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May 24, 2019
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Sapphire Ventures

Startups Weekly: Even Gwyneth Paltrow had a hard time raising VC

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I spent the week in Malibu attending Upfront Ventures’ annual Upfront Summit, which brings together the likes of Hollywood, Silicon Valley and Washington, DC’s elite for a two-day networking session of sorts. Cameron Diaz was there for some reason, and Natalie Portman made an appearance. Stacey Abrams had a powerful Q&A session with Lisa Borders, the president and CEO of Time’s Up. Of course, Gwyneth Paltrow was there to talk up Goop, her venture-funded commerce and content engine.

“I had no idea what I was getting into but I am so fulfilled and on fire from this job,” Paltrow said onstage at the summit… “It’s a very different life than I used to have but I feel very lucky that I made this leap.” Speaking with Frederic Court, the founder of Felix Capital, Paltrow shed light on her fundraising process.

“When I set out to raise my Series A, it was very difficult,” she said. “It’s great to be Gwyneth Paltrow when you’re raising money because people take the meeting, but then you get a lot more rejections than you would if they didn’t want to take a selfie … People, understandably, were dubious about [this business]. It becomes easier when you have a thriving business and your unit economics looks good.”

In other news…

1. Joseph Gordon-Levitt is an entrepreneur, too

The actor stopped by the summit to promote his startup, HitRecord . I talked to him about his $6.4 million round and grand plans for the artist-collaboration platform.

  1. Deals of the week

Backed by GV, Sequoia, Floodgate and more, Clover Health confirmed to TechCrunch this week that it’s brought in another round of capital led by Greenoaks. The $500 million round is a vote of confidence for the business, which has experienced its fair share of well-publicized hiccups. More on that here. Plus, Clutter, the startup that provides on-demand moving and storage services, is raising at least $200 million from SoftBank, sources tell TechCrunch. The round is a big deal for the LA tech ecosystem, which, aside from Snap and Bird, has birthed few venture-backed unicorns.

  1. The Pinterest IPO is really, actually happening

Pinterest, the nine-year-old visual search engine, has hired Goldman Sachs and JPMorgan Chase as lead underwriters for an IPO that’s planned for later this year. With $700 million in 2018 revenue, the company has raised some $1.5 billion at a $12 billion valuation from Goldman Sachs Investment Partners, Valiant Capital Partners, Wellington Management, Andreessen Horowitz, Bessemer Venture Partners and more.

  1. Fundraising efforts

Kleiner Perkins went “back to the future” this week with the announcement of a $600 million fund. The firm’s 18th fund, it will invest at the seed, Series A and Series B stages. TCV, a backer of Peloton and Airbnb, closed a whopping $3 billion vehicle to invest in consumer internet, IT infrastructure and services startups. Partech has doubled its Africa VC fund to $143 million and opened a Nairobi office to complement its Dakar practice. And Sapphire Ventures has set aside $115 million for sports and entertainment bets.

  1. Sam Altman has a new idea

The co-founder of Y Combinator will throw a sort of annual weekend getaway for nerds in picturesque Boulder, Colo. Called the YC 120, it will bring toget her 120 people for a couple of days in April to create connections. Read TechCrunch’s Connie Loizos’ interview with Altman here.

  1. Hims gets unicorn status

Consumer wellness business Hims has raised $100 million in an ongoing round at a $1 billion pre-money valuation. A growth-stage investor has led the round, with participation from existing investors (which include Forerunner Ventures, Founders Fund, Redpoint Ventures, SV Angel, 8VC and Maverick Capital) . Our sources declined to name the lead investor but said it was a “super big fund” that isn’t SoftBank and that hasn’t previously invested in Hims.

  1. a16z bets on VR — again

Five years after Andreessen Horowitz backed Oculus, it’s leading a $68 million Series A funding in Sandbox VR. TechCrunch’s Lucas Matney talked to a16z’s Andrew Chen and Floodgate’s Mike Maples about what sets Sandbox apart.

Here’s your weekly reminder to send me tips, suggestions and more to kate.clark@techcrunch.com or @KateClarkTweets

  1. More startup cash:

  1. An update on the Munchery fiasco

In a new class-action lawsuit, a former Munchery facilities worker is claiming the startup owes him and 250 other employees 60 days’ wages. On top of that, another former employee says the CEO, James Beriker, was largely absent and is to blame for Munchery’s downfall. If you haven’t been keeping up on Munchery’s abrupt shutdown, here’s some good background.

  1. Scooter consolidation

Consolidation in the micromobility space has arrived — in Brazil, at least. Not long after Y Combinator-backed Grin merged its electric scooter business with Brazil-based Ride, it’s completing another merger, this time with Yellow, the bike-share startup based in Brazil that has also expressed its ambitions to get into electric scooters.

  1. Listen to me talk

If you enjoy this newsletter, be sure to check out TechCrunch’s venture-focused podcast, Equity. In this week’s episode, available here, Crunchbase editor-in-chief Alex Wilhelm, TechCrunch’s Silicon Valley editor Connie Loizos and Jeff Clavier of Uncork Capital chat about $100 million rounds, Stripe’s mega valuation and Pinterest’s highly anticipated IPO.

Contentful raises $33.5M for its headless CMS platform

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Contentful, a Berlin- and San Francisco-based startup that provides content management infrastructure for companies like Spotify, Nike, Lyft and others, today announced that it has raised a $33.5 million Series D funding round led by Sapphire Ventures, with participation from OMERS Ventures and Salesforce Ventures, as well as existing investors General Catalyst, Benchmark, Balderton Capital and Hercules. In total, the company has now raised $78.3 million.

It’s only been less than a year since the company raised its Series C round and as Contentful co-founder and CEO Sascha Konietzke told me, the company didn’t really need to raise right now. “We had just raised our last round about a year ago. We still had plenty of cash in our bank account and we didn’t need to raise as of now,” said Konietzke. “But we saw a lot of economic uncertainty, so we thought it might be a good moment in time to recharge. And at the same time, we already had some interesting conversations ongoing with Sapphire [formeraly SAP Ventures] and Salesforce. So we saw the opportunity to add more funding and also start getting into a tight relationship with both of these players.”

The original plan for Contentful was to focus almost explicitly on mobile. As it turns out, though, the company’s customers also wanted to use the service to handle its web-based applications and these days, Contentful happily supports both. “What we’re seeing is that everything is becoming an application,” he told me. “We started with native mobile application, but even the websites nowadays are often an application.”

In its early days, Contentful also focuses only on developers. Now, however, that’s changing and having these connections to large enterprise players like SAP and Salesforce surely isn’t going to hurt the company as it looks to bring on larger enterprise accounts.

Currently, the company’s focus is very much on Europe and North America, which account for about 80% of its customers. For now, Contentful plans to continue to focus on these regions, though it obviously supports customers anywhere in the world.

Contentful only exists as a hosted platform. As of now, the company doesn’t have any plans for offering a self-hosted version, though Konietzke noted that he does occasionally get requests for this.

What the company is planning to do in the near future, though, is to enable more integrations with existing enterprise tools. “Customers are asking for deeper integrations into their enterprise stack,” Konietzke said. “And that’s what we’re beginning to focus on and where we’re building a lot of capabilities around that.” In addition, support for GraphQL and an expanded rich text editing experience is coming up. The company also recently launched a new editing experience.

SAP’s SAP.io Foundry debuts the graduates of its second women-focused accelerator

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SAP, the German-based enterprise software giant, has unveiled the New York-based cohort from its SAP.io Foundry accelerator programs focused on women-led technology companies.

The first program was launched in San Francisco in July 2017, and while the company has launched additional accelerator programs in Berlin and Tel Aviv (with plans for a Paris accelerator in the Fall), it’s SAP’s San Francisco and New York programs that have a specific focus on women and founders of color, according to Vanessa Liu, a vice president in charge of the New York program.

“The first one launched last summer, with San Francisco that was in July. Berlin launched in the fall with TechStars as a partner, Tel Aviv launched with The Junction,” Liu said. 

The partnerships with Techstars in Berlin and The Junction in Tel Aviv were designed solely to gain exposure to those markets, while the San Francisco and New York programs focused on diversity — as well as building out the SAP network among startups.

The Foundry accelerator programs are independent from the company’s $35 million Foundry fund, according to Liu. Companies that progress through the program give up no equity and receive no capital. Rather, the companies involved get access to the SAP network of partners and customers and the companies various technical and support services, Liu said.

“This is more about how do you work together with SAP and customers like GE, Coca Cola, and Stanley Black & Decker,” said Liu. 

For the New York cohort that demoed their wares yesterday, eight of the nine companies that participated were also based in New York, with one group of founders making the trek up from Georgia for the program.

And while there’s been no instance yet where companies that graduate from the accelerator receive a capital commitment later from the Foundry fund, Liu did not rule out the possibility.

That Foundry fund typically will invest between a quarter of a million and one million dollars into companies focused on machine learning, big data, and other enterprise software related applications. Checks are typically $250,000 at the seed stage increasing to $1 million as a company grows into a Series A investment.

In some ways, Liu said, the Foundry fund was a way for SAP to build on the work it had done with startups through its (now independent) Sapphire Ventures fund. That had been the vehicle SAP had previously used to connect with the startup world and early stage tech companies and entrepreneurs.

“We’re definitely not the first to market,” said Liu. “But we’re looking at it not just only in making investments and thinking about how to do that but it’s also about cultivating investments and making sure that we do that right.”

For the Foundry accelerator programs in the U.S. doing it right means focusing on gender and racial diversity. The criteria for the program is that at least one c-suite executive and member of the founding team be female. And of the nine companies in the cohort, only two companies were admitted where women were not serving in the chief executive role, Liu said.

These are the executives and companies that went through the SAP.io Foundry Accelerator in New York.

Tongtong Gong, founder and COO of Amberdata, a provider of monitoring and analytics for blockchain infrastructure and smart contract applications.

Margaret Martin, founder and CEO of CN2, a software service that transforms the CAD, 3D and 2D content they create everyday into compelling mobile X-Reality (AR+VR=XR) applications.

Ariadna Quattoni and Paul Nemirovsky, founders of DMetrics, which enables non-developers to build machine learning algorithms to extract insights from any text, in mere hours, and with zero coding.

Kate Brandley Chernis, co-founder & CEO of Lately, is selling a machine learning-based marketing dashboard to provide more consistent marketing messages across large platforms.

Shirley Chen, founder & CEO of Narrativ, sells a contextually relevant smart linking and ad placement technology

Lisa Xu, co-Founder & CEO of Nopsec, a provider of threat prediction and cyber risk remediation solutions for enterprises to prevent security breaches.

Jade Huang, co-founder & CEO of StyleSage,  which enriches product listings with attributes and then maps those products to eCommerce sites.

Jag Gill, founder & CEO of Sundar, a software service connecting apparel brands and retailers with suppliers of textiles, raw materials and garments.

Susan Danziger, Co-founder and CEO of Ziggeo, an embeddable video recorder/player that captures video and provides insights.

A candid talk with investors who fund VCs about Binary Capital and much more

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On Wednesday night, at the Autodesk Gallery in San Francisco, this editor sat down with Michael Kim of Cendana Capital and Elizabeth “Beezer” Clarkson of Sapphire Ventures. I’d invited these fund of fund managers to a small industry event as they’re two of very few limited partners — meaning people who give VCs money to invest — who speak publicly about their work.

Typically, these investors, called LPs, prefer to operate in the shadows so they won’t be inundated with pitches by venture firms looking for capital. But they also refrain from raising their hand because they are “sheep,” said Kim, whose firm has stakes in SoftTechVC, Lerer Hippeau Ventures, and roughly two dozen other firms.

Noting that many LPs work for institutions like pension funds and universities and have investment committees to answer to, he borrowed the old catchphrase that “no one ever got fired for buying IBM,” meaning LPs often prefer to write checks to established firms rather than gamble on up-and-comers. (For good measure, Kim also called his LP peers “not that smart, typically.”)

It was that kind of conversation, to the crowd’s delight. More outtakes from our chat with Kim and Clarkson — whose bets include Data Collective, August Capital, and Point Nine Venture in Berlin — follows here.

TC: Let’s start with sexual harassment, an issue that rocked Silicon Valley this summer. How does it happens that someone with the reputation of investor Justin Caldbeck is  able to raise a fund — and continue to raise funds? 

MK: First, Cendana invests in seed funds; we did not invest in [the fund Caldbeck cofounded] Binary, which is a Series A fund. But I would have to say that when I heard about the story, I was thinking, ‘It finally came out. ‘

Those topics were out in the market for at least two years, and I know a lot of reporters were looking into it, they just couldn’t get people to go on record. I think that Reed [Albergotti, the reporter who broke the Binary story] was able to [persuade his sources to speak up] represents a sea change in terms of how people are viewing the topics around this, and it’s a great thing.

TC: So LPs knew.

MK: I would say a lot of LPs probably didn’t know, because I don’t think most LPs do their work and they don’t do their due diligence. If they’d scratched the surface, it would have been very obvious to them.

TC: Beezer, what do you think?

BC: I think Michael is right about there being a sea change. Over the summer, you had so many people coming forward about Binary, and what was going on in some [other] portfolio companies – there was suddenly pre all that and post all that, and the nice thing is that I now have people saying, “I would probably have never told an LP before, but I want to tell you X. ”

This information is now connecting, and I credit that to the fact that before, questions may not always have been asked, but also people didn’t always answer. Now, there are conversations you can have that you couldn’t before, and dialog is changing at every level. Companies are acting differently,  VCs are acting differently, and while I can’t speak for every LP, I think LPs have a license now to ask questions that are uncomfortable, and I think people are more likely to answer them fully.

TC: What part of this saga surprised you most?

MK: What was shocking was that [follow-up] New York Times article where [one of Binary’s investors] Legacy Venture said they knew about [Caldbeck’s reputation], yet they invested. They are actually really good guys and their mission, since they are a little bit older, was to donate all their carry to charity. For people of that experience and reputation to say on record, it’s total stupid but also unbelievable that they would go ahead with that [investment in Binary].

Part of the sea change is that before, they didn’t think it was a Big Deal. Now people are probably thinking, okay, that’s a major red flag.

TC: What sort of off-road due diligence do both of you do to find out more about your fund managers?

MK:  We invest in a lot of first time fund managers. We invested in Kirsten Green at Forerunner, committing $10 million to her – we were the first to commit to her – she basically had a $3 million pool of capital that a hedge fund gave her, so how do you diligence something like that? Well, we called each portfolio company. We called the guys at [eyewear company] Warby Parker and asked them, “If she had a $40 million fund, would you have let her lead the deal?”

So we talk with founders. We have our own advisory board. And we hear a lot of scuttlebutt. Now that we have 20-plus GPs that we can talk with, as well. Leveraging your network is what it is.

BC: I had a GP say to me recently, “I heard you’re still doing reference calls, and you invested in me three years ago,” and I was like, “Oh, I’m always going to do reference calls.” I want to hear the good things. Listening for bad things is part of it, too. But the idea is, markets change and who is a great seed investor one day may not be the next day. Or, if someone is moving into Series A stage deals, it’s like, okay, well who’s growing up, or what kinds of deals are people doing, or who likes what? So references need to keep going.

TC: VCs are bringing on more women, slowly. They appear to be paying more attention to the demographics of their portfolio company CEOs. What’s happening at the LP level? Do you feel compelled to look at more diverse venture teams or are you in the business of making money, full stop?

MK: The pool of great entrepreneurs is substantially more diverse than it was in the ’50s and ’60s, so VC firms have to have [general partners] who can relate to people. One easy way that people think about this is: we need younger GPs to work with these twentysomethings, because some 60-year-old from Sequoia might have more difficulty relating. So I think we’re seeing the silent hand of the market play a role in getting VC firms to bring on GPs with this more diverse group of entrepreneurs.

TC: But can you imagine an institution putting down its foot and saying, Andreessen Horowitz or Accel — firms that I’m sure are talking with women but don’t have a female GP right now —  would any LP said, “Nope, we’re not funding those guys”?

BC: It’s possible that some LPs would and others would not. There’s a ton of money that’s looking that’s getting into venture funds and LPs come in so many different forms all over the globe that it’s hard [to generalize]. But I still don’t think it takes a rocket scientist to realize that diversity is better. There are umpteen studies that show this, so it’s a bizarre concept to think that at a tech startup, this isn’t also true.

TC: Are you being pitched by more women creating their own funds?

BC: More women are starting funds, which is great. But the funds they are starting are smaller. You see a lot at the seed level, then you look at women at the Series A and B and C level [firms] and [their numbers] rapidly diminish, so the question is how do you pull that up? And if everybody is starting a $5 million fund, it’s just going to take a really long time. So the question is how do you stand up a Series A fund that has diversity. I would like to see more.

TC: The industry is changing so fast. Do you worry about threats to your own business? What about AngelList, which has begun forming small venture funds but presumably has plans to help launch bigger ones down the line? 

BC: I like that [AngelList is] democratic. Not everyone [has access to capital]  and there are theories out there that great GPs aren’t happening because they don’t happen to know wealthy families. So I think AngelList and the ability to get seed capital to do angel deals is really interesting and could provide some more ways of getting people launched.

It’d be interesting to see a Series A fund get launched that way. I think we have a little bit of time.

MK: It’s a hard question to answer. If I knew the answer, I’d be doing something about it.

I love [AngelList cofounder] Naval [Ravikant]. I think he’s a genius; he’s done a lot of creative things. But I don’t think AngelList is a meaningful thing. They can point to the number of dollars they’ve raised, but ultimately people are using it to top off rounds of probably not-great companies. I mean, he can point to companies like Uber or Cruise automation [both deals involved investors who used AngelList to help fund their investments in the companies]. Both I think the GPs we work with don’t think it’s [so disruptive].

TC: I think it’s fair to say you will not be receiving holiday cards from some people this year.

MK: Maybe so. [Laughs.]

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