5 Qs WITH A DEALMAKER
Before he was a partner at Venrock, David Pakman spent 12 years as an Internet entrepreneur. He was co-founder of Apple Music Group, co-founder of MyPlay (creator of the digital music locker), CEO of eMusic (a digital retailer of independent music), and vice president at N2K Entertainment (one of the first online music companies).
“I model myself as a VC the way I wanted my VCs and board members to be,” he says. “I wanted someone who could straddle the line between coach, mentor, and a shoulder to cry on.”
In his nearly 10 years at Venrock, Pakman has led investments in companies including Dollar Shave Club, Nest, and Misty Robotics. Right now, the biggest trends he’s paying attention to are artificial intelligence, robots, and crypto. “There’s no question that these are the most interesting innovations in front of us right now,” he says.
This was one of my favorite conversations so far about cryptocurrency, ICOs, and the impending doom of humans vs. robots. Below is an abbreviated version of our conversation, but I highly encourage you to read the full Q&A here.
TERM SHEET: What do you look for in a company or founder before investing?
PAKMAN: It’s a combination of two things: we’re looking for founders with extraordinary ambition. The likelihood that things won’t go your way and that you will encounter multiple points of failure is high, so it’s only people with an extraordinary sense of ambition who will run through those walls and figure it out.
The second thing we look for is for someone with non-consensus thinking. When you come across an entrepreneur with a great idea that everyone recognizes is a great idea, then the investment is not going to be super unique and there’s probably lots of other people who can think of it too. But when you come across entrepreneurs who have a differentiated point of view that most people think is wrong or likely to fail, then that’s another thing we think is great.
You invested in Misty Robotics. How do you see humans’ relationships with robots and machines evolving when it comes to business, friendship, and even intimacy?
PAKMAN: I think the best way to think about this topic is to look at children and their interactions with technology. There’s a video of a 1-year-old playing with an iPad, and it was just completely natural. The child barely understands English, but they figured it out.
When I saw that video, I said, “OK, you can build products that are adopted by the young who have no preconceptions of whether this is weird or not.” I think about how children interact with technology as a good roadmap for what the future will look like. I have a prototype of the Misty at my house, and my 10-year-old already has an attachment to this Android.
I think robots will be adopted into the family in ways that are more personal and pet-like than we think. We tend to anthropomorphize technology that moves. I think we’ll see all sorts of companion-oriented robots at mostly two ends of the age scale — young and very old.
Many workers wonder whether they will lose their job to a robot. What do you think the future looks like as machines begin to displace humans?
PAKMAN: The economic anxiety we see in the United States is only just starting because the amount of economic dislocation that will happen over the next 10 to 20 years is so much greater than what’s happened already. I read the Rise of the Robots, which references this Oxford study that shows 47% of jobs are vulnerable to automation in the next 10 to 20 years. We’re talking about 60 million jobs. The entire tech industry has created maybe 3 to 5 million jobs directly, yet automation may displace 60 million jobs. We’re not going to make enough new ones in the same time period, so the amount of economic pain that’s going to be felt will be huge.
What are your thoughts around crypto and the blockchain as it relates to venture capital?
PAKMAN: There’s no question that crypto will disrupt the business of venture capital. And I hope it does. The democratization of everything is what has excited me about technology from the beginning. It’s better for everyone if there are fewer gatekeepers. I hate gatekeepers. I hate them in the music business, I hate them in the entertainment business, and I hate them in VC. Why should I decide if your idea is going to succeed or not? Every idea should get a chance to succeed & the ones that do, do. I’d like to see us reach a point where VCs are not gatekeepers.
What VCs should be is evaluators. The purpose we primarily serve is we take our LPs’ money, we help pick projects that we think are most likely to result in really big outcomes, and then we help those projects result in really big outcomes. By broadening the investment landscape and letting more and more people back technology entrepreneurs, then more and more projects get a chance at success. That’s a very good thing.
Many initial coin offerings (ICOs) have been labeled as scams. Do you think they’re a good way for companies to raise capital?
PAKMAN: Most of them are scams, but I’m old enough to remember the beginnings of the Internet where every business put “dot com” on the end of their name and tried to go public. And many did. Most folks don’t remember that in the run up of the March 2000 crash, there were scores of public companies that basically did nothing. They claimed they would be the next “dot com for whatever,” but they had no revenues and they all went public. Those were all effectively scams. What I mean by “scams” is that they should not have been public. It was total crap.
That’s what happens when there’s easy access to capital. There’s no question that tons of ICO projects we see now are super unlikely to succeed, are non-credible teams, and are just in it to grab money. I think that’s just a symptom of where we are in the cycle, but it doesn’t mean that the mechanism is inherently wrong. I think we’ll see a bunch of regulation around it that will help weed out the bad actors and put some roadblocks in place to help things slow down and make them a little more rational.
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What Trump plans to do at the World Economic Forum in Davos. The data that Snap doesn’t want you to see. Alabama picked for $1.6 billion Toyota-Mazda factory. Jeff Bezos is now worth more than Bill Gates ever was.
• MOD Pizza, a Seattle-based fast casual pizza chain, raised $73 million in funding, including debt. Investors include PWP Growth Equity, Fidelity Management & Research Company, Keybanc Capital Markets, Inc, SunTrust Robinson Humphrey Inc and Raymond James.
• Arctic Wolf Networks, a Sunnyvale, Calif.-based security operations center (SOC)-as-a-service company, raised $16 million in funding. Sonae Investment Management led the round, and was joined by investors including Lightspeed Venture Partners, Redpoint Ventures and Knollwood Investment Advisory.
• Nozomi Networks Inc., a San Francisco, Calif.-based company focused on real-time cybersecurity and operational visibility for industrial control systems, raised $15 million in Series B funding. The Invenergy Future Fund led the round, and was joined by investors including THI Investments, GGV Capital, Lux Capital and Planven Investments SA.
• Petal, a credit card startup, raised $13 million in Series A funding. Valar Ventures led the round.
• Red Points, a Barcelona-based provider of solutions to intellectual property infringements online, raised $12 million in Series B funding. Northzone led the round, and was joined by investors including from Mangrove and Sabadell Venture Capital.
• SkySpecs, an Ann Arbor, Mich.-based automated infrastructure inspection company, raised $8 million in Series B funding. Investors include Statkraft Ventures, UL Ventures, Capital Midwest, Venture Investors, and Huron River Ventures.
• StackShare, a San Jose, Calif.-based software discovery platform, raised $5.2 million in Series A funding. e.ventures led the round, and was joined by investors including Cervin Ventures.
• CloudLex Inc, a New York-based legal cloud solutions provider, raised $4 million in funding. Aligned Partners led the round, and was joined by investors including Axis Capital Partners.
• Ovation.io, a Cambridge, Mass.-based clinical laboratory information and commercialization platform, raised $1.85 million in funding. StageDotO and Longfellow Ventures led the round.
• Motosumo, a Denmark-based maker of a network for group training with the help of advanced motion detection algorithms, raised funding of an undisclosed amount. Investors include Vedere Ventures and Promentum Equity Partners.
HEALTH AND LIFE SCIENCES DEALS
• TAI Diagnostics, a Milwaukee-based developer of diagnostics tests that monitor the health of transplanted organs, raised $10 million in funding. The investors were not named.
• Arbour Group, an Oakbrook Terrace, Illinois-based provider of regulatory compliance services for the global life sciences industry, raised funding of an undisclosed amount from Keystone Capital Inc.
PRIVATE EQUITY DEALS
• Igloo Software, a Canada-based provider of digital workplace solutions, said it raised $47 million. Frontier Capital led the round.
• Egis Capital Partners acquired Mission Critical Partners, a Port Matilda, Penn.-based provider of digital transformation consulting and life cycle management services for the public safety sector. Financial terms weren’t disclosed.
• LeBaronBrown Industries acquired a majority stake in American International Chemical, a Framingham, Mass.-based specialty chemical and ingredients distributor. Financial terms weren’t disclosed.
• Northlane Capital Partners made a “significant” investment in List Partners LLC, an Atlanta-based provider of sales intelligence to media and advertising agencies across the U.S. and the U.K. Financial terms weren’t disclosed.
• J-Star Co acquired a majority stake in Section Eight Co Ltd, a Tokyo-based operator of bars, nightclubs, and restaurants. Financial terms weren’t disclosed.
• Lariat Partners made a significant investment in Offen Petroleum, a Commerce City, Colo.-based provider of fuel, lubricants, and logistics services in Colorado and the Rocky Mountain region. Financial terms weren’t disclosed.
• Millpond Equity Partners acquired BrandRep LLC, an Irvine, Calif.-based provider of digital marketing services for small and medium sized businesses. Financial terms weren’t disclosed.
• American Discovery Capital made an investment in TOPS Software, a Clearwater, Fla.-based provider of community management software solutions for the property management and homeowners association industries. Financial terms weren’t disclosed.
• Branford Castle acquired Vitrek LLC, a California-based maker of electrical safety test and measurement equipment. Financial terms weren’t disclosed.
• Riverside Acceleration Capital, which is part of The Riverside Company, made an investment in Connexient, a New York City-based provider of indoor mapping, navigation and location-based services for companies with large, complex buildings and campuses. Financial terms weren’t disclosed.
• Butterfly acquired Pacifico Aquaculture, a Canada-based company focused on sustainable ocean-raised aquaculture. Terms of the transaction were not disclosed.
• Brambles Ltd will sell CHEP Recycled, its recycled whitewood pallets business in North America, to Grey Mountain Partners for an enterprise value of $115 million, according to Reuters. Read more.
• High Road Capital Partners acquired U-C Coatings, a Buffalo, N.Y.-based manufacturer and distributor of premier specialty coatings and sealants for the North American wood and lumber markets. Financial terms weren’t disclosed.
• Congruex, a company backed by Crestview Partners, acquired CHC Consulting, an Orange, Calif.-based full-service engineering consulting firm serving blue chip clients across the telecommunications industry. Financial terms of the transaction were not disclosed.
• Nebula Acquisition, a San Francisco-based blank check company formed to acquire a tech firm, raised $250 million in an offering of 25 million units at $10. True Wind Capital executives formed the company. Deutsche Bank and Goldman Sachs were underwriters in the deal. The company plans to list on the Nasdaq as symbol “NEBU.U.”
• PagSeguro Digital, a San Paulo, Brazil-based payments solutions firm, said it plans to raise $1.8 billion (53% insider) in an IPO of 48.8 million shares priced between $17.50 to $20.50 a unit. Universo Online backs the company. Goldman Sachs and Morgan Stanley are global coordinators in the deal. The company plans to list on the NYSE as “PAGS.”
• Dole Food, a Westlake Village, Calif.-based food company, withdrew its $100 million IPO. Morgan Stanley, BofA Merrill Lynch, and Deutsche Bank were underwriters in the deal. The firm planned to list on the Nasdaq as “Dole.”
• ACWA Power, a Saudi Arabian water and electricity developer, invited banks to arrange an IPO, Reuters reports citing sources. Read more.
• GV Gold PJSC, a Russian mining firm, is planning an IPO in Moscow this year, Bloomberg reports. BlackRock backs the company. The firm was valued at $500 million in 2007. Read more.
• Salesforce will acquire Attic Labs, a San Francisco-based data storage startup. Financial terms weren’t disclosed. Attic Labs had raised approximately $8.1 million in venture funding from investors including Greylock Partners and Harrison Metal.
• Clearlake Capital Group, L.P. acquired Perforce Software, an Alameda, Calif.-based developer of secure version control and collaboration platform, from Summit Partners. Financial terms weren’t disclosed.
• Luxcel Biosciences, an Ireland-based company that had developed technology to monitor the growth and viability of cells for pharmaceutical safety, was acquired by Aglient Technologies, according to The Irish Times. Financial terms weren’t disclosed. Read more.
• Allscripts agreed to acquire Practice Fusion, a San Francisco-based electronic health record provider for doctors and patients, for $100 million. Practice Fusion had raised approximately $158 million in venture funding from investors including Industry Ventures, Artis Ventures, Longitude Capital, OrbiMed, Kleiner Perkins Caufield & Byers and Qualcomm Ventures.
• Harvest Partners agreed to sell FCX Performance Inc, a Columbus, Ohio-based provider of process flow control solutions, to Applied Industrial Technologies. Financial terms weren’t disclosed. . Robert W. Baird & Co. and Stephens Inc. provided financial advice to FCX on the deal.
• Radiology Partners acquired Renaissance Imaging Medical Associates Inc, a Northridge, Calif.-based radiology practice and provider of specialized diagnostic imaging services delivered in hospitals and outpatient imaging centers. Financial terms weren’t disclosed. Radiology Partners is backed by New Enterprise Associates and Future Fund.
• Agero Inc acquired SwoopMe Inc, a San Francisco-based provider of web-based dispatch solutions for roadside assistance providers. Financial terms weren’t disclosed. Swoop had raised venture funding from investors including Founder Collective, Slow Ventures, SV Angel, and Entree Capital.
• Caltius Equity Partners sold its stake in MC Sign, LLC, a Mentor, Ohio-based provider of signage, lighting, and maintenance services, to Arcapita Investment Management US Inc, for $100 million.
• Accenture agreed to buy Mackevision, a Germany-based 3D visualization company, from Gimv. Financial terms weren’t disclosed.
FIRMS + FUNDS
• KKR, a New York-based investment firm, raised $2 billion for its second real estate fund, KKR Real Estate Partners Americas II.
• Peak Rock Capital LLC, an Austin, Texas-based private equity firm, raised $1.3 billion for Peak Rock Capital Fund II.
• Renault-Nissan-Mitsubishi said it established Alliance Ventures, a corporate venture fund with the potential to invest up to $1 billion over five years. Read more at Fortune.
• Progress Partners named David Arslanian as a managing director.
• BDT Capital Partners promoted Erin Lansky from senior associate to vice president. Previously, Lansky was at GTCR.
• Pantheon promoted Alex Wilmerding to partner.
• Mike Custar joined M2O Private Fund Advisors LLC as a partner.