Spark Capital Teardown

With new funds and recent unicorn exits including Twitter, Tumblr and Oculus, we dive into Spark Capital's financing activity, investment strategy, key people and top syndicate partners.

Boston-based venture capital firm Spark Capital was founded in 2005 and has relatively quickly emerged for some of its prescient bets on companies like Twitter, Tumblr and Oculus VR which were all black swan exits (greater than $1B). Given their success, we are giving the firm the teardown treatment and analyzing the venture firm’s financing activity, investment strategy, key people and top syndicate partners.

Notes:

Where’s the data & viz from? 100% of the visualizations and data you see in this teardown are directly from the CB Insights platform’s Investor Analytics tool. No MS Excel used.
What’s a Teardown? A product teardown is the act of disassembling a product to understand its parts, functionality, etc. An investor teardown is analogous. We’re trying to understand a firm and what makes it tick by analyzing data around their financing strategy, investment thesis, key people, exit history, investment syndicates and more.

We take a look at trends and highlights in Spark Capital’s portfolio over the past few years by analyzing the following dimensions:

Funding Activity

As a firm, Spark has invested most heavily in the Internet and mobile tech sectors since its inception in 2005. Since 2013, the company has averaged participation in just over 2.6 deals per month. Some of Spark Capital’s recent investments include:

Warby Parker – the eye-glass maker raised over $110M in its Series B and C rounds held last year, both of which Spark participated in. In the more recent deal last December, which included Spark, Tiger Global Management, First Round Capital, General Catalyst Partners and others, the company was valued at $500M. Warby Parker is also a CNBC Disruptor 50 company.
Foursquare – this mobile social networking service has raised over $200M in venture financing since 2009. Spark Capital has invested in three of the company’s funding rounds since 2011, most recently in a debt round in April 2013. Foursquare is currently valued at $600M.
Upworthy – Spark Capital led the viral video site’s Series A round last year, in which Upworthy raised $8M in VC funding. In June 2013, the website was hailed as the fastest growing media site of all time by Fast Company.
Timehop – The firm which just raised a Series B financing has seen impressive mobile app momentum and might be one of Spark’s newest hits.

Exit Activity

As a relatively young firm compared to players with longer histories a la Sequoia Capital or Kleiner Perkins, Spark’s exit scatter diagram is sparse. This is also driven by the firm’s more modest fund size which they’ve stayed consistent with (a good sign of discipline per our Investor Mosaic models).

Even with these factors, the VC has seen a number of companies since 2008 ranging in value from $20M to several billions (acquisitions for undisclosed amounts not displayed below). Spark has, as might be expected, seen a notable uptick in exits as its initial investments have matured, with nine exits last year up from just two in 2012. Spark’s ‘unicorn’ exits include:

Twitter – Spark Capital invested heavily in the social media giant, which held one of the most anticipated IPOs of 2013. Spark began investing in Twitter in its Series B round in 2008, and participating in five additional funding rounds for the company before it went public. Upon exit Twitter was worth over $14B.
Oculus VR – the virtual reality headset maker was bought by Facebook earlier this year for $2B, making it one of the company’s largest acquisitions. Spark invested in Oculus’ Series A and B rounds, both in 2013, along with Andreessen Horowitz, Formation 8, Matrix Partners, and Founders Fund.
Tumblr – Yahoo bought the online blogging site for $1.1B last year, after the tech company had raised over $125M in venture financing. Spark Capital was an extensive stakeholder in Tumblr and participated in its Series A, B, C, D, and E rounds beginning in 2007, when the company was valued at just $3M.

Fundraising History

Spark Capital has recently been on a fundraising flurry, raising three funds totaling $830M just in the past 18 months. The VC’s fourth fund, raised in February 2013, was the largest in the firm’s history at $450M. Despite Spark’s stated emphasis on investing early, often in the first VC round, its new Growth Fund will go towards funding mid- and late-stage companies. The $375M fund will be managed by the firm’s newest partner, Jeremy Phillips, previously an executive at News Corp.

Notable Partners

Bijan Sabet has been a General Partner at Spark Capital since the firm’s inception. He led the investment in Twitter in early 2008 and served on their board from 2008-2011. He also led investments in Tumblr (acquired by Yahoo!), Jelly, Crowdrise, Sincerely (acquired by Liberty Interactive Corporation), Stack Exchange, RunKeeper, Foursquare, Boxee (acquired by Samsung), OMGPOP (acquired by Zynga) and thePlatform (acquired by Comcast). Sabet’s recent spikes in news mentions (shown on the chart below by month) have largely been about his time on Twitter and Tumblr’s boards.

Mo Koyfman is a General Partner at Spark Capital. He led Spark’s investments in Aviary, Consumer United, DIY, FundersClub, Kitchensurfing, Plaid, Sift Science, Skillshare, Storefront, Warby Parker, and Work Market and serves on the board of directors of Signpost (and others, shown below). He also led Spark’s previous investments in GDGT (Acquired by AOL) & Svpply (acquired by eBay). Koyfman is based in Spark’s NYC office.

Jeremy Philips is a Founder and General Partner of Spark Capital Growth, and the firm’s newest partner. He is a member of the board of directors of TripAdvisor, and was the Managing Partner of Occam Partners. Most importantly, Philips will be managing Spark’s $375M Growth Fund targeting late-stage companies, a departure from the firm’s traditionally early-stage focus

Andrew Parker has been a member of the investment team at Spark Capital since 2010 and is now a General Partner with the firm. He focuses primarily on the applications layer of the technology stack in consumer services. He led Spark’s investments in BloomNation, Close.io, Cover, Kik, Panjo, Priceonomics, Socratic, Timehop, Quantopian, and Upworthy. Parker began his venture career with Union Square Ventures in 2006.

Industry & Geography Shifts

At the industry level, Spark Capital invests mostly in the Internet, mobile, fin tech, and software markets. In the funding heatmaps below, block size represents number of deals and color represents amount of total funding.

In the past two years (right pane below), 62% of deals Spark Capital participated in have been in the Internet sector (mostly SaaS and eCommerce) while 22% has gone to companies in the mobile sector (mostly mobile software & services). This allocation is not much different from that of the two years prior (left pane below), when 68% of Spark’s deals involved Internet companies and 21% involved mobile companies. The most pronounced difference in the firm’s investing behavior is a significant drop in ad tech deals.

While Spark’s investing behavior hasn’t changed internationally (the majority of funding goes to the USA), there have been some major changes in the firm’s allocation to the country’s major startup centers. Most prominently, investment in California-based companies rose significantly between the two-year periods from 25% of deal activity to 40% of deal activity. Massachusetts companies also received a slight bump to 26% of Spark’s deal activity in the past two years. West-coast and Massachusetts companies largely took share from New York funding, which declined dramatically from 53% of Spark’s deals in 2010-2012 to just 30% in the past two years.

Financing Trends

The chart below, which shows Spark Capital’s average and median deal sizes by quarter, reveal’s the firm’s (median) deal size median comfort zone to be between $5M and $15M. Last quarter, the VC hit the upper end of the range with a median deal size of $14M. Deal size spikes in 2010 and 2011 can be attributed to Spark’s involvement in Twitter’s $200M Series F round and Wayfair’s $165M Series A round, respectively. The median deal size is the better metric to focus on over time which has generally stood in the $5 to $10M range.

Stage of Deals

With Spark Capital’s emphasis on early-stage companies, it’s not surprising that 68% of the company’s deal activity in the past year has been in Series A or seed stages. In fact, 92% of deals are Series B or earlier over the past two years. In fact, Spark’s seed-stage deal participation doubled from the previous year and Series B grew over 40%. The firm’s participation in late stage deals will likely change with the aforementioned $375M Growth Fund the VC raised last May for later-stage investments.

New and Follow-On Trends

In recent quarters, Spark Capital’s new/follow-on funding breakdown has approached a 50/50 split with a slight bias towards new funding. The firm’s bias to new funding will likely increase with the new funds they’ve raised. But expect follow-on investment share to remain significant as the firm’s Growth Fund will enable the firm to continue to follow-on into winners so that they can maintain all important pro-rata ownership (the importance of which was articulated by Fred Wilson of Union Square Ventures, a frequent co-investor with Spark Capital).

Investment Syndicates

Looking at Spark Capital’s investment syndicate dashboard, we see that SV Angel and Union Square Ventures are the firm’s top co-investors. We’ve previously dug into the tight syndicate relationship between USV and Spark, which shared investments in both Tumblr and Twitter. Interestingly, First Round Capital (co-investor in Warby Parker, Sincerely, Thalmic Labs) and Andreessen Horowitz (co-investor in Foursquare, Oculus VR, Priceonomics) have invested alongside Spark more recently in the past few years.

Interestingly, Spark also follows SV Angel’s and Union Square Ventures’ investments most often, at a rate of 1-3 companies each year. They also source dealflow from top angel investor Naval Ravikant and NY-based micro-VC Founder Collective.