Can you find founders before they know they are founders?

by
Erin Griffith" itemprop="author" class="article-byline-author"> Erin Griffith

@FortuneMagazine

August 1, 2014, 11:42 AM EDT

If Target can figure out a teen girl was pregnant before her father did, venture firms should be able to identify founders before they start companies. All it takes is the right data.

That’s where venture capital—ever evolving—is headed. As Mark Suster pointed out last week, the venture capital landscape has become increasingly bifurcated. Seed funds are springing up everywhere, representing 67% of all new funds created, and large funds have gotten even larger. For the early stage investors, this means increased competition and frothy valuations. By the time a founder sets out to raise a seed round, the startup’s valuation might be $10 million.

One way to get around that is to invest even earlier. Invest before the company is a company. Before the founder even knows they’re a founder. Bloomberg Beta, the venture investment arm of Bloomberg LP, has been doing this for a year now.

After an unsuccessful attempt to build a database of “future founders” on its own, the firm teamed up with Mattermark, the deal intelligence company founded by Danielle Morrill. The results could have ramifications for the way investment decisions, typically driven by gut instinct and intuition, are made.

Mattermark identified the most likely career paths of successful founders, creating a pool of 1.5 million people who were connected by one to two degrees of separation to tech startups, but were not founders yet. By analyzing the people that started companies over nine months, Mattermark mapped out the strongest predictors of starting a company: a person’s education, which previous companies they’ve worked for and how senior they were, their geography, and their age. The goal was to find things that didn’t fit the standard path to entrepreneurship. As Morrill points out: “Anything that looks like a pattern, people will already find it.”

The resulting mix of people were older but less senior than you’d expect. Almost 40% of those in the dataset were over 40 years old. Almost half of the people in the data set had worked for a VC-backed company, but two thirds were not in senior leadership positions. Management consultants were twice as likely to start companies. Bloomberg Beta narrowed the list to 350 potential founders, and invited them to parties in New York and San Francisco.

Cold-emailing people based on data could feel like a creepy invasion of privacy, like Target’s maternity ads. Hi, our algorithm knows your career dreams! Indeed, some people thought it was a scam. But for the self-selecting group of around 75 people that turned up at each party, it was validating.

“People would say things like, ‘I thought about becoming a founder but I had never even told anyone,’” Morrill says. “When someone believes in you before anyone else—that’s what is really cool here . . . You can actually reinforce a dream they held very closely but never considered seriously.” Morrill admitted that telling people they were in the study probably changes the results.

Roy Bahat, who leads Bloomberg Beta, was pleased by the diversity of the group. “The data doesn’t discriminate,” he says. “A lot of the people, this was the first time they ever got tapped on the shoulder for something like this.”

Whether any of Bloomberg Beta’s potential founders have actually founded a company yet is another story. (It’s only been a few months; Bahat says “a bunch” are in the process.) Likewise, the project has not resulted in any deals for Bloomberg Beta. (“It was expected to be a long term process of getting to know people, so even if we fund zero people for the next two years, that’s fine by me,” he says.) But using data creatively to get a leg up on deal flow will only become more common. Mattermark re-ran a blind version of its study and found its model has a 25x better chance of predicting a founder.

This is one way to boost venture investing with data. Another way? Add a robot to your board of directors, like Deep Knowledge Ventures, a firm in Hong Kong. The firm’s robot board member uses machine learning to predict the best life sciences deals, taking historical data sets to reveal trends that aren’t so obvious to human VC investors. As senior partner Dmitry Kaminskiy explained to Betabeat, the robot takes emotion out of the process:

“Humans are emotional and subjective. They can make mistakes, but unlike the machines they can make brilliant intuitive decisions. Machines like VITAL use only logic. The intuition of the human investors together with machine’s logic with give a perfect collaborative team. The risk of the mistake will be minimized.”

Sure, it’s novel. But why not? “Whenever people are skeptical that you can use data to do something that previously only people had done, that makes us want to try it,” Bahat says. “When Bloomberg rolled out its first product, people were saying, ‘No, human beings have to be the ones to price bonds.’ Turns out a computer can do some of those things better.”

Why Eric Vishria is leaving Yahoo for Benchmark

by
Dan Primack" itemprop="author" class="article-byline-author"> Dan Primack

@FortuneMagazine

July 23, 2014, 2:21 PM EDT

When Benchmark raised $425 million for its eighth venture capital fund late last year, we reported that the Bay Area firm was in search of at least one new general partner. Today Benchmark announced that the recent recruit is Eric Vishria, co-founder of social browser RockMelt, which was acquired last summer by Yahoo YHOO .

Vishria still plans to spend a couple more weeks with Yahoo, where he currently serves as vice president of product management. Then he will become Benchmark’s fifth partner, leading investments in early-stage companies.

What follows is an edited transcript of a conversation with Vishria and existing Benchmark partner Mitch Lasky:

Fortune: Yahoo bought RockMelt last August. Is your departure related to the upcoming anniversary, such as an agreement to stick around for at least one year?

Vishria: No, the timing ended up being coincidental. I’m so thankful to Marissa and the rest of the Yahoo team for the amazing opportunity I’ve had there. We’ve gotten all of the RockMelt technology and team integrated and launched the digital magazines. I’m really optimistic about everything at Yahoo. But the Benchmark opportunity is super unique, and as soon as it came to be I immediately told everyone at Yahoo.

How did the opportunity come about?

Vishria: After the acquisition, I think it was Peter [Fenton] who reached out and we started talking about the opportunity. Having been an operator and an entrepreneur, I hadn’t really thought about becoming a VC and really wanted to better understand it. So I spoke to as many entrepreneurs as I could about what they did and didn’t like about their investors, so I could better learn if I would want to do it and be good at it. Pretty much everyone said the same two things about what they wanted from VCs: (1) Situation-specific advice and support to realize their vision. That was pretty consistent with what I had wanted as an entrepreneur and, when you look at Benchmark, that’s exactly what they focus on. It also invests in companies at the A and B stage, not C’s — which means it’s involved at the most fun part of the cycle, where you have a real opportunity to deliver valuable advice and support.

Mitch, why were you interested in Eric?

Lasky: Our hiring is spread out and situational — our last partner hire was five years ago — so the stars really need to be aligned. There are a number of people coming up in the industry we keep our eye on, and Eric was on that short-list for quite a while. We felt his character and attitude really fit in well with the team, and admired him for his intellect and experience not only as a CEO in the consumer space, but his previous work as VP of marketing at Opsware in the enterprise space. Enterprise is an area where we felt we needed additional firepower.

Did you look at people with VC background, or just operators?

Lasky: Absolutely. We cast a very broad net. But we felt we made the best choice with Eric.

Eric, once you concluded that you might want to go into venture, did you then shop around or was Benchmark the obvious destination?

Vishria: It’s more the former than the latter. To a large extent the ‘equal partnership’ thing is inside baseball, but it really does matter. In an equal partnership, everything is aligned for everyone to help with every company. For example, Mitch is on the Snapchat board, but [Matt] Cohler has great insights that he works with the team on. So you can get the advantage of both of them, plus Fenton in open-source customer building and [Bill] Gurley’s mastery of marketplaces. To tap into all of that experience is really special.

Benchmark has maintained a traditional VC model, while many newer firms — like Google Ventures and Andreessen Horowitz — have hired large support staffs to work on everything from portfolio company marketing to product design. What are your thoughts on that divergence?

Vishria: When I spoke to entrepreneurs about what they wanted from a VC, not a single on of them said services. That doesn’t mean that it doesn’t work for others, but building a company is super hard. The highs are high and the lows are low. What entrepreneurs want most is to be able to tap into the partners, the decision-makers. That’s what we have here.

Lasky: We admire the other models, and Google Ventures and Andreessen Horowitz certainly are having success. But we just don’t believe those models would work as well for us.

Benchmark was rumored to be looking for at least one new partner. Is another hire on the horizon?

Lasky: The hiring of partners for a firm like ours is serendipitous, and at some point in the next few years we’d like to be six people.

Are you in discussions with someone else that are at the same stage as your talks with Eric a month or two ago?

Lasky: No.

Sign up for Dan Primack’s daily newsletter on deals at GetTermSheet.com

Deals of the Day: OneWest, FreshBooks, AvantCredit

by
Erin Griffith" itemprop="author" class="article-byline-author"> Erin Griffith

@FortuneMagazine

July 23, 2014, 12:55 PM EDT

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The Big Deal

• CIT Group will pay $3.4 billion for OneWest Bank, a bank created in 2009 from the failed lender IndyMac. The deal will result in a more than 2x return for Steven T. Mnuchin (through Dune Capital Management), Michael Dell, George Soros, John Paulson and J.C. Flowers. www.owb.com/

Venture Capital Deals

• AppDynamics, a San Francisco-based provider of app analytics, raised $120 million in growth financing ($50 million of which is debt provided by Silicon Valley Bank) led by Battery Ventures, ClearBridge Investments and Sands Capital. Existing investors Greylock Partners, Lightspeed Venture Partners, Kleiner Perkins Caufield & Byers, and Institutional Venture Partners also participated. The company disclosed that its valuation is greater than $1 billion. www.appdynamics.com/

• Glow Digital Media a London-based mobile ad platform, has raised $7 million in venture funding from Notion Capital and White Star Capital, with participation from existing investors Project A Ventures and Avonmore Developments. thisisglow.com/

• Quantifind, a startup that analyzes purchase intent, raised $12 million in funding led by Comcast Ventures and Iris Capital, with participation from existing investors AME Cloud Ventures, Andreessen Horowitz, Comcast Ventures, Iris Capital, Redpoint Ventures and U.S. Venture Partners. The company has raised a total of $23 million in funding. quantifind.com/

• Taulia, a San Francisco-based loan startup, has raised $27 million in Series D funding led by QuestMark Partners with participation from existing investors including Trinity Ventures, Matrix Partners, Lakestar and DAG Ventures. The round values the company at $200 million, according to Venture Capital Dispatch. www.taulia.com/en/

• EdgeWave, a San Diego-based cybersecurity company, raised $6 million in Series A funding from TVC Capital. www.EdgeWave.com

• Global Uprising, a Cottonwood Heights, Utah outdoor supply company doing business under the name Cotopaxi, has raised $3 million in venture funding from Forerunner Ventures, New Enterprise Associates, Lerer Ventures and others. cotopaxi.com/

• Solexel, a Silicon Valley-based solar energy company, has raised $31 million in venture funding from GAF, a roofing materials company, alongside existing investors Kleiner Perkins Caulfield & Byers, Technology Partners, DAG Ventures, Gentry Ventures, Northgate Capital, GSV Capital, Jasper Ridge Partners, and Spirox. www.solexel.com/

• Yuantiku, a Bejing-based edtech startup, raised $15 million in Series C financing from existing investors Matrix Partners China and IDG. The round values the company at $125 million, according to TechNode. yuantiku.com/

• Timehop, a New York-based social media app, has raised a $10 million Series B round of funding led by Shasta Ventures with participation from Spark Capital and OATV. timehop.com/

• Supersonic, a Tel Aviv and San Francisco-based mobile advertising platform, has raised $15 million in funding led by SAIF Partners, a China-based venture firm, with participation from existing investor Greylock. The company has raised a total of $23.3 million. www.supersonicads.com/

• Canva, a Sydney-based design site, has raised $3.6 million in funding led by Founders Fund and Shasta Ventures, with participation from existing investors Matrix Partners, Blackbird Ventures, and Square Peg Capital. www.canva.com/

• Peerlyst, a San Francisco-based social network for IT professionals, has raised $3 million in venture funding led by Hummer Winblad Venture Partners and Illuminate Ventures. www.peerlyst.com/

• Synlogic Inc., a Cambridge, Mass-based biotechnology company developing ways transform microbes into therapeutics, has raised $29.4 million in a Series A round of funding led by Atlas Venture and New Enterprise Associates.

• Beanstalk, a Salt Lake City-based maker of tax software for small and medium-sized businesses, raised $2 million in seed funding led by New Enterprise Associates, with participation from Epic Ventures, Deep Fork Capital and Jim Engebretsen. www.beanstalkhq.com/

• FreshBooks, a Toronto-based startup makes a accounting software for small businesses, has raised $30 million in venture funding led by Oak Investment Partners with participation from Atlas Venture and Georgian Partners. The company has bootstrapped its way to 150 employees prior to this investment. www.FreshBooks.com

• Sunrise, a calendar app based in New York, has raised $6 million in Series A funding from Balderton Capital and existing investors. calendar.sunrise.am/

• LifeNexus, developer of a health information-related mobile platform called iChip, raised a Series A funding round led by private equity firm Camden Partners and strategic investors Cambia Health Solutions and Mosaic Health Solutions, Inc. ichip.com/

• TipRanks, an Israeli startup which grades the performance of financial analysts, has raised $3 million in venture funding from Eliot Spitzer, who has joined the company’s board, and other investors. www.tipranks.com/

• AvantCredit, an online lender based in Chicago, ha raised $75 million in financing led by Tiger Global Management. The company also acquired a $200 million in credit facility, bringing its total equity and credit raised to $300 million. www.avantcredit.com/

• Social Point, a Barcelona-based mobile gaming developer that is profitable and on track to surpass $100 million in revenue this year, has raised $30 million in venture funding led by Highland Capital Partners Europe with participation from existing investor Idinvest. Prior investors Nauta Capital, BBVA and “to a minor extent” the founders have sold a portion of their holdings in this round. www.socialpoint.es/

• Privacy Analytics Inc., an Ontario-based data anonymization startup, raised $3.5 million in venture funding led by Vanedge Capital, a Vancouver-based venture capital fund. www.privacyanalytics.ca

• Graphene Frontiers, a Philadelphia-based graphene technology company, has raised $1.6 million in “Series Seed B” funding led by Trimaran Capital Partners with participation from R2M Investments and WEMBA 36 Angels. graphenefrontiers.com/

• BEW Global, a Greenwood Village, Colo.-based information security startup, has raised $14 million in a new round of funding from Frontier Capital. www.bewglobal.com/

• Beehive Industries, a Lincoln, Neb.-based asset and infrastructure management software company, has raised $2.5 million in Series A financing led by Advantage Capital Partners. www.beehiveindustries.com/

Private Equity Deals

• Service King Collision Repair Centers, a Dallas, Texas-based auto repair chain owned by The Carlyle Group, has agreed to sell itself to Blackstone Group. The Carlyle Group, which invested in the company in 2012 through its Carlyle U.S. Equity Opportunity Fund and Carlyle Strategic Partners Fund III L.P., will retain a minority stake. The deal is expected to close this quarter and terms were not disclosed. www.serviceking.com/

• NTE Energy, a power developer and energy services provider, has raised an investment of undisclosed size for three natural gas-fired power plants from Capital Dynamics and Wattage Finance, LLC, backed by an affiliate of Guggenheim Partners, LLC. www.nteenergy.com/

• Max Property Group, the St. Helier, Jersey-based real estate investment company, has agreed to sell its assets to Marina Topco, a real estate fund operated by Blackstone Group, for GBP 414 million ($707 million). maxpropertygroup.com/

• Fastsigns International, a Dallas, Texas-based sign company with 550 locations in the U.S., has agree to sell itself to Levine Leichtman Capital Partners for an undisclosed amount of capital. The deal marks the fourth investment from Levine Leichtman Capital Partners V, L.P. www.fastsigns.com/

• Aurelius Group, a German buyout firm, will acquire Scholl Footwear, a UK-based division of Reckitt Benckiser Group, for an undisclosed amount. In 2013, the division generated EUR 90 million ($121 million) in revenue. www.drschollsshoes.com

• Royal Bank of Scotland, the state-owned British lender, has put Ulster Bank, its Irish unit, up for sale with KKR and Blackstone circling as likely suitors, according to the Irish Examiner. The deal would value the unit at between EUR 500 million and EUR 2.5 billion ($673 million-$3.4 billion). www.ulsterbank.com/

IPOs

• WH Group Ltd., a Chinese pork producer backed by CDH investments, will relaunch its IPO plans, with a listing that seeks more than $2 billion, valuing the company at $11.7 billion. The company, which acquired Smithfield Farms, previously attempted to go public with a $5 billion to $6 billion raise in April, hiring a record 29 banks to handle the process, but pulled that effort. Morgan Stanley and Bank of China International are handling the process this time. www.wh-group.com/

Exits

• Delivery Hero, a Berlin-based online food ordering site, has acquired ClickDelivery, a Bogota-based online food ordering service, for an undisclosed amount. The company had raised an undisclosed amount of funding from Axon Partners Group, netting the firm a 4x return. http://clickdelivery.com/

• Teradata, a Dayton, Ohio-based big data warehousing company, (NYSE: TDC), acquired two data software companies today: Revelytix, a Sparks, Md.-based company, and Hadapt, a Cambridge, Mass.-based company backed by Atlas Venture, Bessemer Ventures Partners and Norwest Venture Partners. Terms were not disclosed.

• LinkedIn has acquired Bizo, a San Francisco-based B2B marketing platform, for $175 million, in a deal consisting of 10% stock and 90% cash. The company previously raised at least $16 million in venture funding from Venrock, Crosslink Capital, Bessemer Venture Partners, Vulcan Capital and Ascent Venture Partners, and $12.5 million in debt financing. www.bizo.com/

• First American Payment Systems, a Fort Worth, Texas-based payment processing company, has agreed to sell itself to an investment group led by Ontario Teachers’ Pension Plan. The company was acquired by buyout firm Lindsey Goldberg in 2003. www.first-american.net/

Other Deals

• PetSmart Inc., a publicly traded pet store chain based in Phoenix, Arizona, has retained JPMorgan Chase to evaluate sale options at the behest of activist investor Jana Partners and Longview Asset Management. The company is anticipated to attract offers from private equity firms. www.petsmart.com/

Firms & Funds

• Centerbridge Partners LP, is raising $5.75 billion for distressed investments and corporate buyouts for its third fund, Centerbridge Capital Partners III LP, according to Bloomberg. The effort follows Centerbridge’s second fund, a $4.4 billion vehicle raised in 2011. www.centerbridge.com/

• VTTI Energy Partners LP, a UK-based owner and operator of crude oil and refined product terminals, set the terms of its IPO. The company will raise $350 million, selling 17.5 million units in the $19 to $21 range, valuing it at $821 million at the midpoint. The company was formed by Vitol Tank Terminals International. www.vtti.com

• JPMorgan Chase is in talks to sell half of its private equity arm’s $4.5 billion in assets, operating under the buyout arm One Equity Partners, to Lexington Partners and The Carlyle Group’s AlpInvest Partners, according to several reports. Earlier this month, One Equity Partners announced it would raise capital for its next fund independently of the bank. www.oneequity.com/

• Patria Investimentos, a Brazilian private equity firm backed by the Blackstone Group, has raised $1.75 billion for its fifth private equity fund, according to peHUB. www.patriainvestimentos.com.br/

• Sofinnova Ventures, a Menlo Park-based biotech venture firm, closed Sofinnova Venture Partners IX, L.P. at its hard cap of $500 million in commitments.

Moving On, In & Up

• Grace Rhee Kim has joined Arsenal Capital Partners as a principal in investor pelations. Previously Kim was a principal of business development at Providence Equity Partners. http://www.arsenalcapital.com/

• Jesse Krynak, and David McFarland have been promoted to Vice President at First Reserve. Each joined the Houston-based firm in 2010. https://www.firstreserve.com/

• Susan Bihler has been promoted to vice president at New York-based growth equity firm Catalyst Investors. She joined the firm in 2009. www.catalystinvestors.com/

• Ed Arulanandam has joined Blue Water Energy as a senior member of the investment team, from his prior post at Riverstone Holdings, according to LBOWire. www.bluewaterenergy.com/

Deals of the Day: Contigo, Griffin’s Foods, Urban Compass

by
Erin Griffith" itemprop="author" class="article-byline-author"> Erin Griffith

@FortuneMagazine

July 22, 2014, 10:35 AM EDT

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Venture Capital Deals

• Urban Compass, New York-based real-estate site for buying and renting apartments, has raised $40 million in Series B funding from Thrive Capital Founders Fund, .406 Ventures, Advance Publications, Kenneth Chenault and Marc Benioff. The company has raised $70 million total. www.urbancompass.com/

• SimpleReach, a New York-based content marketing platform, has raised $9 million in a Series A round of funding led by MK Capital with participation from Atlas Venture, Village Venture and High Peaks Venture Capital. Read more at Fortune.com.

• NextImmune, a Gaithersburg, Md.-based developer of novel immuno-therapeutics, has raised $3 million in venture funding from New Enterprise Associates, Pfizer Venture Investments and Amgen Ventures. www.neximmune.com/

• Intent Media, New York ad-tech startup focused on the travel industry, has raised $22.7 million in its third round of venture funding, this one led by Insight Venture Partners with participation from existing investors Matrix Partners and Redpoint Ventures. www.intentmedia.com/

• iCix, a San Francisco-based startup making software to automate food safety, has raised $25 million in venture funding from Wesfarmers, Vertical Venture Partners, and previous investors Draper Fisher Jurvetson and Starfish Ventures. http://www.icix.com/

• eGym, a Munich, Germany-based fitness company, has raised $15 million in funding from Highland Capital Partners Europe, with participation from existing investors Bayern Kapital and High-Tech Grunderfonds. my.egym.de/

• Cerecor Inc., a Baltimore, Md.-based biopharma company developing treatments for neuropsychiatric diseases, has raised raised $15 million a $32 million Series B round of venture funding from New Enterprise Associates, Apple Tree Partners and MPM Capital. www.cerecor.com/

• Tablelist, a Boston-based app for booking VIP tables at clubs, has raised $1.5 million in venture backing on AngelList, bringing its total funds raised to $2 million. www.tablelist.com/

• VisiQuate, an enterprise software company based in Santa Rosa, Calif., has raised $6 million in venture funding led by First Analysis. visiquate.com/

• Secoo, a luxury products commerce site based in Shanghai, has raised a $100 million Series D round of funding from China Media Capital, Ventech China, Crehol Meaningful Capital and Vangoo Investment Partners. www.secoo.com/

• XMOS Ltd., semiconductor and microcontroller company based in Bristol, England, has complete of a $26.2m Series D investment round, from Robert Bosch Venture Capital GmbH, Huawei Technologies, and Xilinx Inc as investors. Existing financial investors participated, including Amadeus Capital Partners, DFJ Esprit, and Foundation Capital. www.xmos.com/

• Cerecor Inc., a Baltimore-based clinical-stage biopharmaceutical company focused on nervous system disorders, closed the first tranche of a $32M Series B financing led by New Enterprise Associates, Apple Tree Partners and MPM Capital. www.cerecor.com/

• GeoWaggle Inc., the Tampa Bay-based parent company of parenting app Mamabear, has raised $1.4 million in new funding from angel investors. mamabearapp.com/

• Dealflicks, an Oakland, Calif.-based seller of subscriptions to movie theater tickets, has raised $1.7 million in seed funding from 500 Startups, Siemer Ventures, Archer Gray, Rubicon VC, Wefunder, Be Great Partners, Rosepaul Investments, Mogility Capital, Sierra Maya Ventures, and Warner Brothers Media Camp. www.dealflicks.com/

Private Equity Deals

• Cleaver-Brooks, a St. Louis, Miss.-based boiler room company with private equity backing of Harbour Group, has acquired Holman Boiler Works and Affiliated Power Services, two boiler-sales and service companies, for an undisclosed price. www.cleaver-brooks.com/

• Karmaloop, a Boston-based online seller of street wear, has raised $13 million in the form of a senior loan facility from CapX Partners. www.karmaloop.com/

• Goldman Sachs and Warburg Pincus are on the verge of acquiring a 20% stake in Chinese debt management company China Huarong Asset Management Ltd for around $2 billion, according to Reuters. Khazanah Nasional Bhd, CITIC Group, China International Capital Corp, Fosun Group and China state-backed COFCO Corp may also invest.

• LogRhythm, a Boulder, Colo.-based security company, has raised $40 million in equity financing led by Riverwood Capital, with participation by existing investors Adams Street Partners, Access Venture Partners and new investor Piper Jaffray. www.logrhythm.com/

• Atronix, Inc., a Billerica, Mass.-based provider of cable assemblies and wire harnesses, has agreed to sell to Wafra Partners LLC. The deal value was not disclosed by Abacus Finance Group has provided a $19 million senior secured credit facility for the deal. www.atronix.com/

• Loftware, a Portsmouth, N.H.-based enterprise company, has raised an investment of undisclosed size from Riverside Partners. www.loftware.com/

• DayNine Consulting, a Pleasanton, Calif.-based services partner of Workday, has raised an undisclosed amount of growth capital from Pamlico Capital. daynine.com/

IPOs

• Loxo Oncology, a Stamford, Conn.-based developer of small-molecule therapeutics for cancer treatment, has set the terms for its IPO on Nasdaq. The company will raise $57 — less than its initially proposed $69 million — by selling 4.4 million shares at between $12 to $14, valuing the company at $211 million at the midpoint of the range. Shareholders in the pre-revenue company include Aisling Capital (29% pre-IPO stake), OrbiMed Advisors (18.1%), Array BioPharma (15.3%) and New Enterprise Associates (14.9%). www.loxooncology.com

• Mobileye, a Jerusalem, Israel-based developer of collision avoidance technology for drivers, has announced plans to raise $500 million in an IPO. The company will offer 27.8 million shares at a range of $17 to $19 each, valuing the company at $4.2 billion at the midpoint of its range. The company will trade on the NYSE under ticker symbol MBLY, with Goldman Sachs and Morgan Stanley serving as lead underwriters. Mobileeye’s investors include Goldman Sachs (17.5% pre-IPO stake), Fidelity Investments (7.8%), Enterprise Holdings (7.1%) and Blackrock (5.7%). www.mobileye.com

• Tobira Therapeutics Inc., a South San Francisco-based developer of antiviral compounds for HIV and liver disease, announced plans to raise $60 million, selling 46 million shares at a range of $12 to $14, valuing the company at $150 million at the midpoint of its range. The company’s shareholders include Domain Associates (33.4% pre-IPO stake), Frazier Healthcare Ventures (25.3%), Novo AS (17.6%), Montreux Equity Partners (17.5%) and Canaan Partners (2.5%). www.tobiratherapeutics.com

• Avalanche Biotechnologies, a Menlo Park, Calif.-based developer of gene therapies and ophthalmic diseases, will raise $76 million in an IPO, selling 5.4 million shares in the range of $13 to $15, valuing the company at $353 million at the midpoint of its range. Trading on the Nasdaq under ticker symbol AAVL, the company’s shareholders include Zytech LLC (37% pre-IPO stake) and Regeneron Pharmaceuticals Inc. (9.1%). www.avalanchebiotech.com

• Auris Medical Holding, a Zug, Switzerland-based biotech company focused on inner ear disorders, will raise $76 million in an IPO, selling 6.9 million shares n the range of $10 to $12, which value the company at $285 million. The company will trade on the Nasdaq under ticker symbol EARS, and shareholders include Sofinnova Venture Partners (19.3% pre-IPO stake), Sofinnova Capital (18.6%), Adamant Global Generika Funds (11.4%) and Idinvest Partners (9.1%). www.aurismedical.com

• Cardiac Insight, a Seattle-based developer of a heart monitoring sensor, has raised $7 million in Series B funding led by Welch Allyn with participation from WRF Capital and private investors. cardiacinsightinc.com

Exits

• Vero Software, a UK-based maker of manufacturing and machine tool software with 2013 revenue of EUR 80 million ($108 million), has sold to Hexagon AB (sto:HEXAB), a Sweden-based provider of analytics software. Vero Software was a portfolio company of Battery Ventures. The price was not disclosed. www.verosoftware.com/

• Ignite USA, LLC, maker of Contigo mugs and bottles, announced plans to sell itself to Newell Rubbermaid (NYSE: NWL) for $308 million. The company was acquired by North Castle Partners in 2013 and is the first exit the firm’s fifth fund. www.gocontigo.com/

• RLJ Equity Partners has sold Media Source Inc., a Plain City, Ohio-based book review company serving libraries, for an undisclosed price, to an undisclosed buyer. www.mediasourceinc.net/

• Griffin’s Foods, a New Zealand-based snack food company, has sold to Universal Robina Corporation for NZ $700 million ($606.6 million) from Pacific Equity Partners. www.griffins.co.nz/

• OVS, a chain of apparel stores based in Italy, has retained Lazard to run a public offering as part of a carve-out of BC Partners-backed Gruppo Coin. BC Partners has retailed Bank of America Merrill Lynch and Goldman Sachs for the deal, which could value OVS at $1.3 billion, Reuters reports. www.ovs.it/

• TA Associates has sold a portion of its ownership in Cash Kidston, a UK-based apparel and home products retailer, to Baring Private Equity Asia for an undisclosed price. The firms will have equal ownership of the company. http://www.cathkidston.com

Other deals

• Oneflare, a home services marketplace based in Sidney, Australia, has acquired Renovate Forum, a community for renovators with 40,000 members, for an undisclosed amount. www.renovateforum.com/

• Bigpoint, a Hamburg-based online gaming company owned by Summit Partners, TA Associates, GMT Capital and Peacock Equity, has acquired Little Worlds Studio, Lyon, France-based mobile gaming company. www.little-worlds.com/

• EY, the financial advisory firm previously known as Ernst & Young, has agreed to merge with The Parthenon Group, an advisory firm based out of Boston. Clearsight Advisors advised on the deal. Terms were not disclosed. www.ey.com/

• ILC Industries, a Delaware-based maker of technology for defense and aerospace vehicles backed by Behrman Capital, has completed a $410 million refinancing led by Golub Capital and Ares Capital Corporation. www.ilcdover.com/

Firms & Funds

• Tango, a Mountain View, Calif.-based messaging app which recently raised capital from Alibaba, has created a $25 million fund to invest in third party developers who can develop games for its messaging platform. www2.tango.me/

• Consonance Capital Partners, the private equity arm of healthcare investment firm Consonance Capital, closed on $500 million in investments for its private equity fund, surpassing its $350 million target. consonancecapital.com/

• Citadel Capital is shifting its strategy away from private equity toward infrastructure and industry. In the process, the Egypt-based firm has changed and changing its name to Qalaa Holdings. www.qalaaholdings.com/

• Carmelo Anthony, a professional basketball player, has launched a venture investing firm called M7 Tech Partners alongside Stuart Goldfarb, a former Bertelsmann executive. The firm has invested in Hullabalu, a children’s media company.

• Blackstone and KKR are likely to reach a settlement agreement with an ongoing collusion lawsuit, the Bloomberg reports, following agreements with Silver Lake, Bain Capital and Goldman Sachs. An agreement would leave TPG Capital and Carlyle Group as the holdouts.

Moving In, Up & On

• Todd Kinney, relationship director at BDO, has been named executive vice president at ACG New York. www.acg.org/

• Jeff Nerland, a former executive at companies including Hancock Fabrics and Coast Crane, has joined SierraConstellation Partners, LLC as a senior director. sierraconstellation.com/

The Changing Structure of the VC Industry

by
Erin Griffith" itemprop="author" class="article-byline-author"> Erin Griffith

@FortuneMagazine

July 22, 2014, 9:34 AM EDT

The Changing Structure of the VC Industry

Much of the discussion on the changing structure of the venture capital industry in the past few years has focused on just one element: the rise of crowdfunding platforms and new entrants to the earliest funding stages of our market. Yet a broader look will show that changes are afoot in the entire value-chain of the financing of startup companies shifting more dollars and more value captured from public financings to private financings and creating new competition in late-stage financing.

A look forward, not backward

Just a few years ago the narrative in the venture capital industry was that performance over the past 15 years was poor and that venture wasn’t an asset class worthy of limited partner’s investment. As I pointed out in presentation with much data, these analyses were flawed in that they considered only rear-view mirror data. The data set only considered only a period at the peak of Internet hype, with the launch of many over-capitalized businesses against a limited market size of consumers and businesses, and a venture capital industry that had tripled in size in just three years.

Where are we today?

We have 2.4 billion Internet users, or 50x more than before.
Online connections are 180x faster at 10.5 Mbps.
164m US smartphone users gives us “always-on” mobile connectivity
We’re all socially connected, so great businesses spread faster.
We all have one-click purchase power through Apple, Google, Amazon and eBay.
The VC market has right-sized, returning back to mid 90’s levels with less competition.
The cost to start a business is 95% lower, meaning many more companies are created and funded by angel and seed investors.
It still takes venture capital to scale a business, which means large amounts of capital go into industry winners like Uber, Airbnb and Snapchat.

It doesn’t take a huge leap to see how well the VC industry is positioned for the immediate future. LPs have taken notice as 2014 is by all accounts the busiest year for LPs since the Great Recession began as it is forecast that between $25-30 billion to be invested in some 200 venture funds. Where will these dollars go and how is the industry changing?

Money Bifurcating into Small & Large

Just 3 years ago there was talk of LPs “not being able to write small enough checks” to fund seed-stage VCs. The new narrative is seed-stage is here to stay, but “will my seed funds be able to fund the prorata of their winners?” Stated simply — if you seed funded Uber at $4.5m pre-money valuation you certainly would want to exercise your right to continue investing if you had pro-rata rights. The race is on to plug this gap in the private markets.

Seed funds now represent 67% of all funds being created now, which is up 100% from 6 years ago. And while it only represents 6% of the total capital of the VC industry — this is a meaningful shift in structure.

At the other end of the spectrum large funds have gotten even larger in the past few years which has massively increased the amount of consolidation in our industry as 66% of LP money into venture is now concentrated in late-stage or full-cycle VCs, which is likely $17-20bn in 2014.

Why is this?

Many pension funds are simply too large to write small checks and favor the ability to write $50-100 million checks to funds. If you don’t want to be more than 10% of a fund that implies fund sizes in the $500 million-$1 billion range.
Fund of funds (who take money from large pensions, sovereign wealth funds, etc. and break it into smaller sizes) often sell “access.” What they’re really saying is that they have the relationships to be able to invest in Sequoia, Benchmark, Greylock, Kleiner Perkins, Accel, etc. and the bigger funds often can’t get in directly.

Of course it’s much harder to identify “emerging managers” who it turns out have been some of the best performers over the past 5-7 years such as Union Square Ventures, Spark Capital, First Round Capital, True Ventures, Greycroft, Foundry Group, Thrive and Upfront Ventures. The challenge is that if you don’t get into the first 1-2 funds you don’t get in at all because they, too, become “over subscribed.”

The pioneering fund of funds realize that their source of differentiation is much more about getting into the newer market leaders than the established venture capitals since most historic fund-of-funds have some level of old-line access.

The most puzzling bit of data was that “traditional VC” — funds in the $100 million-$500 million range — seemed to be shrinking since the Great Recession in both numbers of VCs getting funded and in terms of total dollars in this class of VC and this seemed to fly in the face of the rise of successful emerging funds. By 2014, traditional VC would have halved in just 6 years in both number of funds and dollars allocated to category as dollars are shifting earlier & later.

But there is another major factor at play in the concentration of capital in larger funds: many traditional VC firms were now setting up “opportunity funds” or “growth funds.” The data ends up looking skewed towards larger funds when it actually involves traditional VC funds now geared up to take capture more of the value in private funds before they went public.

This is a structural shift in our industry few have talked about publicly.

The Opportunity Set Ahead

The trends of faster-growing startups due to social networking, credit card enabling and mobile-first consumers, show many startups becoming very large financially before needing to go public. Many of them could be profitable if they chose to. But markets value high growth over short-term profitability. As long as private-market capital is available, these companies would rather remain private for longer before going public.

Thus, the amount of money that companies have raised before going public doubled since the Great Recession from $49 million median financing pre-IPO to $101 million in 2013. The overall trends in our industry have breathed a new life into the venture capital industry. From a period of veering off target with the laziness & riches of the dotcom era, our industry has righted itself.

The biggest changes in our industry have been driven by technical changes themselves to which venture capitalists are observers and fortunate beneficiaries. I highlighted how these tectonic technical shifts have altered the VC industry in this post: How Open-Source & Horizontal Computing Spawned the Micro VC Market. 2007 was the watershed year. Facebook went mainstream after the F8 conference and its big push beyond college campuses. Twitter spread through the tech crowds at SxSW and raised its first venture capital round led by Fred Wilson. The iPhone was released.

The seeds of cheap cloud computing, social networking & mobile were planted and then the 2008 financial crisis brought a hurricane that swept much of the old, dead brush from the venture capital industry and ushered in a new phase perhaps best punctuated by Sequoia’s famous and now ironic 2008 presentation “RIP Good Times.” The “big boom” in startup financing started around March 2009 — more than 5 years ago — and hasn’t abated.

Cheap, mobile, social, global, massive, always-on, one-click-purchase has led to the most successful companies of our era hitting unprecedented scale early in their development and has massively shifted the value captured from post-IPO investors to pre-IPO investors. Whereas the market caps of Cisco, Amazon and Microsoft at IPO were $200 million, $400 million and $800 million respectively, the market caps of LinkedIn, Twitter and Facebook were $4.3 billion, $18 billion and $104 billion. Thus the rapid rise of DropBox, Airbnb, Pinterest, Maker Studios, Uber, Lyft, SnapChat, Tinder, Waze, KickStarter and so many more great standouts that have been a boon to private-market investors.

From a technology perspective, our journey is nowhere near over. Even the most somber of industry analysts must acknowledge that the shift from computers as devices controlled by humans to smart devices that are all computers connected to an Internet cloud — the so-called “Internet of Things” — is breeding massive new opportunities. Just see the growth of Dropcam, GoPro and Nest for the tip of the iceberg in what is to come.

Of course, the strongest industry players don’t stand still.

Early-stage VCs have realized that they need to capitalize on this trend, which is why many traditional VCs have set up “opportunity” funds that sit alongside their core funds as a means of capturing more private-market (pre IPO) value. Opportunity funds typically have better economics for the LPs who invest in them.

Traditional VC isn’t being gutted — it’s being supplemented.

Many prominent LPs have also recognized the “pro rata opportunity” and have set up “direct investment vehicles” themselves to take pro rata stakes in their managers portfolio companies. Expect this trend to continue. The biggest response to the public-turned-private value capture, however, has been the push for public market investors to move into the private sphere. Public-company tech investors creates competition in late-stage financings and these investors can afford to be less price sensitive if they choose.

The value capture in the private markets has also led some hedge funds and other major non-private-market investors to become late-stage VCs. Many of these investors lack the skills, focus, experience and temperament to make great, patient, long-term, private-market investors. Trying to shoe-horn a hedge-fund mentality into venture capital markets cannot portend a happy outcome. Marc Andreessen captured some of this sentiment in his recent “10 Ways to Damage Your High-Growth Tech Startup” Tweetstorm.

When the tech markets goes through their next inevitable bear cycle, every public market investor will return to their day jobs and abandon the hard work of rebuilding and restructuring the remaining over-capitalized companies. We saw this movie already after the dotcom collapse and the sequel will be no different. Publics sold many of their positions to secondary investors. It’s hard to work out the cap table with your peers when one of them has no real intent in fixing the problem.

Why do VCs stick around and fix problems in a massively changing financial market? Because this is all VCs do, and if we intend to work with all of our fellow VCs and entrepreneurs when the rain ends and the sun shines again, our reputations matter greatly. This “game theory” of mutual interests in collaboration — even as we occasionally compete fiercely — is what forces better behavior in our industry than otherwise might exist.

The result of these new market trends of pro rata takers, corporate investors and public market entrants has led to a sharp spike in the valuations of late-stage financings. While this might not matter for the industry’s best companies, the definition of what is “best” will clearly be stretched as people compete to get in on perceived great deals.

Venture capital valuations are up across every segment of the industry as can be expected by our 5-years of growth markets but they are up most pronounced in the late-stage financings. There, the median valuation has risen from $66 million in 2010 to $155 million in 2014 (a 24% compound annual growth rate).

But about that “bubble” we always hear about?

It certainly doesn’t yet seem to be the case regarding private tech market companies going public. Not only are they going public later, when they are larger & stronger, but the valuations upon their debuts are significantly more rational than the public dotcom bubble. From DotCom 1.0 to now we have seen the following: Years to IPO went from 3.1 years to 7.4, revenue of a startup at IPO went from $35m to $102m, and the valuation (market cap / revenue multiple) went from 13.3x to just 5.3x. Certainly the public markets for now are more rational than the last time around.

Summary

Cheap, mobile, social, global, always-on, one-click-purchase leads to unprecedented revenue growth and companies staying private longer. That means there are more opportunities than ever in history for venture capital firms and lots of new entrants moving to capture this value. All of that means there are amazing opportunities, risks and uncertainties for the coming decade.

Pot-related VC firm to close $50 million funding

by
Roger Parloff, Senior Editor (Legal Affairs)" itemprop="author" class="article-byline-author"> Roger Parloff, Senior Editor (Legal Affairs)

@FortuneMagazine

July 18, 2014, 6:22 AM EDT

In a domain often buffeted by hype, the cannabis-focused venture capital firm Privateer Holdings is making quiet, steady, and tangible progress.

Exhibit A: The firm expects to close a $50 million equity financing by September, according to an S.E.C. disclosure it filed Tuesday.

When combined with an earlier $7 million equity round, which closed a year ago, and a $15 million convertible bridge loan it obtained in February, the firm will have raised $72 million for the purpose of reinvesting in legitimate pot-related enterprises. No other marijuana-related investment fund appears to be nearly as far along.

Exhibit B: Privateer’s latest equity financing comes less than three months after the firm opened a $20 million, 60,000-square-foot, grow facility on Vancouver Island in British Columbia—believed by Privateer to be the world’s largest, unambiguously lawful, commercial cannabis operation. That indoor facility, licensed by Health Canada and closely overseen by the Royal Canadian Mounted Police, is run by Privateer’s wholly owned subsidiary, Lafitte Ventures, under the brand name Tilray.

While there are very likely other commercial grow facilities in the United States of comparable or greater size, operating with either the approval or acquiescence of state authorities, all of them exist under a dark shadow, since they violate the letter of U.S. federal law, and risk being seized by federal authorities at any moment. (There is also one federally authorized grow facility at the University of Mississippi, but it is only for research and other noncommercial purposes.)

The Tilray facility currently houses about 10,000 plants, representing 40 strains, according to Christian Groh, one of Privateer’s three founding principals, but by fall the firm expects it to be operating at full capacity, housing 40,000 plants from 80 strains.

In an interview, Groh says that the new equity round—which is actually expected to bring between $50 and $60 million—is intended, among other goals, to enable Tilray to construct a second grow facility elsewhere in Canada.

Groh also expects the latest round of investors to include, he asserts, “a couple brand-name institutional investors,” which, if true, would itself represent a landmark in terms of normalization of the industry. The other investors are “high net worth individuals” and family organizations, he says.

Privateer, based in Seattle, was founded in 2010 by Groh, Brendan Kennedy, and Michael Blue. Kennedy and Blue are both graduates of Yale School of Management, and Kennedy and Groh worked together at SVB Analytics, an affiliate of Silicon Valley Bank. (Privateer figures in a March 2013 Fortune cover story about investors in the legitimate cannabis business, “Yes We Cannabis.”)

The firm pledges to invest only in businesses that are lawful under federal, state, and local law. As a consequence, in the U.S. it will invest only in so-called “ancillary” pot businesses, ones that do not require employees to ever actually touch the plant. Privateer’s first acquisition, for instance, in December 2011, was of Leafly, a Yelp-like information source and review guide about cannabis strains. (Leafly now offers a French version for French Canadians, and a Spanish version for Spain’s burgeoning market.)

In Canada, however, where the federal government permits regulated sales of medical marijuana, Privateer will get directly involved in production and sale.

About a year ago, according to Groh, Health Canada contacted Privateer, requesting that it interview applicants for Canadian “licensed producer” permits, with an eye to helping effectuate Canada’s medical marijuana program.

“We met with about 30,” Groh says, “but couldn’t get comfortable with anyone.”

So last October Privateer formed a subsidiary, Lafitte Ventures, and had it submit its own application. It also created a brand name and logo for Lafitte’s venture, Tilray, with the assistance of the Seattle-based advertising firm Heckler & Associates, the firm that created a brand name and logo for Starbucks ( SBUX ).

Upon winning license approval, Lafitte bought a vacant building in Nanaimo, a small, economically depressed town about an hour north of Victoria, and commenced converting it into a state-of-the-art grow facility. To comply with Canadian law, construction had to include creation of a large security vault, for storage of the product, with nine-inch thick, steel-reinforced walls. The acquisition and conversion cost about $20 million, according to Groh.

Tilray opened its doors on April 28, and has been shipping product directly to consumers, under a license with Health Canada, ever since. (Canada’s medical marijuana laws forbid retail sales. Sales go directly from producers to patients.) Tilray can deliver anywhere in Canada within 24 hours, Groh says.

The Tilray facility is designed to eventually produce about 9,000 pounds of marijuana annually. Its brands sell for $8 to $12 per gram, depending on the strain. Since there are 454 grams in a pound, the facility could eventually generate about $40 million in gross annual revenue.

That’s what I mean by tangible progress.

Why is tech M&A booming?

by
Erin Griffith" itemprop="author" class="article-byline-author"> Erin Griffith

@FortuneMagazine

July 14, 2014, 7:05 PM EDT

The speed and volume of mergers and acquisitions large and small in the technology industry has ramped up. Global tech M&A volume in the first half of this year was up 55% over last year, reaching its highest level since 2000.

Part of the reason for the buying spree is because tech companies have massive cash piles on their balance sheets. There’s also the acqui-hire trend, where tech companies are created cheaply, raise seed funding easily, fail, and then “sell” to Yahoo YHOO , Facebook FB , or Google GOOG – which merely want the employees.

But that’s not all. As vice chairman of JPMorgan Chase, Jimmy Lee has a front-row seat to the deal action. And he’s been increasingly pushing the firm into tech deals, most notably, the much-anticipated initial public offering of Chinese e-commerce giant Alibaba.

Speaking on stage at Fortune’s Brainstorm Tech conference in Aspen on Monday, Lee pointed to another sign of a tech M&A boom: Shares of publicly traded tech companies going up, not down when they announced acquisitions in recent years. Traditionally, companies that acquire another lose value because of the expense along with the uncertainty about making the deal pay off.

“So the buy side is saying, we’re going to pay for growth, and it’s okay if we pay a premium,” Lee said. “A lot of it is a growth challenge that companies now want to go after, and attack it hard.”

See a video of the discussion here.

Lee cited Facebook’s success with its $1 billion Instagram acquisition (recently outlined in the latest issue of Fortune magazine) and Google’s success with buying YouTube eight years ago as examples of successful growth by acquisition.

Companies have been hoarding cash, Lee said, and the cost of capital “is virtually zero.” The rise of tech companies with massive balance sheets has created another interesting wrinkle for venture capital world. Aside from buying up portfolio companies, they’re also competing. Google built up has a formidable venture capital practice, and large media companies from Comcast to Time Warner have also ramped up their startup investing.

Jim Breyer, CEO of Breyer Capital, noted that these corporate venture arms, which weren’t always viewed as serious players in the VC game, are now “competing very effectively.” That has increased the competitive risks to venture investors, Breyer added. The competition is global, too, with Asian conglomerates from Alibaba and Baidu to Tencent bidding up deals.

And about those valuations: Yes, they’ve gone up. Josh Kopelman, a partner at First Round Capital, says seed deals have increased in price by around 20% to 30% in recent years, which makes his job difficult. “We have tried to maintain price sensitivity,” he said. “But you’re also talking to a VC who passed on Twitter … because of price.” He noted that he decided not to do the same thing when Square knocked on his door.

Breyer had a similar philosophy around valuations: If the founding team is good enough, he’s happy to pay up. All of his best deals, including Facebook, which he invested in at a $78 million pre-money valuation, have come at prices high enough to give some investors pause. “If it’s a 50x or 100x [return], I caved on price,” he said.

Rap Genius gets name change, $40 million funding

by
Tom Huddleston Jr." itemprop="author" class="article-byline-author"> Tom Huddleston Jr.

@FortuneMagazine

July 11, 2014, 7:50 PM EDT

Rap Genius, the website with crowdsourced footnotes about everything from song lyrics to Shakespeare’s sonnets, is changing its name to Genius.com and getting $40 million in funding.

The news, announced on Friday, signals the quick rise of the five year-old start-up, which got started as a hub for rap music fans to discuss and post personal thoughts about the sometimes profane lyrics. It has since expanded its focus beyond music to literature and restaurant menus while gaining a large following of users.

Quicken Loans founder and Cleveland Cavaliers owner Dan Gilbert – who has had an eventful day – led the funding, which was first reported by Business Insider. The investment may value the company at $400 million, according to the report. In addition to the money and name change, the company also said it would support embeddable annotations that will let other websites display crowdsourced footnotes that are viewable to users by hovering a mouse over a particular section of text.

Genius co-founders Ilan Zechory and Tom Lehman said in a post that the new developments are part of their company’s mission “to annotate the world.”

“The Internet contains multitudes,” the co-founders wrote. “It is the greatest store of knowledge in human history. But so often we flit from page to page without ever diving in. We believe that an Internet that is Genius-powered will help us all realize the richness and depth in every line of text.”

Joining Gilbert in the $40 million funding is longstanding Genius investor Andreessen Horowitz, which pumped $15 million into Rap Genius two years ago. (Fortune magazine recently featured a cover story on Ben Horowitz, a founder of venture capital firm, which explored his influence as a backer of Silicon Valley’s startup community, including Rap Genius. Horowitz, a rap music fan, created an annotated hip-hop playlist for us).

Zechory, the Genius co-founder, first connected with Gilbert, the basketball team owner, after meeting his teenage sons at a Detroit Lions football game last fall, according to Business Insider. From there, the two began meeting with Gilbert about investing in the website, and Gilbert eventually consulted with Horowitz and his partner, Marc Andreessen, about teaming up on funding. Genius plans to use the influx of capital to hire additional staff, including new engineers and designers.

Genius has survived a series of scandals in recent months, with Google punishing the company for trying to game its search rankings with tricks to enhance its position in search results. The company was also forced to dismiss one of its co-founders, Mahbod Moghadam, in May after he inserted offensive annotations into a copy of the manifesto penned by Elliot Rodger, who killed six Santa Barbara students in a shooting spree, that was posted on Rap Genius.

How much money have Bitcoin startups really raised?

by
Dan Primack" itemprop="author" class="article-byline-author"> Dan Primack

@FortuneMagazine

July 10, 2014, 1:08 PM EDT

Bitcoin “vault” company Xapo earlier this week raised $20 million in new venture capital funding, making it the most-capitalized bitcoin startup in history with a total of $40 million.

One of Xapo’s original investors, Ribbit Capital, compiled some data to show not only where Xapo ranks among its peers, but also the broader state of bitcoin investing.

It shows that a total of 107 bitcoin startups have raised a total of $292 million. That includes $176 million raised so far in 2014, which is nearly a sixfold increase over 2013 year-to-date, and 53% higher than all of 2013.

The four top fundraisers — Xapo, BitPay, Coinbase and Circle — have accounted for around 26% of the total market capitalization.

Here’s the data:

Kent Goldman launches ‘Upside,” a new type of VC firm

by
Dan Primack" itemprop="author" class="article-byline-author"> Dan Primack

@FortuneMagazine

July 10, 2014, 12:55 PM EDT

Back in February, we reported that Kent Goldman was stepping down as a partner with First Round Capital, in order to launch a seed-stage investment firm called Upside Partnership. This morning Goldman revealed new details, including a unique fund structure.

Upside Partnership originally went out with a $25 million target and $35 million hard cap, holding a final close just north of $30 million. Typical seed/early-stage fundraise for a sole proprietorship, at market-standard terms. What’s different, however, is that Upside has set aside a portion of its carry for its portfolio company founders. Goldman won’t provide the exact percentage, except to say that it’s “significant double-digits.”

This is a little like something First Round once tried, except that was a voluntary “exchange fund” that arguably ran into selection bias. Other firms also have entrepreneur side-funds, but the Upside arrangement doesn’t require the founder to actually contribute any money or equity. Goldman hopes that this strategy will help synergize the portfolio, with entrepreneurs better incented to help one another. Plus, it’s a nifty marketing tool.

Upside has three deals in process, but none closed yet. Expect initial investments to usually come in at around $300,000 per company, with a focus on both consumer and enterprise tech.

Goldman’s deals with First Round included Airware, Cabana (acquired by Twitter), Hotel Tonight, HotPotato (acquired by Facebook), Liftopia, MemSQL, MessageMe, Path, Storenvy and Threadflip.

Sign up for Dan Primack’s daily email newsletter on deals and deal-makers: GetTermSheet.com

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