Top seed and Series A dealmakers discuss the markets, traction, and management of their latest portfolio companies.
When a startup achieves a successful exit, its early-stage investors can be eager to pat themselves on the back. A common self-congratulatory tactic is the look-back blog post spotlighting all of the potential the VC saw in the exited startup from its earliest beginnings.
But hindsight is 20/20 and makes every smart decision seem inevitable in the rearview mirror. It’s riskier, from a reputation perspective, for VCs to share an in-the-moment look at why they invested in an early-stage startup now – when success is far from inevitable.
But some VCs do take that risk. We tracked down seven in-the-moment posts from prominent VCs talking about what drew them to a few of the last quarter’s notable deals.
Fred Wilson, Union Square Ventures
Total Funding: $3.52M
Select Investors: Techstars Ventures, Union Square Ventures, Joanne Wilson
Union Square Ventures participated in a $2.2M Series A in Q2’17 to Flip, a marketplace for flexible housing that makes it easier for tenants to sublet units or vacate leases. Flip handles every aspect of lease transactions, including all payments, document signings, and landlord approvals.
In a post on the USV blog, the firm noted that Flip is a market specific network in which “closing the loop of a transaction” – in this case, the sale or sublet of a lease – unlocks a network effect of benefits for users (ostensibly by making the lease-exchange market more fluid and data-driven with each transaction). USV’s investment thesis is entirely focused on networks.
“If you could construct a service for home rentals that would reconcile that conflict between life and lease, what would it look like? Probably like Flip.” –USV
Traction: USV says 15,000 people have listed rooms, apartments or houses on the Flip marketplace since 2016, and over 50,000 people have used it to search for homes in three markets so far (New York, LA, and San Francisco).
Management: In a companion blog post on AVC, USV founder Fred Wilson says his wife “Gotham Gal” Joanne Wilson (an existing investor in Flip) introduced Flip founders Susannah Vila and Roger Graham to his USV partner Andy Weissman. USV’s post lauded the founders’ mission to provide “seamless access to all housing for everyone, everywhere.”
Competitive landscape: Real estate tech has seen a steady increase in deals over the last few years, with over $2.6B in funding to the category across 277 deals in 2016. Aside from Flip, two other leasing- or rental-focused startups that closed early-stage raises in H1’17 include Rentalutions and Homepal.
Semil Shah, Haystack
Total Funding: $6.4M
Select Investors: Haystack Fund, Matrix Partners, Resolute Ventures
Semil Shah’s Haystack Fund closed an early-stage investment in CARMERA, a provider of real-time 3D maps and navigation-critical data for autonomous vehicles, in Q2’17. In a post on his blog, Shah says he met CARMERA founder Ro Gupta years ago, when Gupta was still on the founding team at Disqus, a blog comment hosting service. Gupta later called Shah in 2014 to introduce him to the CARMERA concept.
Gupta exposed Shah to the opportunity and “emerging trend” in V2V (vehicle-to-vehicle) communications: Prior to the discussion, Shah says he had yet to pay mind to the idea that autonomous vehicles must “communicate with other vehicles because decisions would need to be processed locally” by each vehicle’s respective software.
Traction: While Shah gave no specific examples of CARMERA’s business traction, the company has elsewhere highlighted its “symbiotic safety monitoring partnerships with high-coverage fleets.” CARMERA’s first product is now available for sale starting at $499.
Management: Shah prioritizes “people flow” – as opposed to deal flow – in his portfolio by sourcing opportunities through his pre-existing relationships with founders. He sees this deal as an example.
Competitive landscape: Auto tech funding surpassed $1B last year and reached a record high in deal count. With almost 300 companies in the CB Insights database working on connected cars and auto tech, Carmera has plenty of competitors in the V2V communications space, including Kymeta, Veniam, and Commsignia, as well in 3D mapping, including DeepMap, Civil Maps, and Lv15.
3. Element AI
Total Funding: $102M
Select Investors: Data Collective, Intel Capital, Microsoft Ventures, Tencent Holdings
Data Collective (aka ‘DCVC’) led a massive $102M Series A round into Element AI – a Montreal-based company that creates research-driven AI solutions for businesses – in Q2’17. The DCVC team shared thoughts on the investment in a long-form 1500-word post on Medium.
DCVC views Element AI as capable of creating applications “more quickly and cost-effectively than anyone else.” They’re also bullish on how Element AI’s cooperative platform and “non-predatory” approach to AI talent (in which academic researchers are paid like private employees) will accelerate AI innovation.
Traction: Thanks to Element AI’s many relationships with academic researchers, DCVC says the startup’s AI talent footprint is equitable to those of some of the largest tech companies in the world.
Management: Element AI’s co-founder, Dr. Yoshua Bengio, is considered one of the three founders of modern AI, according to DCVC. (Bengio previously built a “multi-hundred person renowned AI institute” at the University of Montreal.)
“At DCVC, we feel that Element AI is creating an endlessly renewable ‘natural resource’ for Canada by concentrating, training and professionalizing elite AI talent throughout Canada.” –DCVC
Competitive landscape: Funding and deals to AI startups has risen in each of the last four years and AI companies specifically focused on business intelligence & analytics have seen higher and higher deal count in recent quarters. Other early-stage AI startups operating in the AI-for-business niche include Saba Software and DataFox.
4. Julia Computing
David Frankel, Founder Collective
Total Funding: $5.2M
Select Investors: Founder Collective and General Catalyst
On Medium, David Frankel characterized Founder Collective’s investment in Julia Computing’s Q2’17 seed round as a deal “as close to the platonic ideal that I’m ever likely to see.” Julia Computing was founded in 2015 by the same team that launched Julia, a high-performance programming language for numerical computing, four years ago.
The Julia language has already achieved product-market fit as a free product for data scientists and analysts at quant hedge funds – a market that is willing to pay for the service and “desperately seeking a solution” like Julia. The next phase will be about moving forward with the freemium strategy: Since the Julia team has already nailed the Free side, Frankel says Founder Collective will “help them market the ‘Mium.’”
Traction: Julia is “wildly popular among the geekiest of the geeks, with 33K+ commits, 500+ contributors, and 40+ releases on Github.” Frankel also sees the startup’s location in Boston as giving them an “unfair advantage” in talent acquisition.
Management: Julia was bootstrapped and its team was disinterested in raising capital when Frankel met them, which Frankel attributes to their aversion to risk and loyalty to their product. He calls the founders “prudent decision makers” who are “confident in their ability to run lean.”
Competitive landscape: Julia founder Viral Shah says adoption at large tech companies has been slow because they “tend to have their own programming languages — Go at Google, Hack at Facebook, Swift at Apple, Java at Oracle, C# at Microsoft, or Rust at Mozilla.” The competitive landscape for Julia likely just got more heated with the news that Android now supports Kotlin, another upstart programming language developed by JetBrain. Media chatter about programming languages spiked recently since that news broke in May 2017, according to CB Insights’ trends tracker (available to clients only).
“Julia fits a pattern we see with many of the best companies in this mode (Github, Unity, etc.) which bootstrapped the early product development and only turned to investors when it was time to build premium offerings.” —Founder Collective
5. Deep Sentinel
Bilal Zuberi, Lux Capital
Total Funding: $7.4M
Select Investors: Bezos Expeditions, Lux Capital, Shasta Ventures
Following a stealth seed investment last year, Bilal Zuberi’s firm made a follow-on investment in Deep Sentinel’s $7.4M Series A in Q2’17. Zuberi detailed why Lux Capital “enthusiastically re-upped” in a post on Medium. Deep Sentinel aims to protect homes and neighborhoods using distributed hardware sensors, computer vision, deep learning and artificial intelligence.
Noting that property crimes tallied up $14B in losses in 2015, Zuberi calls home security a “multi-billion dollar market [with] a hungry audience” and says the industry’s “efforts to innovate leave a lot to be desired.” He says customers need “a security system that learns and gets better over time.”
Traction: Zuberi noted that Deep Sentinel’s patented camera+AI solution “detects anomalous behavior in the detection zone early, and predicts criminal activity before it occurs.”
Management: Zuberi had already been working with other companies using futuristic technology to build next-gen physical security solutions when he met serial entrepreneur David Selinger, CEO & co-founder of Deep Sentinel. Zuberi lauded Selinger’s career and experience as a product-focused entrepreneur. (Selinger previously founded Redfin and RichRelevance.)
Competitive landscape: CB Insights data shows that over 80 private companies in cybersecurity are using AI. Upstarts in Deep Sentinel’s smart home security space include Sunflower Labs and Sfty, both of which closed early-stage raises within the last year.
Total Funding: $9.5M
Select Investors: Greylock Partners
Announcing their firm’s $9.5M Series A investment in Obsidian Security, Greylock’s Asheem Chandna and Sarah Guo outlined how Obsidian helps enterprises adapt their security measures to the “new reality” of hybrid cloud environments. Obsidian Security is an artificial intelligence-focused startup.
Greylock says enterprises today “need security offerings that are more automated and require less work from defenders,” estimating that global spend on IT security products/services totals ~$70B. Obsidian addresses a “soft belly of enterprise security” in its niche focus on user account protection.
Traction: Greylock says the Obsidian’s people have “begun recruiting and product development, and are in conversations with prospective customer design partners.” Obsidian has three core product theses: “a modern machine learning approach, an architecture that fits today’s hybrid reality, and design for operational security efficiency.”
“As data and applications move into hybrid cloud environments, the surface area that enterprises need to protect continues to increase in both complexity and size.” –Greylock Partners
Management: Greylock’s announcement lauded the accomplishments of Obsidian’s “world-class founding team” of “product innovators and seasoned security practitioners.” The three co-founders – Glenn Chisholm (CEO), Ben Johnson (CTO), and Matt Wolff (Chief Scientist) – all “independently saw that user security was underserved” during their years at organizations such as Cylance, Carbon Black, Telstra, the NSA, and the CIA.
Competitive landscape: Cybersecurity is a booming sector attracting tons of VC interest this year, with this year on track to see a new high of 509 deals to the sector. Late-stage startups have secured the bulk of that dollar volume, and mega-rounds are a notable trend in Obsidian’s enterprise network security space: There have been four mega-rounds of $100M+ in cybersecurity this year, including Tanium, Crowdstrike, Netskope, and today Illumio. There aren’t too many early-stage startups operating in Obsidian’s enterprise user-account security niche, but a few that are addressing issues in the subspace include Adlumin and FusionPipe Software Solutions.
Jason Lemkin, SaaStr Fund
Total Funding: $74M
Select Investors: Accel Partners, Point Nine Capital, SaaStr Fund
SaaStr Fund participated in a $53M Series B to Algolia, provider of a hosted search API to user engagement and conversions, in Q2’17. While it wasn’t an early-stage deal. SaaStr’s Jason Lemkin points out on his blog that the fund has now invested in Algolia “thrice” – previously participating as the company’s first US venture investor and as a backer in their Series A.
Lemkin says Algolia presented superior unit economics in a “large but nonobvious market” from the beginning, and has closed many six-figure deals since his first investment. Algolia has now passed $10M in ARR and achieved “140% net negative churn and amazing brand awareness.”
Traction: 3,000 companies use Algolia’s “search-as-a-service” product and API, according to Lemkin, “including 100 SaaS leaders and companies from Stripe to Twitch to Twitter/Persicope to Really Big Tech Leaders They Can’t Talk About.” He says Algolia’s revenue is growing 100% YoY.
Management: Lemkin only invests in founders he thinks are “better” than him, which he says of Algolia’s CEO Nicolas Dessaigne. Dessaigne, who “had barely spent any of the prior round and didn’t need to,” approached Lemkin for advice about whether to pursue a Series B. Lemkin’s response:
“You are probably already halfway to an iconic company. Do whatever you think helps you get there even faster. Do it. I said let me know how I can help…. I’ll buy every share I can.”
Competitive landscape: Enterprise’s needs in big-data search and analytics are extensive, and companies including Swiftype, Attivio, and Elastic are all working to provide more robust software tools for search-related purposes. Algolia may benefit from its niche application serving e-commerce companies, which have seen strong investment activity this year: 2017 deal count to the e-commerce sector is expected to reach over 800 deals, which would make it the second most active year since 2013.