5 Qs WITH A DEALMAKER
For someone whose portfolio includes Uber, Bird, Spotify, Alibaba, and Tencent, Lead Edge Capital founder Mitchell Green has managed to largely stay out of the VC spotlight. And that’s by design.
“I don’t need to be out there writing long blog posts pontificating on certain things,” Green says. “All we want to do is help entrepreneurs build big companies and make our LPs money.”
Green’s Alibaba investment helped put his growth-stage investment firm on the map. “We returned about a billion dollars,” he told The Wall Street Journal. More recently, Cisco bought Lead Edge portfolio company Duo Security for $2.35 billion in a combination of cash and stock after the firm had co-led Duo’s $70 million round at a $1.17 billion post-money valuation.
Lead Edge gets into deals through aggressive cold calling, deep research, and a star-studded network of limited partners. The Lead Edge website prominently features the firm’s LPs with the headline, “Who can we introduce you to?”
“We have 8 or 9 associates whose job is very simple — they pound the phone and send emails every day to entrepreneurs. In a given year, each associate should have made 750 calls to companies. Multiply that by 8 associates, and that means our team is talking to about 6,000 CEOs per year.”
And that’s exactly how Lead Edge got into Duo Security. They contacted the company more than 40 times with no response. Then, they leveraged their robust network for a way in. Finally, a Lead Edge board member offered to make an introduction to the CEO, and the firm ended up getting in the deal.
“I may not be the smartest person in the world, but I am the most persistent,” Green told me.
In a Q&A with Term Sheet, Green discusses his investment strategy, why he chose Uber over Lyft, and how the venture landscape is evolving. Read the full Q&A here.
TERM SHEET: Tell me about your investment thesis and what you look for a company before you invest.
GREEN: We have eight criteria, and we’re trying to find companies that meet five to seven of our eight total requirements.
The 8 criteria are:
• Are you $10 million+ in revenue?
• Are you growing your revenue 50% or more a year?
• Do you have 70%+ growth margins?
• Do you have a recurring business?
• What’s your retention? Do you have 90%+ gross retention?
• Are you profitable or break even?
• Do you have a diversified customer base?
• And this one is really important: How efficient are you with your capital?
The reason capital efficiency is so important is because in a world where there’s so much money being thrown around, we want to invest in companies that are growing really fast and not burning tons of capital.
Let me give you an example. The world is littered with $25-million software companies that have burned $60 million to get there. What we want to do is find companies like Duo Security that got to $200 million+ in revenue and burned about $40 million.
The reason capital efficiency is so important is that if there’s an economic downturn, we believe that the entrepreneurs who can build businesses without all that much money can just float on their burn rate and grow a little slower during a downturn.
Uber hasn’t turned a profit and has been losing money for years. How does this fit within your thesis around not investing in fast-growing businesses that burn through cash?
GREEN: When we invested in Uber, it met our criteria of being capital-efficient. When we invested in late 2014/early 2015, the company had raised about $1.8 billion of capital previously. We focus on the cash burn versus net revenue. Just because a company has raised money doesn’t mean it’s been spent. Also, keep in mind that sometimes there are specific reasons why we invest in companies that aren’t capital efficient (again, a company doesn’t need to be capital efficient since it’s only 1 of 8 criteria), and we’re looking to invest in companies that meet five to seven of the criteria.
Why did you choose to invest in Uber over Lyft?
GREEN: It’s funny — I didn’t even really know [Uber founder] Travis [Kalanick]. I actually know [Lyft co-founder] John Zimmer way better than I actually know Travis. John’s a great guy. So why did we choose Uber over Lyft?
Ann Miura-Ko from Floodgate is a good buddy of ours, and she told us we should look at Lyft around the time it was at a $400 million valuation. Look, we’re idiots — we should have looked. We ended up investing in Uber much later at a $40 billion valuation. There was actually a very big debate at Lead Edge around this. Some partners thought we should do both Uber and Lyft. Other partners felt we should only do Uber because the vast majority of the value accrues to the market leader, and the No. 2 gets much less capital.
How do you think their 2019 IPOs will compare?
GREEN: I think they’ll probably both do well. It all depends on the market, and I have no idea where the market’s headed, but we do think Uber will trade somewhere between $100 and $150 billion. A Lyft IPO will be well-received by the Street, but I believe if you like Lyft, you’ll love Uber. For one, Uber is global. Two, it has stakes in a bunch of different assets around the world. Three, you’ve got UberEATS, which is a rocketship.
Companies have access to a lot more capital these days. As a growth investor, how do you see the venture capital landscape evolving?
GREEN: There’s a lot of money going into venture capital and private equity now, and I actually think there will be even more money that comes into the asset class. It’s a great time to be an entrepreneur — you have so much more access to capital. But I think it does dilute returns. The best quote I ever heard was, “You can pay as high a price as you want for a deal, you just better be right.”
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• Alation Inc., a Redwood City, Calif.-based data catalog company, raised $50 million in Series C funding. Sapphire Ventures led the round, and was joined by investors including Salesforce Ventures, Costanoa Ventures, DCVC, Harmony Partners, and Icon Ventures.
• Personio, a Germany-based HR and recruiting platform, raised $40 million in a Series B funding. Index Ventures led the round, and was joined by investors including Northzone and Rocket Internet’s Global Founders.
• Bringg, a Tel Aviv-based delivery logistics platform for businesses, raised $25 million in Series C funding. Investors include Next47, Salesforce Ventures, Aleph VC, OG Ventures, Cambridge Capital, Coca-Cola, Ituran and Pereg Ventures.
• Ciitizen, a platform that helps patients collect and share personal health data, raised $17 million in funding. Andreessen Horowitz led the round, and was joined by investors including Section 32 and Verily.
• Bold Commerce, a Canada-based developer of e-commerce software solutions, raised C$22 million ($16.6 million) in Series A funding. Investors include Whitecap Venture Partners and Round13 Capital.
• Spell, an AI and machine learning startup, raised $15 million in funding. Eclipse Ventures and Two Sigma Ventures co-led the round. This investment will be used to incorporate more advancements and power even larger organizations, while continuing to bring AI and deep learning to more of the global workforce.
• Isotropic Systems Ltd, a UK and Maryland-based integrated satellite terminal solution provider, raised $14 million in Series A funding. Boeing HorizonX Ventures led the round, and was joined by investors including WML, Space Angels and Space Capital.
• Foretellix, an Israel-based autonomous car safety verification company, raised $14 million in Series A funding. Investors include 83North, Jump Capital and Nextgear Ventures.
• AccessPay, a UK-based fintech firm, raised 9 million pounds ($11.6 million) in funding. Beringea led the round.
• Innovaccer, a San Francisco-based data analytics company, raised $11 million in funding. Investors include M12.
• ReKTGlobal, the parent company of esports company Rogue, raised $10.8 million in Series A funding. Nick Gross, founder of Gross Labs, led the round.
• Xpansiv, an online platform that offers data of commodities, raised $10 million in Series A funding. Investors include BP Ventures, Avista Development, S&P Global and Energy Innovation Capital.
• Bond-Pro, a Tampa, Fla.-based provider of surety and specialty insurance software products and services, raised $10 million in funding. Volition Capital led the round, and was joined by investors including Roger Hurwitz.
• Tyto Care, a Israel and New York City-based telehealth company, raised $9 million in funding. Investors include Sanford Health, Itochu and Shenzhen Capital Group.
• Alluxio, a Berkeley, Calif.-based developer of a software system that unifies data at memory speed, raised $8.5 million in Series B funding. Seven Seas Partners led the round, and was joined by investors including Andreessen Horowitz.
• Theta Lake, a San Mateo, Calif.-based AI-based digital communication compliance platform that helps regulated organizations supervise audio and video content, raised $5 million in seed funding. Investors include Neotribe Ventures and Firebolt Ventures.
PRIVATE EQUITY DEALS
• TowerCo, a Cary, N.C.-based company that builds infrastructure for wireless services providers, raised $300 million in funding from Peppertree Capital Management.
• Radian Capital invested $14 million in Orchestra Software, a Portland, Ore.-based Enterprise Resource Planning (ERP) software provider to the regulated craft beverage industry.
• iSolved HCM, which is backed by Accel-KKR, agreed to acquire Sage Payroll Solutions, Sage Group’s U.S.-based payroll outsourcing business. Financial terms weren’t disclosed.
• XLerate Group, which is backed by Huron Capital, acquired Southeastern Auto Auction, a Savannah, Ga.-based provider of auction services. Financial terms weren’t disclosed.
• 1315 Capital acquired Biocoat Inc, a Horsham, Penn.-based developer of biomaterial coatings for medical devices. Financial terms weren’t disclosed.
• Equity38 made an investment in TRX, a San Francisco-based fitness training provider. Financial terms weren’t disclosed.
• Insight Venture Partners and Canada Pension Plan Investment Board invested $500 million in Veeam Software, a backup solutions company that enables intelligent data management.
• Knotel acquired a majority stake in Deskeo, a France-based flexible office operator. Financial terms weren’t disclosed.
• Pinterest, the image discovery app, interviewed bankers for a potential IPO later this year, Recode reports citing sources. Read more.
• Gefco, the French logistics company, has hired bankers for a potential IPO, Reuters reports citing sources. Russian Railways backs the firm. Societe Generale, J.P. Morgan, Citigroup, UBS, and Credit Suisse are expected to be underwriters. Read more.
• BYJU’S acquired OSMO, a Palo Alto-based developer of augmented-reality educational applications for $120 million. OSMO had raised approximately $32.5 million in venture funding from investors including Upfront Ventures, Accel, K9 Ventures, Shea Ventures, and Mattel.
• Coinbase acquired Blockspring, a San Francisco-based startup that enables developers to collect and process data from APIs. Financial terms weren’t disclosed. Blockspring had raised approximately $3.5 million in venture funding from investors including Andreessen Horowitz, SV Angel, and Y Combinator.
• Arsenal Capital Partners acquired Accumen Inc, a San Diego, Calif.-based technology-enabled provider of health system performance optimization solutions, from Accretive. Financial terms weren’t disclosed.
• Kissner Group Holdings acquired NSC Minerals Ltd, a Canada-based provider of salt products, from an investor group led by Altas Partners. Financial terms weren’t disclosed.
• Arsenal Capital Partners sold Elite Comfort Solutions, Inc, a Newnan, Ga.-based manufacturer of bedding components, to Leggett & Platt (NYSE: LEG) for $1.25 billion.
• Paladina Health acquired Activate Healthcare, an Indianapolis-based healthcare provider offering customized services to employers and unions for preventive and primary medical care. Financial terms weren’t disclosed. Activate healthcare had raised less than $1 million in venture funding from investors including Spring Mountain Capital.
FIRMS + FUNDS
• BlueRun Ventures, a Menlo Park, Calif.-based venture capital firm, raised $130 million for its sixth fund.
• Adam Tilow and Greg Mischou joined Atlas Technology Group as managing directors. Previously, Tilow and Mischou were at Woodside Capital Partners.
• Jump Capital promoted Peter Johnson to principal.
• Jeff Stute joined Perella Weinberg Partners as a partner.