Checking In On My Fantasy VC Portfolio From February 2014
I’ve been doing some updates to the good ol’ blog, and noticed a fun post from 2.5 years agoÂ highlighting my picks at the time.
- RelateIQ — I ended up investing in their Series C as a result of this post (their founder Steve Loughlin invested in Mattermark, and after 2 years at Salesforce he is now a partner at Accel Partners), and they were acquired by Salesforce 5 months later for $390 million.
- Instacart — They were my Y Combinator batch-mates, and I still use them for all my grocery shopping. This pick seems super obvious now, but at the time they had only raised their Series A when I picked them.
- Uber — I picked them because they were an early Twilio customer and I was already spending way too much on the service. This one was probably already obvious, but they had only raised $300M of funding at this point (versus > $15 BILLION now) so my fantasy portfolio definitely benefits!
- Hired — I picked them because I love the founders, and my company hasÂ been a customer from the beginning and the service just gets better and better. They announced their $15M Series A just 6 weeks after this pick.
- Digital Ocean — I originally picked them in June 2013 because I knew their bootstrap story and how loved they are in the developer community. They would announce their Series A shortly after my February 2014 post as well.
- Product Hunt — I picked them because they reminded me of Referly and Launchgram, and Ryan Hoover has the X factor. They didn’t have anyÂ funding when I made this pick, and would announce their Seed round later that year.
- Magisto — I picked them because I had recently paid for their mobile app, which I very rarely do. The company hasn’t announced more funding since then but remain among the top 10 grossing apps in the photo and video category in iTunes.
Collectively, the companies in this list have raised $15.2 Billion in funding since this call… but obviously this is totally skewed by Uber. Excluding Uber, the other companies went from $65 million of collective funding to $609 million, and only 1 of them did not raise a follow-on round.
This is of course a fantasy fund, and if I were really trying to get results things like winning the deal would have to be factored in. But it’s still fun to see how these things play out… and important to remember these were not nearly so obvious (at least to me, maybe VCs disagree) at the time.
It was fun making this list, and exciting to follow along as these companies have grown and evolved over the past 2+ years. I can’t wait to see what they each do next!Â I love angel investing, and happily these days I’m putting my money where my mouth is.
Looking forward to putting out another list soon!
Sulia Now Driving 6-Digit Traffic to Publishers, on Track to Hit 15-20 Million Uniques This Year
Thanks to Facebook, Twitter, and Tumblr, cat photos and rants from angry aunts appear in the same feeds as shared recipes and world news. Sulia is changing that by introducing subject-based â€œchannelsâ€ where users can consume media about a single topic like technology, politics, or food. Moving away from a single crowded feed towards multiple focused feeds has the potential to be helpful to readers, publishers, and advertisers alike.
Pronounced â€œsoo-lee-uh,â€ the company aggregates news in a style similar to Prismatic, but Sulia has significantly more traffic. Sulia reported a user base of 10 million users when it announced a $1.5M Series A in September of 2012 and has since, by our measures, more than doubled their traffic. Suliaâ€™s VP of Editorial & Expert Operations, Josh Young tells me theyâ€™re on track to hit 15-20 million uniques by the end of the year.
Young emphasized that Suliaâ€™s burgeoning traffic is now driving significant traffic to publishers – 100k monthly uniques to TMZ, 60k to Huffington Post, and 50k to ESPN to name a few. With distribution power like that, publishers would be wise to turn their attention towards getting their content on Sulia.
Suliaâ€™s experience is comprised of individual subject-based channels, is mostly easy to use aside from an odd absence of headlines. Each channel is an endless scroll of relevant stories from publishers, like those mentioned above, and subject-area experts like Robert Scoble & Kara Swisher in Tech & Science, and Nate Silver & Anderson Cooper in Politics. In our interview this morning, Josh explained their â€œproprietary expertise indexâ€:
â€œWe index Twitters lists and sort them into subject areas. Then we think of membership in those lists as a â€œvoteâ€ for being interesting or having expertise in that area. For example, someone who is in 4,000 lists has more expertise than someone in 300 lists. This is how we know who the top people in each field are. From there we connect these social profiles with open RSS feeds. We filter the first sentence or so of those feeds to make sure theyâ€™re relevant.â€
Twitter lists might seem like an odd place to start on the surface, but Sulia and Twitter lists have been inseparable since their inception. Initially founded in 2009 as TLists, the company helped Twitter build and manage its lists feature prior to Twitterâ€™s redesign in September 2010. After that, the company pivoted to become Sulia.
Aside from Twitter lists, users can influence the content displayed in each channel by clicking the â€œtrustâ€ button on each expert or publisher for given interest channels. The more â€œtrustâ€ experts & publishers accumulate, the more likely the content their is to appear. Through this, Young says Sulia is building the first â€œtrust graph,â€ their key to breaking through the noise on todayâ€™s crowded web. The methodology seems sound, if not at least difficult to â€œgame.â€
Building the Business
15-20 million annual uniques and interest-segmented audiences isnâ€™t just good for publishers though, itâ€™s also good for advertisers. In an interview with Business Insider in November Jonathan Glick, Suliaâ€™s CEO, explicitly stated that the motivation behind organizing content by subjects is to segment audiences for marketers & advertisers. In his words,
â€œOne of the things thatâ€™s difficult about organizing content in the way that Twitter, and Tumblr, and Facebook do it today, which is all intermingled without a subject, is that a marketing message thrown into the middle of that feels a little bit like spam…whereas if youâ€™re in the cooking section [of Sulia]…an ad for a new kind of canned soup makes a lot of sense.â€
With the rise of native advertising on sites like BuzzFeed it isnâ€™t surprising that Sulia is experimenting with this format as well. Content from sponsors like Dyn, as seen below, utilize Suliaâ€™s existing layout and story format.
Driving hundreds of thousands of hits to publishers and itself seeing unique visitors in the tens of millions with no plateau in sight, Sulia is on track to become a major player in business of online publishing, and potentially a model for advertising as well. In our interview, Young said their focus in the coming months will be refining and improving their core IP, the â€œtrust graphâ€ in the interest of building a more useful tool for readers, publishers, and advertisers alike.
SpotRight Raises $2.8M for Social Customer Intelligence
According to a regulatory filing Boulder-based startup SpotRight has raised $2,870,889. The company previously raised $1M in funding in July 2012 from Grotech Ventures, Access Venture Partners and FFP Holdings, and also raised a $1.4M Series A from the same investors under its original name Giveo in January 2011.
SpotRight was originally launched as part of TechStars Boulder in the Summer of 2010 and merged with Spot Influence in July 2012. According to the announcement of the merger:
“As a combined company, SpotRight unveils an unparalleled platform that helps direct response marketers access social data on their customers and act on it to create real business value.”
Project Decor Raises $5M for Social Home DecoratingIn a regulatory filing Project Decor revealed they have raised $5M in venture capital, which includes investment from Launch Capital. The company was founded in September 2011, and previously raised $1.6M in March 2012.
Project Decor is cofounded by Andy Appelbaum, Cliff Sirlin, and Aaron Wallace. CEO Appelbaum is a well-known New York angel investor and cofounder of online food delivery service Seamless Web, and previously founded several companies alongside Sirlin. Project Decor aims to help people decorate their homes, and is part of a hot space lead by Houzz and Tastemaker. AngelList currently lists 88 home decor startups on their site.
For their part Project Decor seems to be amassing a following, with more than 1,300 likes on their Facebook page and over 2,000 followers on Twitter. For a social shopping service building visibility and a community will be crucial, and we’ve added them to the Startup Index as one to watch.
The $3B+ Exit Tumblr Could Have HadItâ€™s all over the news, Yahoo! is in talks to acquire Tumblr. The popular blogging platform, which was founded in New York in 2007, has just a few months of cash left and hasnâ€™t successfully monetized their platform fast enough to cover costs.
To date investors have put $125M into the company, most recently infusing it with $85M more in September 2011 at a valuation of over $800M.According to Forbes Tumblr is targeting $100M revenue in 2013 but, according to sources I spoke to who are familiar with the company, actual Q1 revenue growth was flat and Tumblr is on track to do only $15M in revenue this year.
The company started selling ads in May 2012 and revenue was reported at $13M for the year. Tumblr’s source of advertising revenue is the logged in user â€œdashboardâ€ where sponsored posts are displayed in the sidebar via Tumblr Radar, while recommended posts are injected directly into the feed by Tumblr Spotlight..
Tumblr claims 120M+ daily impressions on Tumblr Radar, which equals 3.6B+ monthly impressions. Assuming $10 – 20 RPM (revenue per thousand impressions), which is within the normal range for premium brand advertising, the total revenue opportunity for Q1 was $108 – 216M. Based on this calculation, at an annual run rate of $15M ($3.75M quarterly revenue) Tumblr is selling 1-4% of its total monthly inventory. If you think about this operationally it sounds reasonable, as the company is just beginning to ramp its ad sales.This analysis rests on the assumption that Tumblr advertising will command premium brand advertising prices. If not, RPMs in the $3 – $9 would be more realistic and you could reduce all the values in these calculations accordingly.
Tumblr may also be enticing early advertisers by selling inventory for a fraction of the price it eventually hopes to charge. At $1 RPM $3.75M in revenue would have paid for 30% of the available impressions, and in order to sell 100% of its inventory in Q1 Tumblr’s average RPM would have had to drop to $0.35. Compared to Reddit advertising, which offers $0.75 CPM, and sub-$1 rates for Tumblr CPMs sound plausible.
There were signals of a possible revenue ramp miss in the first quarter of 2013 with the resignation of Rick Webb, who was brought on board just 10 months earlier to focus on revenue growth and work closely with Tumblr CEO David Karp. He is the latest in a string of senior executive departures characterized by Beta Beat as a â€œleadership vaccuumâ€.
The shutdown of Tumblr Storyboard in early April was another worrying signal. The project was touted as a â€œjournalism experimentâ€ but was more likely an experiment in figuring out how to work with brands to create effective content marketing on Tumblr’s advertising platform. The production value of the content and high profile editorial team likely cost the company millions but ultimately it â€œdidnâ€™t workâ€ according to Karp.
The Initial Offer
The initial offer from Yahoo! is $1.1B in cash, but according to TechCrunch it may not be accepted:
“Tumblr employees feel that Yahooâ€™s $1.1 billion offer is â€œtoo lowâ€ and view it as â€œonly a first offer,â€ according to sources close to acquisition talks.” – TechCrunch
Employees’ opinions aside, the lack of cash on hand and lack of trust in leadership to hit revenue milestones are likely having a negative impact on Tumblr’s negotiating position, which is probably contributing to what some consider a “lowball” offer.When it comes to setting the price, rumors that and Facebook and Microsoft are waiting in the wings to make an offer could produce a competitive bidding situation that will make up for the valuation gap left behind by questionable business results.
Setting the Purchase Price
In an acquisition the purchase the price is usually set as a multiple of existing revenue or expected near-term revenue. For media companies a 10x multiple on revenue is quite steep Edit: but does happen (AOL paid $315M for Huffington Post, which exited with $30M in revenue), and with only $15M of revenue in 2013 that would put a Tumblr acquisition price tag at just $150M.
My first reaction was that Yahoo! or whoever else was involved in the acquisition talks was about to massively over pay. But Yahoo! isnâ€™t stupid, so what’s going on here? Clearly this is about expected value, not actual revenue. If Tumblr were to hit their own stated $100M revenue target a 10x outcome would be $1B – but employees are saying this is a lowball offer. Why?
Looking at our numbers from earlier, at $10 – 20 RPM and 3.6B dashboard impressions a month (and growing) the annual revenue potential for Tumblr ranges $432M – $1.44B.Viewing the $1.1B offer from Yahoo! through this lense, it is 2.5 multiple of the low end of the expected revenue range. An acquisition at the high end of the range with a 2.5x multiplier would be $3.6B, and realistically if the company was crushing it on ad sales the multiple could be even higher.
Why sell a company with such a substantial revenue opportunity on the low end of the range?
Pencils Down, Time’s Up
While employees hold onto the hope that the company will be valued on it’s ability to drive billions in revenue, the reality is that Tumblr didn’t pull it off in time. The vast majority of that potential was not realized in time.
It wouldnâ€™t be a problem that Tumblr is lagging in revenue production if the board felt the odds of the company capturing this expected value were good, and that was probably the thinking when they invested $85M in 2011.Two years later it looks like the CEO who famously quipped to the L.A. Times “weâ€™re pretty opposed to advertising, it really turns our stomachs” may have hesitated to monetize too long, and investor patience seems to have run out.
The path to keep the company independent would probably involve finding a replacement CEO, or at the very least hiring a COO to be Tumblr’s own version of Sheryl Sandberg and drive the company aggressively toward revenue. It would also mean raising a boatload more cash at significant dilution to everyone involved, cutting expenses, and buckling down to operate like a serious business generating meaningful ad sales revenues in the next 18 months.
In choosing to sell the company and hand Tumblr over to a professional management team with a track record for monetization through media properties, the board is implying that they do not feel putting more money into the company would enable the management team to achieve a better outcome in a reasonable amount of time. Investors who participated at the $800M valuation are probably welcoming the prospect of a $1.1B exit in cash – assuming some liquidation preferences were put in place they’ll get their customary 2x-3x late stage return, and the deal won’t negatively impact their respective fund’s overall IRR.
Selling now may also allow David Karp to remain in a leadership position at Yahoo! where he can continue his work to revolutionize advertising – maybe even leading Yahoo! to a more competitive position vs. Google for brand advertising and giving them a reason to drop the underperforming partnership with Microsoft in the long term. And if things don’t work out with Karp Yahoo! doesn’t seem to have any problem firing acquired founders who no longer fit with the company’s plans.
In the end Tumblr won’t see a bigger exit because they didn’t prove they could monetize their massive traffic before time (and money) ran out.
This article was quoted in: New York Post, Valleywag, and Mashable
Past Performance is No Guarantee of Future ResultsPast performance does not guarantee future results for startups, venture capitalists, accelerator programs, the media, individual founders, or any other part of the startup ecosystem.On the mission to see into the future, there is a tendency to over value the information and lessons of the past. With 20/20 hindsight it seems obvious that things would turn out the way they have. Cell phones? Computers? “If I had been alive back in the 1950s I so would have called that,” you say. Television? Telephone? Automobiles? “Obviously I would have been first in line to get mine!”
But would you have? Really? Massive changes in how we build things, operate our companies and think about technology have often taken place gradually, and met plenty of resistance along the way. Even visionaries miss great things all the time, just look at the Bessemer Venture Partners anti-portfolio, read Dustin Curtis’ “What a Stupid Idea” reflecting on early looks at Pinterest and Vine, or the long list of VCs who didn’t invest in Facebook early on but then made a late stage play to add the Facebook logo in their portfolio.
Echoes From the Past
Limited partners (LPs) complain that their venture capital investments haven’t had returns that were as good as in the 90s. Venture capitalists complain that companies founded today aren’t as innovative as they used to be or that valuations are higher than they used to be. And the press? Writers who have never been anything remotely close to entrepreneurs will continue to bitch about everything.
“Company ABC would never do that” – says who, Company ABC is like 4 years old? “I’m not a sales guy” – you’re a 22 year old computer science graduate, you’re not really anything yet! “Startups who tried that in the 90s totally bombed” – yeah well it is 2013 now, might be time for another go. “I wish we could invest, but founders who fit our profile have computer science degrees” – your profile is 20 years old, the Internet has gotten a lot more programmable since you were in school.
Fighting for the Future
Listening to these complaints and excuses for not doing something (e.g. changing strategy, trying sales, trying a model that previously failed, investing despite lack of founder credentials) is like hearing parents complain that the kids’ music is too loud, and rock was so much better in their day. And the worst part is that they try to dress all this up as some version of “pattern matching”, which is the one of those terms you can throw out to make people nod and stop arguing with you. One of these days I’d like to jump up from the boardroom table and shout, “screw your pattern matching, I saw the results and I don’t believe you!” just to see what happens.
Boardroom fantasies aside, people who are really great at pattern matching don’t get distracted by inessential details like what founders are wearing on 2nd street this week, what kind of parties they throw, the alma mater of the software engineering team, what Dave McClure said at a conference, or even whether the company is raising at a $5M or $12M pre-money valuation out of Y Combinator this batch. These are things that might matter for a moment in time, but quickly fade into the past. What matters most is trying to understand how a combination of past knowledge combined with present action will ultimately generate a favorable result.
Fight for the future, or get out of the way.
P.S. I’m not claiming I am some great visionary, but I’ve been placing some bets so we’ll see in 10 years or so.
Image credit: Bioepherma
New York Startup Index: 500+ Companies Ranked by Momentum
This is the Startup Index series, an ongoing effort to measure the momentum of startup companies using external signals. It is calculated based on weighted factors such as web traffic, social media share of voice, inbound links, etc. I usually add some music, to make cruising a spreadsheet a little more fun. Enjoy!
The Startup Index is inspired by the Seattle 2.0 Index, which Marcelo Calbucci produced each month to create a leaderboard for local startups and it is now the basis for the Geekwire 200 in Seattle. But why stop at Seattle? There are many so many startup communities around the world, and today I’ve applied our algorithm to 533 startups from New York that we’re currently tracking. Check them out, see who’s on top and how they’ve been trending this past week, and as always let me know if there are companies I’ve missed and I’ll get them added.
Funding Rundown: SureDone, Bleachers, Perspecsys, Zoove, LearnSprout & Mutualink Raised New Funding Today
One great source for stories about private companies in the U.S. are the SEC filings of REG D forms. These forms are filed by companies who have completed or are in the process of raising funding. They are not required for many companies, but you’d probably be surprised to learn how many interesting companies are raising money and not being covered by the tech news media. I pull together the most interesting ones through the day, some get their own story and others make it into the roundup.
Do you have a startup that recently raised, or a tip about a company I should cover? Drop me a note at morrilldanielle (at) gmail.
SureDone Raises $416K from NY Angels for Multichannel Ecommerce Management Solution, Edward Tolson Joins Board — Other investors include Philip Grieshaber, Jeffrey Silverman, Sacha Levy and Leo Wang. [Source: SEC Filing]Bleachers Raises $1M from Angels for Video Sharing Geared Towards Parents & Kids — The founding team includes co-CEOs Sam Klein and Frank Jordan as well as Emily Mommsen (CFO). [Source: SEC Filing]Perspecsys Raises $9.8M Series B for Cloud Data Protection (FinSMEs reports $12M) [Source: SEC Filing]Zoove Raises $15.3M Venture Round for It’s Star Star Vanity Numbers Service — Converts Promissory Notes [Source: SEC filing]Imagine K-12 Graduate LearnSprout Raises $2.7M from Formation 8 for Education APIs — The company launched in July 2011 and is also backed by Andreessen Horowitz. [Source: SEC Filing]Mutualink Raises $2.3M for Realtime Communications Platform Used by NATO Special Ops — The company’s advisory board includes retired four-star U.S. Army General Barry McCaffrey, General Wesley K. Clark who was a former U.S. presidential candidate, The Honorable Tom Ridge – former first U.S. Secretary of Homeland Security, Ronald E. Brooks – Captain of the San Mateo County California Sheriff’s Department, andd Frank E. Rodgers – former Deputy Superintendent of the New Jersey State Police. [Source: SEC Filing]
Dreamhost Spinout InkTank Storage Raises $13.4M for Ceph Support & ServicesIn a regulatory filing today it was revealed that InkTank Storage, the creators of Ceph, have raised $13.4 million in venture funding to continue building their support and services business enabling customers to implement Ceph infrastrucutre. The company is backed by New Dream Network.
Ceph is a massively scalable open source storage system which is operated on-premise by companies who want to essentially build the equivalent of Amazon S3 (but run in-house) and provides object, block, and file storage. Businesses deploy Ceph to their existing commodity on-premise hardware and scale out their storage as needed. While S3 is probably the easiest solution right off the shelf for startups and other small technology companies, companies with specific security needs and those with on premise architecture are welcoming this open source alternative. As one developer put it, “unless you know you need it you probably don’t, yet.”
The company was cofounded and launched in May 2012 by several of the original open source Ceph authors including Sage Weil, who serves as CEO & Chief Architect of InkTank and was formerly cofounder of Dreamhost. InkTank also boasts Dreamhost as a featured customer, where they power the DreamObjects scalable object storage service.
At OpeStack Summit last month GigaOm’s Barb Darrow indicated that “Ceph is hot, hot, hot”. According to her post:
Based on an informal poll of speakers and attendees, Ceph storage is where itâ€™s at. The Swift storage system? Not so hot. Best Buy moved from Gluster to Ceph because of the latterâ€™s self-healing capabilities. Ceph offers object and block storage all in one integrated product while Swift handles object storage only. Mirantis EVP Boris Renski said Swift, which comes out of Rackspace, has lots of production installs, but Ceph is viewed as having a more â€œelegantâ€ architecture. â€œUnlike Swift, you can use Ceph as the backend for both object and block.â€ Also, because of a better algorithm for handling data replication, it can promise better scaling, he said, although Mirantis has not fully tested that out yet.
The VAR Guy (a great blog btw if you are just getting into reading about enterprise tech) covered Cuttlefish, the latest release of Ceph, noting that InkTank has been developing impressive channel partners in the past year:
That update, combined with the close relationships Inktank has forged with other big-name partners including SUSE, Canonical and Dell, promises to raise Ceph’s profile within the channel even further, and cement its key role in open-source Big Data computing. That’s a lot of momentum for a storage platform that essentially had no commercial presence at all until about a year ago. We’ll stay tuned as Ceph and Inktank continue to move forward.
An air of inevitability forming around Ceph and InkTank. Watch this space.
To learn more I recommend this talk from OSCON by Ross Turk:
Seattle-based Clipboard Acquired by Salesforce, Will Shut Down June 30th
In an email sent to users today Clipboard, a service similar to Pinterest for organizing links and bookmarks across the web, the company announced they have been acquired by Saleforce and will shut down the service on June 30th, 2013. The company has also posted a farewell announcement on their blog.
The email also states they acquired 140,000 users. The company raised a seed round of funding in October 2011 from Andreessen Horowitz, Index Ventures, CrunchFund and other angels.
Clipboard founder Gary Flake is a well known Yahoo! expat who lead their Yahoo! Research Labs following the Overture merger where he had been Chief Science Officer. Flake also spent time at Microsoft where he founded Microsoft Live Labs and served Technical Fellow. Given the lack of traction of Clipboard and the fact that the product is being shuttered, this acquisition appears to be focused on acquiring him and other talent from the team.
Read the full announcement here: