary, but not sufficient, for success. The product must be unique relative to other offerings, and in a way that matters to people. Kind Bar looked like real food relative to Clif Bar, 5 Hour Energy was the only energy drink fit for on-the-go, and Halo Top gave you permission to eat a whole pint in one sitting. If those sound silly, they are all billions-dollar companies that each raised far less than the typical tech company, thus with less dilution.

The way forward

Consumer is an amazing market with massive depth and presents a wonderful opportunity for investors to help build the dreams of entrepreneurs with them. If VCs truly want to succeed in this market, they need to take the time to understand the fundamentals of consumer investing. I hope that more investors catch on to this so that wonderful consumer entrepreneurs can continue to get the capital and resources they need to thrive.

Featured Image: RAL Development Services/Davis Brody Bond

 


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Boeing HorizonX invests in Berkeley aerospace battery tech startup

20:55 | 29 January

Boeing’s HorizonX is the aerospace company’s vehicle for making investments in promising next-generation startups and technology, and it just placed its latest bet: funding in Cuberg, a Berkeley-based battery tech startup that has a founding team including Stanford University researchers.

Battery tech is still one of the most frustrating roadblocks any company encounters when trying to build electric vehicles and other battery-powered technology and transportation. For Boeing, there are plenty of potential upsides to building out batteries that can last significantly longer than those available via today’s tech.

Cuberg’s work focuses on batteries with especially high energy density, while retaining thermal safety. That basically means they hope to be able to build a new type of battery cell that can hold a lot more power for vehicles to use, while also not catching fire.

That’s not all, however: Cuberg’s approach would result in a manufacturing process that could be used in exiting large-scale battery factories. The end result is a relatively smooth transition process from existing manufacturing to building next-gen cells, which obviously means a lot less upfront investment when it comes to taking the new manufacturing process to scale.

Cuberg was originally founded in 2015, and this market the first time Boeing HorizonX has invested in any energy storage companies since its inception last year. The funding, which is described as a “second seed” round, should help Cuberg grow its team and its facilities in preparation for fully automated manufacturing.

Featured Image: Stephen Brashear/Getty Images

 


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Bonfire Ventures closes $60 million to invest in SoCal B2B startups

15:05 | 29 January

Los Angeles is becoming one of the more interesting destinations for startups and the investors that provide money for venture capital firms to place bets on young companies are increasingly starting to take notice.

New funds are launching in Los Angeles at a pretty feverish clip, and the latest to plant its flag in the city is Bonfire Ventures, which just closed a $60 million vehicle for new investment.

Jim Andelman

Bonfire may be a new flag, but the founding partners at the firm have been investing in Los Angeles for the better part of two decades.

Jim Andelman was previously at Rincon Venture Partners and his partner Mark Mullen, was investing out of Double M Partners. Both men focused on early stage and seed stage business to business software investments across Southern California.

And after finding themselves co-investing on most of their deals, the two decided that it was time to combine resources and raise a larger institutional fund.

Much of the firm’s committed capital came from entrepreneurs who’d been backed by the partners at their previous funds. “We have 20 founder CEOs that we backed in the past who have invested in the fund,” says Andelman. “A lot of them are coming to us as their investor of first choice when they’re doing their new thing.”

Leah Volger

Joining the two longtime Angelenos in the fund is Leah Volger, a former Google sales exec who’s made her way down to sunny Southern California as a vice president of the new fund. Volger previously worked as an investor with The Collective Growth Fund in London.

“I had worked at Google for years [and] I was looking to not be in San Francisco… from my research I know that LA is a growing tech,” says Volger.”I was looking to join a smaller fund, a nascent fund where I thought I could grow and grow with the fund and in terms of what sector and size.”

The validation from all the founders who’d been backed by Jm and Mark at their previous vehicles also convinced Volger that Bonfire was the right shop for her.

The opportunity, says Andelman, is undeniable. “There are probably 100 firms that do B2B software investment in the Valley,” he says. “We see this focus [on B2B] in this market as dramatically underserved.”

Indeed, the partners note that there were 13 business-to-business software companies that had public offerings in 2017, and Los Angeles was home to four of them.

Mark Mullen

The three partners expect to make roughly 8 investments per year in seed and Series A rounds, committing up to $1 million in a round with over 100% held in reserve for follow-on investments. Geographically, the partners say they’ll look at deals across Southern California, primarily, because those are the markets that are least penetrated by investors.

The firm has already invested in 9 companies including: Branch, a time management tool for hourly workers; Trinity Mobile Network, a company that optimizes mobile connectivity; Saferide Health, a communication platform for medical transportation; the direct mail marketing platform, Postie; and Fuel50, which maps potential career paths for employees in an organization.

“Now we have more capital and that’s driven by the performance of our own individual funds,” said Mullen. “We’re progressing with the Los Angeles market and backing it up by performance.”

 


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Join the TechCrunch Meetup in Davos #TCDavos

13:00 | 20 January

TechCrunch is holding an informal meetup during the World Economic Forum’s annual meeting in Davos, Switzerland. Grab a free ticket here.

The event precedes our TechCrunch Meetup the week after in Zug, Switzerland, the so-called Crypto Valley. You can grab a ticket here.

The Davos meetup will be co-hosted by Samantha Stein, TechCrunch’s Director of Special Projects & Startup Battlefield Editor, and Mike Butcher, Editor-at-large of TechCrunch. Investors, angels, startup community leaders, and startup founders can join us to hear about TechCrunch’s Startup Battlefield and about our other activities, followed by informal networking.

Because of the timing, we’re inviting you to join us at 1pm to first watch the Donald Trump keynote address to the WEF Congress, on the big screens, followed by the TechCrunch Meetup.

Startup Battlefield is TechCrunch’s renowned startup launch competition. The Startup Battlefield alumni community comprises almost 800 companies that have raised over $8 billion USD, and produced over 100 successful exits and IPOs. You can apply here.

 


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TPG Growth and CAA’s investment firm Evolution Media buy into Africa’s music business

20:13 | 19 January

Private equity and media giants from the U.S. are starting to pay attention to Africa’s burgeoning online media and culture scene.

TPG Growth, the middle market and growth equity investment arm of private equity giant TPG, and Evolution Media, the investment and advisory services firm created by Creative Artists Agency and TPG, have acquired a majority stake in the South African multimedia entertainment company, TRACE.

With 200 million viewers and listeners across 160 countries, TRACE has created a media empire in sub-Saharan Africa. The company owns and operates 30 digital and mobile services, 21 pay TV channels and seven FM radio stations.

Through more than 400 concerts, web simulcasts and talent search competitions, the company’s programming reaches viewers on the continent and throughout the world.

As part of the transaction, Millennium Technology Group, which had previously owned the company, will be selling its stake — subject to regulatory approval.

TRACE properties includes its subscription streaming service, TRACE Play, which offers live TV, radio and on-demand programming on desktop, mobile and through OTT services like Roku and Amazon Fire. The company also operates a mobile virtual network in South Africa called TRACE Mobile and, finally, TRACE has targeted television channels across Eastern and Western Africa.

“By partnering with TPG Growth, a global investor known for its ability to grow and scale businesses, we are well-positioned to build on our success and accelerate our transformation into the leading global afro-urban digital entertainment group,” said Olivier Laouchez, co-founder, chairman and CEO of TRACE.

Last year was, by most measures, one where the sub-Saharan African startup market found its stride. The world’s largest technology firms have their sights set squarely on the African market with Sundar Pichai and Mark Zuckerberg both stressing the importance of the continent to the long-term plans of their companies.

TPG itself is beginning to commit more money to Africa. Through its growth fund the firm has backed five investments across Africa, including, Gro Intelligence, a global agricultural data business; Frontier Car Group, which manages Cars45.com; and Ecoles Yassamine, a private school network in Morocco.

 


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Uber’s big SoftBank deal has officially closed

22:34 | 18 January

SoftBank’s $1.2 billion primary direct investment deal has officially closed, according to Uber itself, which confirmed the deal closure and provided the following statement to TechCrunch via a spokesperson:

We’re proud to have SoftBank, Dragoneer and the entire consortium in the Uber family. This is a great outcome for our shareholders, employees and customers, strengthening Uber’s governance as we double down on our technology investments and continue to bring our services to more people in more places around the world.

The Uber-SoftBank deal will also see payments for secondary sales processed and distributed throughout Thursday, the company confirmed, and the governance changes that Uber agreed to as part of the deal structure are also officially coming into effect today.

That means that Uber founder Travis Kalanick is officially now a billionaire in reality as well as on paper, thanks to his sale of around 30 percent of his total stake in the ride-sharing company. It also means that SoftBank is now the largest shareholder in the company, and that it secures its new board positions, and helps set Uber up for its planned 2019 initial public offering.

SoftBank Investment Advisers CEO and SoftBank Group Director Rajeev Misra provided the following statement regarding the deal’s close to TechCrunch:

We are very pleased to have successfully closed the Uber investment and appreciate the support and professionalism of the Board, management team and shareholders who made this transaction possible.

Uber has a very bright future under its new leadership. It is now part of a wider SoftBank network ranging from Sprint to WeWork. I look forward to SoftBank helping Uber become an even bigger global success.

The SoftBank deal came together at the end of last year, when the group led by the Japanese company made a deal valuing Uber at around $48 billion, a discount to its $69 billion valuation from its previous round.

Featured Image: ANTHONY WALLACE/Getty Images

 


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US & Canada VCs favor late-stage giants over upstarts in Q4

21:42 | 13 January

Startup investors in the U.S. and Canada have been putting a little less money to work across a lot fewer deals in recent months.

After three quarters of rising investment at early through growth stage, VCs have cut back in the fourth quarter of 2017. They participated in fewer deals and invested less capital compared to both the prior quarter and year-ago periods, according to Crunchbase projected data. (For a quick explanation as to why this report now includes Canada, see the end of the post.)

Overall, investors put a projected $21.9 billion into seed through technology growth-stage rounds in Q4, down from a projected $28.1 billion in Q3. Deal count fell most markedly at the earliest stages, with the projected number of closed rounds for seed-stage startups down by more than one-third from the prior quarter.

The Q4 pullback contrasts with upbeat comparables for the full year. For all of 2017, U.S. and Canadian startup investors put a projected $89.4 billion to work, up from $82 billion in all of 2016. A smattering of really big, mostly late-stage rounds, boosted by SoftBank’s unprecedented spending spree, contributed to the higher annual totals.

Below, we look at some of the key data points for the just-ended quarter and year, including early and late-stage funding, round counts, M&A and IPOs.

Adding it all up

First, we’ll look at investment totals for the quarter and full year. Broadly, Q4 showed some pullback from Q3, but projected investment totals were still up year-over-year across most stages for 2017.

Quarterly totals

Let’s start with Q4 numbers. Out of the $21.9 billion in projected total investment for the quarter, about 44 percent, or $9.7 billion, went to late-stage deals.

Another 12 percent, or $2.6 billion, went to technology-growth rounds, a newly redefined category for Crunchbase News that includes many of the big financings for established unicorns. (For stage definitions, see the bottom of the post.)

Early-stage (Series A and B) rounds, meanwhile, drew $8.7 billion in Q4, boosted by some unusually large deals. Seed and angel deals, which are always the smallest in dollar terms of any stage, brought in a projected $886 million.

In the chart below, we look at investment totals by stage for Q4 and the preceding four quarters. It should be noted from this that the notion of a Q4 pullback is relative. The third quarter of 2017 was a particularly strong one for early through growth-stage investment. So while Q4 was down quarter-over-quarter, it still ranked third for total funding out of the past five quarters.

As usual, a handful of big deals made an outsized contribution to the quarterly totals.

At the late stage, the largest round was for Magic Leap, a developer of virtual reality display technology that raised $500 million in Series D funding in October. Another big funding recipient was Compass, a technology-driven real estate platform that secured $550 million in Series C financing during the quarter.

At the early stage, Grail, a developer of diagnostics for early cancer detection, closed a $1.2 billion Series B round, the largest early-stage deal for Q4. Following Grail was a $200 million Series B for augmented reality game developer Niantic, developer of the hit game Pokémon GO.

Annual totals

Now let’s turn to the 2017 numbers. Total projected venture investment was up year-over-year at every stage, but rose the most at growth and late stage.

As previously noted, for all of 2017, U.S. and Canadian startup investors put a projected $89.4 billion to work, up from $82 billion in all of 2016.

From early to the technology-growth stage, investment totals were up. Only seed-stage investments saw a reduction in year-over-year projected funding totals. Technology growth in particular saw the highest annual total in four years, driven in part by SoftBank’s voracious dealmaking.

In the chart below, we look at funding totals at each stage for the past four years. It’s noteworthy that while there have been fluctuations, totals across stages have ranged within the $80 billion to $90 billion range over the past three years.

Rounds get fewer and bigger

The typical venture round has gotten bigger, but fewer startups are managing to secure funding.

That’s the broad takeaway from Crunchbase projections for round counts at seed through growth stage. Here’s a breakdown of what we saw.

Quarterly round counts

After three quarters of holding up at levels relatively flat, the number of startups securing seed and venture funding fell sharply in Q4 of 2017.

Across all stages, Crunchbase projects a total of 1,880 companies will close funding rounds in Q4, down 28 percent from Q3 and 21 percent from the year-ago quarter.

The most pronounced decline was at the seed stage. The projected Q4 seed and angel round count is just 944, down more than a third from the prior quarter and down about 25 percent from year-ago levels.

Early-stage (Series A and B) is also down. Crunchbase projects a total of 742 early-stage rounds for Q4 of 2017, down about 20 percent from the prior quarter and down about 13 percent from year-ago levels. Round counts were also down at late and technology-growth stage, as evident in the chart below.

While it’s not entirely clear what’s driving the pullback in seed and early-stage rounds, industry insiders have been documenting the drop for a while and raised a number of possibilities. Reasons include a cyclical investor backlash to inflated seed-stage valuations, increasing preference among established investors for later-stage and larger deals and a decline in funding for new mobile app and SaaS-focused startups.

Annual round counts

The late-in-the-year decline in seed-stage rounds was pronounced enough to affect year-over-year comparisons. For all of 2017, projected round counts total 9,353 across all stages, down about 13 percent from the 2016 total of 10,711.

In the chart below, we look at round counts by stage over the past four years to get a picture of how 2017 ranks. Overall, the number of late-stage and growth deals stayed relatively flat year-over-year, with investors continuing to chase big rounds for unicorns and near-unicorns. Virtually all of the decline is due to seed and early-stage trends.

Exits

As noted in the sections above, investors did put an exceptionally large amount of capital to work in 2017. But how did they do in terms of getting money back?

It’s tough to provide a precise accounting of annual or quarterly venture returns, given that purchase prices are undisclosed in many M&A transactions and share prices fluctuate massively in many IPO exits.

However, if we were to generalize for both the quarter and full year, it would probably be along these lines: Exits were pretty so-so. The IPO window was open, but public market investors were picky and fickle. Acquirers, meanwhile, kept up a decent dealmaking pace, but didn’t do a lot of really big deals.

Let’s look at some of the numbers, and significant deals.

M&A

Those waiting for big, profitable acquisitions involving venture-backed unicorns will have to keep waiting.

The fourth quarter of 2017 delivered a number of solid, high-return exits. However, like the prior two quarters, we didn’t see deals above the $1 billion mark. Instead, we saw a lot of smaller deals involving early-stage companies, a few purchases at apparent markdowns from private market valuations and some larger transactions in the mix.

One company that made a big hit on the M&A market in Q4 was Musical.ly, the developer of a popular lip-syncing app that sold to China’s Toutiao in a deal reportedly valued at between $800 million and $1 billion. Other large transactions involved Black Duck Software, a security provider that sold to Synopsis for $565 million, and Shipt, an online grocery delivery service that Target bought for $550 million.

For all of 2017, venture-backed M&A was decidedly lackluster. Cisco’s $3.7 billion acquisition of enterprise software provider AppDynamics, announced in January, ranked as the year’s only known multi-billion dollar M&A transaction involving a venture-backed company.

IPOs

As for IPOs, 2017 was certainly more action packed than 2016, an unusually dull year for venture-backed public offerings. The biggest IPO event of the past year was Snap’s Nasdaq debut in March. And although the self-deleting messaging provider subsequently managed to delete a huge chunk of its market capitalization, the blockbuster offering did seem to usher in a period of greater tech IPO activity.

But 2017’s IPO cohort delivered mixed results.

Top performers for the year included streaming media device maker Roku, analytics provider Alteryx and tech-enabled real estate company Redfin.

Yet some startups that achieved IPO turned laggard. Snap made that list. So did meal kit company Blue Apron and storage technology provider Tintri, both of which ended the year with shares down more than 50 percent from their initial offer price.

For Q4 of 2017, a couple of tech offerings stood out for aftermarket performance. Shares of Stitch Fix, an online provider of clothes curated by personal stylists, were recently trading up more than 70 percent from their initial offer price. Shares of email delivery platform Sendgrid also climbed sharply following the company’s October debut.

Looking ahead

While the seed-stage slowdown has raised concerns about the health of the startup ecosystem, the venture industry remains awash with cash. Whether investors remain flush, however, will depend to a great extent on their ability to produce exits.

Optimists have reason to expect improvement on the exit front. In particular, some industry insiders are predicting a pick-up in big M&A deals in 2018.

Additionally, the passage of tax reform, including lower corporate tax rates and greater incentives to repatriate capital, could lead to a rise in big-ticket deals involving U.S. startups.

Others, however, maintain that inflated startup valuations are keeping acquirers away. And while those valuations could certainly be corrected, it’s not the outcome startup investors would prefer.

Methodology

The data contained in this report comes directly from Crunchbase, and in two varieties: projected data and reported data.

Crunchbase uses projections for global and U.S. trend analysis. Projections are based on historical patterns in late reporting, which are most pronounced at the earliest stages of venture activity. Using projected data helps prevent undercounting or reporting skewed trends that only correct over time. All projected values are noted accordingly.

Certain metrics, like mean and median reported round sizes, were generated using only reported data. Unlike with projected data, Crunchbase calculates these kinds of metrics based only on the data it currently has. Just like with projected data, reported data will be properly indicated.

Please note that all funding values are given in U.S. dollars unless otherwise noted. Crunchbase converts foreign currencies to U.S. dollars at the prevailing spot rate from the date funding rounds, acquisitions, IPOs and other financial events as reported. Even if those events were added to Crunchbase long after the event was announced, foreign currency transactions are converted at the historic spot price.

Why U.S. and Canada?

For the first time, in this latest quarterly and annual report, we shifted our data collection to include both the U.S. and Canada. Previously, we reported U.S.-only quarterly numbers, in addition to our global reports. The reason for including Canada was in part to provide a differentiated data set. We noticed there are a few reports that come out covering the U.S. venture scene, and some data on Canada, but not much focused on North America more broadly. (We thought about a broader North American data set that includes Mexico, but due in part to differences in the rate and timing of self-reporting of startup funding, we deemed this might not fully capture the breadth of Mexican investment activity.)

Glossary of funding terms

  • Seed/angel include financings that are classified as a seed or angel, including accelerator fundings and equity crowdfunding below $5 million.
  • Early-stage venture include financings that are classified as a Series A or B, venture rounds without a designated series that are below $15 million and equity crowdfunding above $5 million.
  • Late-stage venture include financings that are classified as a Series C+ and venture rounds greater than $15 million.
  • Technology growth includes private equity investments in companies that had previously raised venture funding.

Illustration: Li-Anne Dias

 


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