This Week in Venture Capital – Episode 3

Posted on Apr 21, 2010 | 54 comments


OK, it’s official!  I’m now the permanent host for TWiVC (until such time as they kick me off).  Thank you to anybody who sent Jason a note on Twitter on my behalf.  We discuss a lot of details not in my post below so if you’re interested in catching the show you can find it here.   It was a fun show today, especially Jason’s story at the very end of the episode!

Before jumping into the post I wanted to point out one thing about doing TWiVC and posting my notes here on BSOTT.  In writing anything positive about any of the companies I’m not suggesting that it means that I prefer them to any of their competitors.  I just cover the companies that were funded that week.  Also, some of the deals I write about I have actually seen as part of their fund raising process.  Others I have not.  So it’s really hard to draw too many conclusions about whether the investment really makes sense because often you learn stuff in the fund raising about the future strategy of the company that might make you much more excited than somebody on the outside might be.

If I ever say anything less than positive, I have no vested interests in doing so.  I won’t cover any companies negatively for which I’ve invested in one of their competitors and rest assured that I will disclose an investment in any company I talk positively about.

Finally, a lot of people asking me about typos on my blog.  I’m always grateful when people point them out.  The reason I have so many typos is that I value cranking out more content rather than perfect posts.  If I had to wordsmith or carefully inspect every post it would take an extra 30 minutes / post and I’d write a lot less.  So I hope y’all understand (Especially the chap who sent me a private message saying how frustrating he found my typos to be.  Really?  Really?  Really!).  I promise in real life I don’t suck at spelling OR grammar ;-)

Peer-to-peer lending is back!

Our “hot deal of the week” turned out to be more of the “hot theme of the week.”  P2P lending networks are revived and brought it a whopping $40 million in investments announced recently.  This is interesting because just 2 years ago many of these businesses were shut down by the SEC.  What interests me is that with the credit crunch we know that credit has tightened significantly for businesses and consumers.  So there is likely robust demand from borrowers.  We also know that people with a bit of extra money are getting almost zero interest rate return on their money in banks.  Enter P2P lending.

I’m not arguing that this is a wise move to do with one’s money, just that it seems to have appeal.  In addition to the P2P deals covered below, on the show we also talked about some of my favorite financing startups (Wonga in the UK run by Errol Damelin, who is a superstar) and Affordit.com run by serial (and I mean serial!) entrepreneur Wil Schroter (I am an angel investor in Affordit).  I also talked about Virgin Money, a product that I have used to lend friends money in the past.

One interesting point about Wonga that I didn’t cover in the show.  In the UK (where I lived for nearly 10 years) people are only paid once / month.  So it is not uncommon for somebody to be skint when a big event such as a “hen party” is coming up and just need 200 quid for 2 weeks.  This is the market that Wonga serves and they are killing it!

1. LendingClub

Peer-to-peer lending service; started on FaceBook; claim to own 79% of the US peer lending market in March 2010 with a whopping $8,664,750

$24.5mm in Series C

Investors: Foundation Capital (lead), with existing investors: Morgenthaler Ventures, Norwest Venture Partners, Canaan Partners

2. Prosper

Online peer-to-peer lending

$14.7mm in Series D

Investors: TomorrowVentures (Eric Schmidt’s investment vehicle; Court Coursey joining board), CompuCredit Holdings, with existing investors Accel Partners, Benchmark Capital, DAG Ventures, Meritech Capital Partners, Omidyar Network, QED Investors, Volition Capital

Other deals

1. Knewton – “Online adaptive test prep and virtual classroom platform” – I love the innovation that is coming from the test prep industry.  Studying for the SAT, LSAT, GMAT, TOEFL, MCAT and other standardized tests in the US is a massive market that has been dominated for years by Kaplan and Princeton Review.  There are obviously equivalent tests in most countries.  Knewton, Grockit and others are creating new ways for students to study for these tests in a more cost effective way.  Grockit is led by Farb Nivi who was a former test instructor at both Kaplan and Princeton Review so brings a lot of experience to this market.

What I like?  Big market.  Immediately monetizable because people pay for this stuff.  Leverage: with teachers not having to have in-person classes you can build a more cost-effective model and teaching can be targeted more to your individual needs.  The training becomes “adaptive.”

$12.5mm in Series C

Investors:  FirstMark Capital (Amish Jani)(lead), with existing investors: Accel Partners, Bessemer Venture Partners, First Round Capital, Reid Hoffman

2. Assistly “Multi-channel customer support and management service” – this is another industry I love and I specifically love the team at Assistly.  I spent a bunch of time with Co-founders Alex Bard and Gary Benitt.  They have done 3 startups in the customer support space and one that wasn’t.  So these guys have both deep domain experience as well as tons of startup chops.  I know the product intimately and it rocks.  Especially for their stage of development.  The idea is that in a world in which companies need to deal with customer support requests from Twitter, Facebook, email, phone, IM, etc. companies need a “multi-channel” customer support tool to become the Zappos of their industries.

Assistly’s main competitor is ZenDesk, whom I’m told also has a great product.  And of course the big question is whether Salesforce.com can out innovate these startups (especially after their acquisition of InStranet).    Expect great things from Assistly.

$2.2mm in Series A

Investors: True Ventures, Social Leverage (Howard Lindzon)

3. Xobni “Social plug-in for Microsoft Outlook” – As Enrique Gutierrez said on Twitter today, Xobni is “the best damn thing ever for Outlook.”  Here’s the thing.  Collaboration in business starts and ends with email.  In business you spend your life in email.  Increasing this is also migrating to social network messaging but email is still king.  And I know that great startups like Yammer are doing well.  But the honeypot of information in companies is still in email.

Enter Xobni.  They help you built insights into whom you connect with the most via email or whom you haven’t contacted in a long time.  They also help you surface things like documents that you shared with other people without having to look through a bunch of old emails to find them.  The build “implicit social networks.” Microsoft was rumored to have tried to by Xobni 2 years ago but apparently Xobni saw too much upside potential and decided to remain independent.  My big fear at the time was that Microsoft would just build these features themselves.  What was I thinking?

Xobni’s main competitor that I know about is Gist, funded by Brad Feld at Foundry Group.  I played with both products and had good experiences.

$16.2mm in Series C

Investors: Khosla Ventures (lead), RRE Ventures (lead), Baseline Ventures, Atomico Ventures, First Round Capital, BlackBerry Partners Fund and Cisco

4. Tumblr – “Microblogging platform”.  Blogging has gone through many iterations.  I was an early user of Blogger.com.  It sucked.  It still does.  There was SixApart and Typepad.  Round one, though was won by WordPress.  I use WordPress for this blog and it’s great.  BUT … it can be a bit difficult to use.  With industrial scale power comes a harder-to-use product for neophytes.  Enter Tumblr and Posterous.  They’re generation 2.0 products.  They are much, much easier to contribute content to – both multimedia and text.

But what I really think is interesting is that Tumblr built social networking features into their product.  Instead of publishing into the ether where 98% of blogs must get less than 10 page views / month, in Tumblr you have followers as you would in a social network.  And if you find some pictures or video that you like with somebody that you follow it is easier to publish this to your blog and share with your friends.  This focus on sharing is what makes Tumblr interesting.  I like to call it a cross between blogging and Tweeting.  It’s some kind of middle ground.  And no big surprise since Fred Wilson and Bijan Sabet are the investor who are … also the initial investors in Twitter itself!  UPDATE: Just saw that Fred announced Tumblr hit 1 billion page views. Yes, that’s billion with a B. Impressive.

$5.0mm in Series C

Investors: Union Square (lead), Spark Capital (lead)

5. Tynt Multimedia “Online tool that allows content sites to control copy-paste activity on their web sites.”  For starters I LOVE the idea for this product.  If you install it on your website then users can copy text from your website (by doing control-C and copying a sentence or paragraph) and when they share it with others via email it provides a link back to the whole article.  It then gives the website owner stats on sharing that they otherwise wouldn’t have had.  If you want to see it in action click on the link and you’ll see an implementation of it on TechCrunch.

On the show we talked about whether it was a FNAC (feature, not a company) – a term I first heard from Chris Fralic at First Round Capital.  If this functionality is “all they got” then I’d agree with Jason that they likely raised too much money.  But as I argued on the show, “as an outside observer you never really know what their future strategy might be and often investors are investing in what is coming rather than what you as a consumer know.”  Let’s hope that’s the case.  It’s a freakin’ cool feature.

$8.0mm in Series B

Investors: Panorama Capital (Chris Albinson)(lead), Greycroft Partners, Metamorphic Ventures, iNovia Capital, Disruptive Ventures, Newport Coast Investments (Chad Steelberg), W Media Ventures (Boris Wertz), Joe Apprendi (Collective Media), Allen Morgan (Mayfield Partners), Erik Matlick (Madison Logic), Yen Lee (Uptake.com)

6. SendGrid – “Email delivery and management service” – SendGrid is email deliver infrastructure.  Improving the delivery of email is a BIG business.  Merchants send huge volumes of emails to consumers.  Why?  Because email works!  Think about Hautelink, Gilt Groupe, Ruelala and others not to mention all of the traditional retailers.  SendGrid helps improve delivery.  SendGrid was a TechStars company and is further proof of the success of this program.  I’m guessing that SendGrid competes with companies like StrongMail.

$5.0mm in Series B

Investors:  Foundry (Ryan McIntyre) (lead), new angel investors: Scott Petry (Postini founder), Matt Mullenwag (WordPress), and existing investors: Highway 12 Ventures, TechStars (David Cohen), SoftTech VC (Jeff Clavier), FF Angel (Dave McClure)

7. PubMatic – “Online ad optimization platform” – PubMatic is part of a host of products that evolved over the last few years to help publishers better manage their ad inventory.  This class of publisher tools aims to deliver increased CPM’s for publisher – primarily on “remnant inventory,” the stuff that doesn’t sell at high CPMs .  PubMatic competes with the likes of the RubiconProject.  What I have heard through the grapevine is that many of these tools provide great management and analytics for publishers but have not always delivered the uplift in CPMs that people have hoped to get.  This is purely anecdotal but given that many publishers use PubMatic and Rubicon they’re clearly adding value in some ways.

$7.5mm in Series C

Investors: Helion Venture Partners (Ashish Gupta), Draper Fisher Jurvetson and Nexus Venture Partners

8. TellApart “E-commerce tool for analyzing and targeting consumer behavior; ex-Google team” – This company was founded by two ex Google Ads professionals – Josh McFarland and Mark Ayzenshtat.  The goal of the company is to help improve online customer acquisition by helping you to realize which are the high value potential customers and helping acquire these customers.  They use techniques such as retargeting.  Retargeting is a technique where when you leave a website without purchasing something that website may try to buy ad inventory on other sites you later visit to try and drive you back to their site.  The theory is that if you were already on my site I’m assuming you had some “intent.”  For whatever reason I just didn’t close you.  And retargeting is a hot industry.  So hot that even Google is getting in on the act.

$4.75mm in Series A

Investors: Greylock (James Slavet)

Do you know more about any of these deals?  Want to debate them?  No competitor bashing, please.  But let’s further the discussion in the comments.

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  • http://www.twitter.com/michaeljung Michael Jung

    Congratulations for the permanent seat on the table. Hope to see in the future 3 guests or at least 2. VC/Entrepreneur, VC/VC or VC/VC/Entrepreneur who comment on deals, themes, industry.

    As I left a comment already last week on Episode 2 on thisweekin.com;
    (i) Please try to include 1 or 2 non-tech deals (ie bio, energy, medical, financials). There are other interesting things going on outside of Silicon Valley and other hubs too.
    (ii) You can spend on show themed (ie India, NewYork, Boston, Canada, Americas, Singapore, China, Asia, Japan, Australia, Europe, Incubators, Leadership, Mentorship, Change in the VC industry, Angel investing, University research spin-offs). Get for each theme one or best two credible sources.

    Sounds a lot, I know – lots of avenues to explore. 'This week in' probably need to hire another employee for production.

  • http://www.twitter.com/michaeljung Michael Jung

    Congratulations for the permanent seat on the table. Hope to see in the future 3 guests or at least 2. VC/Entrepreneur, VC/VC or VC/VC/Entrepreneur who comment on deals, themes, industry.

    As I left a comment already last week on Episode 2 on thisweekin.com;
    (i) Please try to include 1 or 2 non-tech deals (ie bio, energy, medical, financials). There are other interesting things going on outside of Silicon Valley and other hubs too.
    (ii) You can spend on show themed (ie India, NewYork, Boston, Canada, Americas, Singapore, China, Asia, Japan, Australia, Europe, Incubators, Leadership, Mentorship, Change in the VC industry, Angel investing, University research spin-offs). Get for each theme one or best two credible sources.

    Sounds a lot, I know – lots of avenues to explore. 'This week in' probably need to hire another employee for production.