This Week in Venture Capital – Episode 4

Posted on Apr 28, 2010 | 51 comments


Today we had another episode of TWiVC – you can watch the episode here.

This was the first episode where Jason wasn’t on the show, which gave me the chance to have another VC on the show to discuss deals.

This week’s guest was David Travers from Rustic Canyon Partners.  Rustic Canyon is an LA-based, but geography-agnostic VC that is currently investing from a $200 million fund.  They were originally founded inside of Times Mirror and had a huge string of major investment success before spinning out as a fully independent fund.  I know the team over (Nate Redmond, John Babcock) there really well – great people all.

Dave’s a great guy with a good sense of humor and a broad knowledge of the market, which is why I was excited that he could be on the show.  If you get the chance to watch a bit I think you’ll enjoy hearing some perspectives from Dave.  You also might enjoy hearing him talk about his background – including the fact that he was actually the executive assistant for Condoleezza Rice during one of the more historic and controversial periods of time in recent history!  I keep meaning to get him drunk to spill the stories. ;-)  On the show all I could get him to talk about was his travels on Air Force One.

VC Financings:

1. Zong – mobile payments has been a very hot area over the past couple of years with the success and growth of both Boku and Zong.  Other players such as Obopay have set out to focus on mobile person-to-person cash transfers, mFoundry (a GRP portfolio company) has focused on mobile banking and a mobile wallet and one of my favorite companies m-via is focusing on mobile remittances (right now between the US and Mexico).  Boku and Zong focus mostly on mobile payments for virtual goods.

Here’s why that is important: when users are on your website you want to convert them to become paying customers.  It’s hard to get people to get out their credit card and with the youth demographic many of them don’t have credit cards.  It has proven a very successful strategy to get consumers to activate the payment on their mobile phone bill.  It’s true that the carrier then gets their huge slice for being the billing and payment engine but the idea is that you as a website more than make up for this in terms of customer conversion.

It seems the focus on “virtual” goods has been both the demo of the consumer as well as the fact that by definition virtual goods have almost no marginal costs to the seller so giving a huge slice to the carrier (and Zong) isn’t a problem since actual costs are ~ $0.

Zong is obviously doing something right since they are now the preferred mobile payment platform for Facebook’s mobile credit offering but will compete against some serious guns – Boku has raised nearly $40 million from Benchmark, Index, DAG and Khosla Ventures – the A list of who’s who VCs.

$15mm in Series A

Investors:  Matrix (Dana Stadler, who was the CTO of PayPal)

Read more: TechCrunch

2. Blippy

Blippy is a service that allows you to automatically share your credit card transactions as you make them. This includes the place you made the purchase, the amount, and in some cases, the item. This is all placed in a social stream where other Blippy users can comment on and “like” the various items.

Blippy (and their competitor Swipely – which was founded by Angus Davis, who has a great track record from both Netscape and TellMe, both aim to capitalize on the era of consumers living more openly ala Twitter, Foursquare and Gowalla.  Both companies have attracted a lot of attention – both positive and negative.  As with any new service that makes information more transparent there is obviously going to be some public concern.

The most obvious is the recent controversy where Blippy users’ credit card details were discoverable online.  I have read the companies statements and accept the fact that the exposure was incredibly limited, the way the card data was exposed was through a strange loophole and they are working actively to prevent this from happening going forward.

My own view on these services is nuanced.  I get why people from 22-35 would find this service fun and attractive.  Their purchases are limited to restaurants, bars, retail clothing outlets, travel and entertainment.  I think once you’re married you start to become more private with the financial information that you share and as you increase your earnings you also get more private about that.  Remember the whole controversy over Facebook’s Beacon product where a guy bought an engagement ring for his wife and it was published to a stream and ruined the surprise?  Fast forward to a world where you now have kids.  Do you really want that level of information about your family exposed?

So my gut says this will be a youth-oriented product.  And possibly a quite successful one – I don’t know.  I don’t think my unwillingness to use it is generational (as in I’m 42 and don’t “get it”) – I think it’s a life stage issue.  But as always I assume the guys behind Blippy and Swipely know where they want to take the product in the long run to assuage my fears.

Also, with investors like Dave Hornik (invested in Blippy), Saar Gur (from CRV who invested in Blippy) and First Round Capital (invested in Swipely) I assume we’re headed for at least a very interesting market to watch from the sidelines.

$11.2mm in Series A, rumored pre-money of $35mm; $1.6mm angel raised in Jan 2010

Investors:  August Capital (David Hornik) (lead) with existing investors Charles River Ventures

Read more:  TechCrunch

In late April 2010, VentureBeat published that Blippy credit card numbers were published on Google search: http://venturebeat.com/2010/04/23/blippy-credit-card-citibank/ followed by Blippy’s response

3. Wildfire Interactive

Wildfire was one of the darlings of the fbFund incubator program.  I first heard about the company from Dave McClure and have tracked it on the sidelines a bit since then.  It is a platform to help brands building viral marketing campaigns.   They focus on trying to drive engagbranded social media marketing campaigns (e.g. sweepstakes, contests, coupons, giveaways, quizzes, virtual gift campaigns and more) and to simultaneously publish them on Facebook fan pages, on company websites (integrated with Facebook Connect) and on Twitter.

A fbFund company, Wildfire launched its offering last year, reached profitability within 1 month of launching its product and won the fbFund twice.  Clients include Pepsi, Sony, CNN, Universal, AT&T, Victoria’s Secret and Facebook, which has used the service for multiple campaigns. The investment will be used for product development initiatives.

What I found strange about this funded was the fact that it was led by Summit Partners.  Summit is a hugely respected firm in Silicon Valley and a long-term “institution” but they’re better known as more of a “private equity” investor meaning that they do later stage investments in much larger companies that are profitable.  Obviously they see big things in Wildfire.

$4mm in Series A

Investors:  Summit Partners (lead), Jeff Clavier, Aydin Senkut, Gary Vaynerchuk

Read more: TechCrunch

4. ShoeDazzle

ShoeDazzle is an interesting deal to me because it’s a throwback to my childhood in a way.  Growing up we had Columbia House Music and BMG who would send you a “record of the month” in the mail and you could return it each month without paying – but nobody ever did.  It was an early example of the power of direct marketing and subscription services.

Enter ShoeDazzle.  I think of it as Columbia House meets Zara.  Zara is a Spanish senstation retailer that does “fast follow” knock off popular clothing at affordable prices.  ShoeDazzle does with with shoes and sold through the “shoe of the month” club model.  I know you’re thinking, “why would I want a new pair of shoes every month?”  That’s because the majority of my readers I’m guessing are men.  Trust me – my wife would love a new pair of shoes every month.

ShoeDazzle was already profitable and growing and had already taken capital from Polaris Ventures and Crosscut Ventures.  Jeremy Liew, a respected VC from LightSpeed, obviously saw the change to ramp up sales.  You can read in Jeremy Liew’s own words why he invested in the deal.

Boy, there has been a lot of innovation in the eCommerce space in the past few years with GroupOn, HauteLook, Gilt Groupe and others.  Add this new model to the mix.  No doubt there are a ton of knock-off competitors preparing to launch.  ShoeDazzle has Kim Kardashian as a co-founder / company as a spokesperson as well as Brian Lee who was a co-founder at Legal Zoom.

$13mm in Series B

Investors:  Lightspeed Venture Partners (Jeremy Liew) (lead), with existing investors Polaris Venture Partners, Crosscut Ventures

Read more:  PEHub

5. Marketo

Marketing and lead automation software for businesses; claim to have largest market share in sector since March 2008.  The crux of what they do is a field called “demand generation” or “marketing automation.”  Essentially they help you take your database of prospects and drive trackable email campaigns targeted around distinct customer segments and manage these leads through the various stages of your marketing & sales funnels.  It’s a hot but still relatively nascent market area.  Marketo competes with MarketBrite and Eloqua.

$10mm in Series C

Investors:  Mayfield Fund (lead), with existing investors: InterWest Partners, Storm Ventures

Read more: PEHub

6. GroundTruth

Seattle-based company specializing in mobile analytics.

UPDATE: I had them pegged slightly wrong on the show.  Kevin Spain wrote in and updated me with what their real plans are.  His notes are as follows:

“Just to clarify, Ground Truth doesn’t at all compete with Flurry, Motally, Localytics, etc. Flurry and others like them are focused on providing analytics to app developers (think Omniture for mobile apps). Ground Truth is actually creating a next-generation comScore focused on the mobile space. Advertisers, publishers, carriers and the like don’t know nearly enough about aggregate mobile usage behavior across mobile web, mobile apps, and SMS. This is the problem Ground Truth is solving.”

END UPDATE

There has been some amount of controversy in this area as Apple has come up with a new TOS for OS4 that seemingly bans analytics providers from providing data to third parties without their consent.  I don’t have the inside scoop but I heard from one reliable source that this is probably not to ban people like Flurry from gathering data but rather to prevent somebody like Google from buying these companies to get access to iPhone usage data.  That wouldn’t surprise me.

This round was led by Kevin Spain from Emergence.  He’s a guy that I’ve always liked.  He’s ex Microsoft so has real world company experience and he’s knowledgeable about many market areas.  I almost ended up working with Emergence at my second company so I got to know Kevin well through this process.  Happy to see him get this deal done.

$7mm in Series B

Investors:  Emergence Capital Partners (Kevin Spain), OpenAir Ventures (Ron LeMay), with existing investors Steamboat Ventures, Voyager Capital.

Read more: PEHub

7. OpenCandy

I openly talked on the show at my embarrassment for never getting to look at this deal since it’s in my backyard (San Diego) and I had had fairly frequent online communication with the founder, Chester Ng, an ex exec from DivX.  My bad.  I knew that OATV had invested in the company and I typically like to look harder at stuff that they do since I consider them to be very savvy with early stage trends.  So when I heard that Google Ventures had invested in OpenCandy and I didn’t even get a look I could only think one word.  Doh!

If I understand the concept correctly I believe that OpenCandy is a newer more sophisticated version of “co-reg.”  Co-reg is that age old marketing technique where when you register for software online the registration process of a vendor offers to also register you for other services.  They obviously get paid for the placement.  But we all think of that kind of service as very spammy since the offers aren’t that relevant.

My understanding is that OpenCandy is a software download where the service gets to better understand you as a consumer.  So when you register for products it can do a sophisticated targeting of other offers that might interest you.  Sort of a sophisticated and targeted co-reg – even though I’m guessing they hate that term.  OpenCandy says that they only allow high quality applications into their list of suggestions so it is “high brow, targeted co-reg!”

If anyone thinks I’ve understood this incorrectly please feel free to correct me in the comments.

$5.0mm in Series B

Investors: Google Ventures

Read more: TechCrunch

In the program we also talked about much debated topic of large VC’s and whether they should have seed programs.  This was prompted by the two announcements below.  If you’re interested in the topic you should check out the program.  We had a nice debate.

Other News:

1. Index SeedIndex Ventures carves out seed fund from existing $400mm fund

Read more: Index Ventures and TechCrunch

2. SV Angel / Ron Conway closes $20mm venture fund

Over demand led the SV Angel team to double the size of the fund to $20 million. Around fifteen investments have now been closed in the new fund.  Conway also spoke about the big trends in tech right now. There are three “megatrends” as he puts it – real time data, the social web and flash marketing. These are all “billion dollar industries” he says.

Read more: TechCrunch

  • http://research2zero.com Ben Stein

    It would be great to get time stamps next to the listed deals in the transcript so viewers could skip to the deals of particular interest to them. The show is long and I'm sure there are plenty of other our there like me who would love to get a little color and move on. Not sure how much additional effort or annoyance this would cause but if sure would be great. Thanks.