Crypto firm Pantera Capital is looking to raise up to $175 million for a new venture fund

Pantera Capital, which has made its mark in recent years by investing early and often in a wide variety of digital assets, is looking to raise up to $175 million for its third venture fund — an enormous jump from the $25 million it deployed for its second venture fund and its $13 million debut […]

Pantera Capital, which has made its mark in recent years by investing early and often in a wide variety of digital assets, is looking to raise up to $175 million for its third venture fund — an enormous jump from the $25 million it deployed for its second venture fund and its $13 million debut venture fund, which it closed in 2013.

Firm partner Paul Veradittakit says the target amount is a “function of how fast the space is moving, the talent coming in, the opportunities, and the sizing of rounds. With more interesting later-stage investments [on our radar], too, we want to be flexible and able to move with the market.”

Whether the firm closes with $175 million or another number is an open question. A newly processed SEC filing shows it has so far rounded up more than $71 million in capital commitments from 90 investors, an amount that Veradittakit calls a “first close.”

Certainly, Pantera is accustomed to managing meaningful sums of money. In addition to its venture funds, which are structured like most traditional venture funds — they feature a 10-year investing period, similar economics, and involve good old-fashioned checks to startups in exchange for some amount of equity — the firm is also juggling three other strategies.

As we reported last year, one of its newest funds is a hedge fund that’s focused exclusively on initial coin offerings. As firm founder Dan Morehead told us at the time, Pantera buys pre-sale ICOs, “basically getting a discount to the ICO price by getting in early, when it’s just a team and a white paper.” Meanwhile, Morehead had added, “We help provide the right connections, whether in terms of marketing or recruiting or business development.

The vehicle is evergreen, says Veradittakit, meaning it has an indefinite fund life that lets investors come and go.

The other two other funds that Pantera currently oversees are also structured like hedge funds. One is a Bitcoin fund that has attracted plenty of investors over the years, and returned a lot to them, too, according to the calculations of Morehead. In fact, he wrote two weeks ago that the fund, launched five years ago, has enjoyed a lifetime return of 10,136.15 percent net of fees and expenses.

The very last fund invests in cryptocurrencies that are already trading on exchanges — an approach that includes machine learning to algorithmically invest in crypotcurrencies, as well as allows for some discretionary input by Pantera’s top brass, which includes Morehead, Veradittakit, and Joey Krug, who joined Pantera last year after cofounding the market forecasting startup Augur. (It went on to orchestrate the first ICO on the ethereum network.)

Explains Veradittakit of this last pool, it’s for “if you are’t sure that Bitcoin will remain the dominant cryptocurrency, or you’re interested in other use cases that may arise, or you just want to build a diversified portfolio of assets that have asymmetrical returns as bitcoin, or maybe return even more because they feature lower valuations.”

In some ways, the venture efforts of Pantera —   which employs 38 people altogether in San Francisco and Menlo Park, Ca. —  may be its most challenging given the nature of VC. Investors in the asset class are typically willing to wait a handful of years for a firm to produce returns; in Pantera’s case, because it is betting exclusively on ventures, tokens, and projects related to blockchain tech, digital currency, and crypto assets, some of those returns could potentially take even longer.

Veradittakit doesn’t sound concerned. Rattling off some of Pantera’s venture investments to date, including in BitStamp, Xapo, Ripple, and Circle, not to mention more recent investments in Chain, Abra, Veem Polychain, and Z Cash, he sounds more like a proud parent. Pantera has invested in “lots of wallets and exchanges focused around the world, in Coinbases of different geographies, in enterprise-related blockchain companies. More recently, we’ve funded everything from big data to decentralized application platforms.”

It’s still very early days, he acknowledges. But “in terms of returns, there will be companies that create something completely disruptive. There will be M&A [opportunities] more often and that [come together] more quickly than other companies.”

If everything goes as planned, Pantera will be there when they do, and it will have more resources to deploy than ever.

Asian investors have plenty of cash, a hearty appetite for investments and a different approach to doing deals

If you’re being courted by Asian investors, you’ll need to adjust the VCs’ expectations. That can be a challenging task when the parties have different perspectives on appropriate management styles and levels of control.

The VC landscape has been shifting radically in the past few years as Asian investors pump cash into startups. Last year, Asian VCs invested 40 percent of the $154 billion in global venture financing, compared to a 44 percent stake for U.S. investors, according to a recent Wall Street Journal analysis.

Asian VCs largely fund companies close to home, but their portfolios are expanding to include U.S. businesses. That influx of capital can be a valuable lifeline for founders who need cash to fuel hiring, product development and growth.

Securing that money, however, demands cross-cultural sensitivities and negotiation skills more commonly exhibited by diplomats and ambassadors. American startup founders are often stunned to see how much control Asian investors demand in exchange for capital.

If you’re being courted by Asian investors — and it’s more likely than ever that you will be — you’ll need to adjust the VCs’ expectations. That can be a challenging task when the parties have different perspectives on appropriate management styles and levels of control.

Taking stock

Disparate expectations often arise because laws governing investments, disclosures and financing terms vary from country to country, and conventions can be different. Prospective foreign investors routinely question the need for rights that are customary in the U.S. and may dismiss specific venture capital lingo as unnecessary or irrelevant.

For example, conversion rights or registration rights appear to be arcane provisions that can be negotiated, but in the world of U.S. venture-backed companies, these are part of the overall deal structure and are expected by the stakeholders.

Doing deals

American founders have a similar knowledge gap when it comes to typical Asian deal terms. U.S. founders aren’t accustomed to putting their own assets on the line to secure financing, though this is common in Asia for early-stage founders. Similarly, American entrepreneurs are often shocked to see Asian VC term sheets that require founders to pay the investors a significant sum for deal-related expenses — a provision that is binding even if the deal is never completed.

Without an understanding of why Asian investors include this provision, this demand seems ludicrously overreaching. Its purpose is to ensure that all parties approach negotiations with focus and gravity. With a significant amount of money on the line, the reasoning goes, the parties are more motivated to reach accord. This stipulation is familiar in Asia, but I routinely delete it from term sheets during contract negotiations because it seems counterintuitive to reaching an arm’s-length agreement.

Shunning Asian capital may ultimately cost you down the line.

Remember that the Asian VC market, while explosive, is still in its infancy: Chinese-led venture funding has increased 15-fold since 2013, according to The Wall Street Journal. Because this market is so immature, investors aim to add language to term sheets that will give them an advantage.

It’s also typical to see term sheets that include full-ratchet anti-dilution protection and most-favored-nation clauses. But their ubiquity doesn’t mean founders must be stuck with them. I encourage would-be investors to embrace realistic expectations by reviewing deal point studies, which summarize the typical terms in recent deals. Most major law firms, including mine, produce their own.

Keeping your cool

If a financing term sheet contains troublesome or even outrageous terms, don’t take it personally. Task your lawyer with explaining to foreign prospective investors why the term sheet they provided is wildly different from typical U.S. deal terms. Leave the expression of deep disappointment to your counsel so your feelings won’t taint your relationship with the investors.

I recently provided this type of feedback to a group of would-be strategic investors from China. When they produced pages of unreasonable terms, I directed them to the model financing documents on the sites of the National Venture Capital Association (NCVA) and Series Seed. The forms from these neutral sources include typical terms and agreements drawn up by a group of investors, entrepreneurs, counsel and advisers. They need to be tweaked for each financing scenario, but they cover all the basics and beyond. In this instance, the Chinese investors reviewed this information and did some additional research. They then returned with far more conciliatory terms, which the founder ultimately accepted.

If you’re concerned that the need for negotiations and diplomacy with foreign investors will be time-consuming and distract you from your business goals, reconsider. Shunning Asian capital may ultimately cost you down the line.

Many Chinese VCs are well-connected, and a respectful, productive relationship with these investors can help you open doors to wealthy investor conglomerates eager to fund promising startups. Those connections can, in turn, lead you to larger, global markets that you could never have accessed otherwise.

Bumble announces a fund to invest in women-led businesses

Dating and networking app Bumble today announced the launch of Bumble Fund, a new vehicle focused on early stage investments specifically aimed at helping diverse, female entrepreneurs raise capital for their businesses. Sarah Jones Simmer, Bumble Chief Operating Officer, will lead Bumble Fund’s investment strategy along with Bumble Senior Advisor, Sarah Kunst, the company says. “Investing […]

Dating and networking app Bumble today announced the launch of Bumble Fund, a new vehicle focused on early stage investments specifically aimed at helping diverse, female entrepreneurs raise capital for their businesses. Sarah Jones Simmer, Bumble Chief Operating Officer, will lead Bumble Fund’s investment strategy along with Bumble Senior Advisor, Sarah Kunst, the company says.

“Investing in and empowering women in business is something that our founder and CEO Whitney Wolfe Herd is deeply passionate about and is at the very core of what Bumble stands for,” said Jones Simmer, in a statement about the fund’s launch. “Through Bumble Fund we’ll look not only to support those women leaders who have been largely ignored, but we’ll also demonstrate why those investments build smart, successful businesses.”

Bumble Fund’s initial commitments include one of the winners of Bumble’s first “Bizz Pitch” competition, Sofia Los Angeles, a swimwear company founded by Anasofia Gomez. Its other commitments so far include Mahmee, a health care platform for coordinating prenatal and postpartum care; Female Founders Fund, another early stage fund for backing female talent; BeautyCon, the digital media company and festival operator focused on the beauty industry; and venture fund Cleo Capital, also focused on female founders.

The new fund will make investments that range from $5,000 to $250,000, in companies that are headed by women and focus on women’s interests. Bumble has committed over a million so far, it says.

The team will also work to identify new, potential investments via Bumble’s own Bumble Bizz platform – the dating app’s business networking platform available within its flagship mobile app. The company will also find new founders to back through its future Bumble Bizz pitch competitions, it says.

The move could help bring more attention to Bumble Bizz, while giving the company a stake in promising companies. Bumble, however, only spoke of the need for more investment in female founders, not the other bottom line advantages to its own operations.

In a blog post, Bumble shared the fact that startups headed by women had only received 2% of all venture capital last year.

“For black, Latinx, and other women from underrepresented groups, that statistic is even more bleak,” the post explained. “Black women are both the most educated and most entrepreneurial demographic in the U.S., but received only 0.2% of all venture funding for their startups last year,” it noted.

Bumble, whose app now has over 37 million users worldwide and has an 85% female workforce, says it wants to help solve the problem of women being “largely ignored by the venture capital establishment” with this fund.

Bumble announces a fund to invest in women-led businesses

Dating and networking app Bumble today announced the launch of Bumble Fund, a new vehicle focused on early stage investments specifically aimed at helping diverse, female entrepreneurs raise capital for their businesses. Sarah Jones Simmer, Bumble Chief Operating Officer, will lead Bumble Fund’s investment strategy along with Bumble Senior Advisor, Sarah Kunst, the company says. “Investing […]

Dating and networking app Bumble today announced the launch of Bumble Fund, a new vehicle focused on early stage investments specifically aimed at helping diverse, female entrepreneurs raise capital for their businesses. Sarah Jones Simmer, Bumble Chief Operating Officer, will lead Bumble Fund’s investment strategy along with Bumble Senior Advisor, Sarah Kunst, the company says.

“Investing in and empowering women in business is something that our founder and CEO Whitney Wolfe Herd is deeply passionate about and is at the very core of what Bumble stands for,” said Jones Simmer, in a statement about the fund’s launch. “Through Bumble Fund we’ll look not only to support those women leaders who have been largely ignored, but we’ll also demonstrate why those investments build smart, successful businesses.”

Bumble Fund’s initial commitments include one of the winners of Bumble’s first “Bizz Pitch” competition, Sofia Los Angeles, a swimwear company founded by Anasofia Gomez. Its other commitments so far include Mahmee, a health care platform for coordinating prenatal and postpartum care; Female Founders Fund, another early stage fund for backing female talent; BeautyCon, the digital media company and festival operator focused on the beauty industry; and venture fund Cleo Capital, also focused on female founders.

The new fund will make investments that range from $5,000 to $250,000, in companies that are headed by women and focus on women’s interests. Bumble has committed over a million so far, it says.

The team will also work to identify new, potential investments via Bumble’s own Bumble Bizz platform – the dating app’s business networking platform available within its flagship mobile app. The company will also find new founders to back through its future Bumble Bizz pitch competitions, it says.

The move could help bring more attention to Bumble Bizz, while giving the company a stake in promising companies. Bumble, however, only spoke of the need for more investment in female founders, not the other bottom line advantages to its own operations.

In a blog post, Bumble shared the fact that startups headed by women had only received 2% of all venture capital last year.

“For black, Latinx, and other women from underrepresented groups, that statistic is even more bleak,” the post explained. “Black women are both the most educated and most entrepreneurial demographic in the U.S., but received only 0.2% of all venture funding for their startups last year,” it noted.

Bumble, whose app now has over 37 million users worldwide and has an 85% female workforce, says it wants to help solve the problem of women being “largely ignored by the venture capital establishment” with this fund.

With $40 million for AuditBoard’s risk and compliance toolkit, LA’s enterprise startups notch another win

Daniel Kim and Jay Lee, the two founders of AuditBoard, a Los Angeles-based provider of a risk and compliance software service for large businesses, grew up middle school friends in Cerritos, Calif. It was from their hometown Los Angeles exurb, that Kim and Lee first began plotting how they would turn their experience working for […]

Daniel Kim and Jay Lee, the two founders of AuditBoard, a Los Angeles-based provider of a risk and compliance software service for large businesses, grew up middle school friends in Cerritos, Calif.

It was from their hometown Los Angeles exurb, that Kim and Lee first began plotting how they would turn their experience working for PriceWaterhouseCoopers and Ernst & Young (respectively) into the software business that just managed to rake in $40 million in financing led by one of venture capital’s most-respected firms, Battery Ventures.

Kim, who had moved on from the world of the big four audit firms to take positions as the head of global audit at companies as diverse as the chip component manufacturer, International Rectifier and the surf and sportswear-focused clothing company, Quiksilver, had complained to his childhood friend about how little had changed in the auditing world since the two men first started working in the industry.

For Kim, the frustration that systems for accounting for risk and compliance — requirements under the Sarbanes Oxley Act passed in 2002, were still little more than Excel spreadsheets tracking information across different business lines.

He thought there had to be a better way for companies to manage their audit and compliance processes. So with Lee’s help, he set out to build one. The two men touted the company’s service and its ability to create an out-of-the-box system of record for all internal audit, compliance and risk teams.

“It had been ten years since I had left audit. I couldn’t believe there wasn’t a software for compliance and risk,” Lee said. “Companies still manage Sarbanes-Oxley in Excel.”

There are other tools out there, IBM has OpenPages and ThomsonReuters developed a tool for audit and risk and compliance, but these software services pre-dated Sarbanes-Oxley, and were not made with a modern organization in mind, according to Lee and Kim.

The company counts major clients like TripAdvisor, Lululemon, HD Supply, Express Scripts and Spirit Airlines, among its roster of customers and will use the funding led by Battery to further expand its sales and marketing and product development efforts.

“We were impressed with AuditBoard’s product and its customer traction. With more CFOs now turning to dedicated, cloud-based software tools for various tasks, from ERP to tax compliance to procurement, we see a big opportunity for AuditBoard to continue to grow,” said Michael Brown, a general partner with Battery Ventures and the latest board member on AuditBoard’s board of directors. “We have invested before in similar companies that sell technology to CFOs — ranging from Avalara* and Intacct* to Outlooksoft* and Bonfire*– and we are excited to partner with Daniel, Jay and their team, who have already built a significant business in a short amount of time.”

AuditBoard raised a small seed round from friends and family, and followed that up with Donnelly Financial Solutions, a strategic investor who partnered with AuditBoard in 2017 to further develop its Securities and Exchange Commission reporting and Sarbanes-Oxley toolkit.

Now, AuditBoard joins a growing list of Los Angeles business-focused software companies that are beginning to scale dramatically in the city.

Long known for its advertising, marketing, and entertainment technology companies, large business-to-business software vendors are cropping up across the Los Angeles region. In addition to AuditBoard’s big round, companies like ServiceTitan, which raised $62 million in funding through an investment round led by Battery Ventures earlier in the year, are also making a splash in the Los Angeles business tech scene.

Earlier big rounds for companies like InAuth, the security firm; Factual, a location-based targeting service; PatientPop, the management tool for physicians offices; RightScale, a cloud management and cost optimization service; and Oblong Industries, a collaboration and computer interface developer, all speak to the breadth of the business-to-business talent that’s emerging from Hollywoodland.

 

Startups should read this checklist before they go “whale hunting” for big partners

David Frankel Contributor David Frankel is a managing partner at Founder Collective. More posts by this contributor You earn a million dollars a year and can’t get funded? Dear auto entrepreneurs, please think outside the gearbox A top four tech company recently approached the CEO of one of our B2B portfolio companies with a tremendous […]

A top four tech company recently approached the CEO of one of our B2B portfolio companies with a tremendous offer. This company, with buy-in from its world-famous CEO, believes the startup’s core technology could help them catch up to a rival in an incredibly important space and wanted to discuss a $20M investment on extremely favorable terms. This partnership would allow the startup to grow 10X in a year and would provide invaluable validation.

The founder was elated. I was terrified. This kind of deal is a classic “whale hunt,” and most of the startups who engage in them are doomed to end up like Captain Ahab.

While it’s immensely gratifying to receive this kind of validation from a market leader, the startup is at an early and important developmental stage. I’ve seen many promising startups blown up by ill-advised business development deals that swelled teams in a bout of euphoria only to see them wither if interest and focus from their partner wanes.

In my experience, arrangements that pair a behemoth megacorp with a Seed/Series A stage startup have a success rate well below 50%. I didn’t tell the founder to decline the offer outright, but I did suggest that the management team consider a few questions before pursuing it.

How much MRR will it add to your business? The project with the large company is in line with the startup’s long-term vision, but it’s a departure from their current focus. A $20M investment is very nice indeed, but once that money is spent, what will the ongoing revenue be? And what is the opportunity cost of not supporting the current business plan? What discount rate will you apply to compensate for the small probability of this deal working out? My advice was that if he couldn’t satisfactorily answer those questions, it was probably the right move to turn the deal down. Even if the deal was structured as $20M in revenue rather than equity I’d hesitate.

How, in detail, will this project help your core business? There’s an argument for entering into an agreement like this even if the immediate revenue contribution is low. If the project will allow the startup to speed up the development of a core technology that is generally applicable to other customers, it would seem far more worthy of consideration but beware our human ability to rationalize (first and foremost to ourselves).

These projects more often end up as bespoke development engagements where despite the initial intention, the startup is producing a custom application for the big co. Founders will rationalize the deviations from their product roadmap, but ultimately sell out their future for a long-shot opportunity to integrate with a worldwide leader.

My advice is to not think magically about product/market fit, and instead, to try pre-selling it to other customers as a form of market development. If you can sell the product, great! If not, you’re probably using venture capital to subsidize the R&D budget of a company worth hundreds of billions of dollars.

What happens if this doesn’t work out? It’s easy to visualize success, but what happens if the deal doesn’t lead anywhere? In this scenario, imagine the big tech company decides to change its priorities and abandons the initiative. SaaS startups face a similar failure mode when they go to great lengths to impress big companies during pilot programs only to see their project die due to lack of interest. When considering a high-risk, high-reward partnership, founders need to spend time envisioning a gruesome demise.

● What will your pitch be for a bridge round of financing when you have no revenue, you just came up short during a prolonged engagement with the best possible customer in your industry?

● How will you reassure your most talented team members that you know what you’re doing when the deal fails, and capital is running short?

● How quickly can you reorient the company to focus on other customers and how quickly will you start generating revenue from them?

Image courtesy of Flickr/Felipe Campos

How well do you understand the Big Company? Founders with little exposure to big companies are susceptible to misreading cues. My partner Eric Paley wrote about how entrepreneurs regularly misread their likelihood of getting funding from VCs, and the pattern is similar with this kind of business development deal.

When I started an ISP in South Africa in the 1990s, I had the chance to pitch the executive team at the country’s equivalent to Walmart . We were talking about the upcoming Olympic Games, which they were sponsoring. I asked if they were bringing their biggest customers to the events. One of the VPs looked at me, bewildered, and said: “Your mother may well be our biggest customer.”

I instantly realized they didn’t have big customers; they were a big customer. Their suppliers took them to the Games and fancy dinners. I felt silly at the moment but learned a valuable lesson about B2B power dynamics. Here are some other dynamics to be cautious of:

Are You Aware of the Work Pace Differential?

Startups measure their survival quarter to quarter while big companies plan in five-year increments. It’s often shocking how slowly big company partners move on everything from email to product roll-outs. Decisions made by gut feel at startups have to navigate a maze of meetings and committees at a big company. Startups often drown in the number of process leviathans require to make the smallest of improvements.

Who are the Internal Champions?

Promising projects can die on the vine because the internal champion gets reassigned or leaves the company. Successful partnerships will involve multiple high-level people from the larger organization. They also typically involve the startup being paid a fair market rate or are paired with a strategic investment to help defray the burden of non-recurring expenses. If not, beware.

Most sponsors will say their project is critical to the company, but it’s the startups CEO’s job to check that out. Founders should reference the opportunity in the same way they would reference an investor. This kind of deal is often an all or nothing bet on your company, don’t make it too blithely.

Is the Project a Priority for the CXO/VP?

Partnerships between startups and big companies work best when it solves the problem of a VP or CXO level executive. Below that level, we’ve seen startups spend large sums and risk their future on what amounts to a proof of concept project for a mid-level director with no real juice.

This is especially common with startups who sell to retailers. Theoretically, the brick and mortar shops need a bulwark against Amazon, but in reality, we’ve seen many of them default to more focused on protecting their physical retail turf rather than truly investing in online sales. They’ll run pilots to assure investors that they have their eye on the future when in reality the efforts are more PR than a business plan.

Do you Understand Big Company Logic?

A $20M investment to a small startup is a massive deal. For a big company, it’s essentially the size of an acquihire and can be shut down with no repercussions. In the context of a half-billion dollar company, $20M bets actually fail far more than a startup may appreciate.

Are you competing with another startup?

Is this project a “bake-off” where multiple companies are competing? The most dangerous kind of whale hunting is when a startup is competing with one or more competitors to win a large book of business. Founders considering this kind of arrangement should give serious thought to skipping the process and building out a less concentrated revenue base with fewer impediments while your competitors fight to the death.

Do you have a deep bench of vetted candidates ready to be hired? Founders often underestimate the challenge of growing 3-5X in short order. Every successful startup has to do this, but it usually happens more organically over time. The kind of business development deal our portfolio CEO is considering will change the company overnight.

Entrepreneurs need to ask if they have a long list of former co-workers, peers, vetted candidates eager to join their company? If not, massively scaling the company to meet the demands of a major partner will likely lead to sub-par hires to fill an urgent need while slowly poisoning the company’s culture. Money is rarely the most challenging part of hiring. Hiring fast when you control your destiny is hard enough, doing so in an uncertain arrangement can be very detrimental.

Beyond hiring, it’s important to view a partnership through the lens of Activity Based Costing.

How much time will this take up? 50%? 80%? More? Will you have to drop existing customers or products to make the project work? Are you still able to grow the business outside of this partnership or is it genuinely all-consuming?

Are You Ready for the Hunt?

If you can answer these questions confidently, then you may be ready to go whale hunting. When these projects work, they can be the first domino in a cascade that leads to growth and good places. More often, it results in a startup spending a year and a large chunk of its capital on a high-risk business development deal that more often fails to pan out. Chart your course accordingly.

Supergiant VC rounds aren’t just raised in China

In the venture capital market, big is in. Firms are raising significant sums to finance a growing number of large startup funding rounds.

In the venture capital market, big is in. Firms are raising significant sums to finance a growing number of large startup funding rounds.

In July, there were 55 venture rounds, worldwide, which topped out at $100 million or more, totaling just over $15 billion raised in nine and 10-figure mega-rounds alone. This set a record for venture dealmaking.

We’ve already identified approximately when the uptick in huge VC rounds began: toward the tail end of 2013. But where in the world are all the companies raising these supergiant venture capital rounds?

In response to coverage of July’s record-breaking numbers, many commenters were quick to point out that startups based in China raised six of the top 10 largest rounds from last month.

Indeed, on a recent episode of the Equity podcast discussing the supergiant round phenomenon, Chinese startups’ position in the market was a hot topic of conversation. Someone suggested that a series of large venture rounds in China may have preceded the run-up in supergiant rounds being raised by U.S. startups.

At least in the realm of nine and 10-figure venture rounds, that doesn’t appear to be the case. The chart below breaks down the monthly count of supergiant rounds by the company’s country of origin.

Here is what this data suggests:

  • The first major run-up in nine-figure dealmaking took place in the U.S. around Q1 2014, whereas in China that first run-up didn’t occur until Q4 2014.
  • Especially in the last 24 months or so, supergiant round volume in China and the U.S. is highly correlated, perhaps implying competition in the market.
  • We can see, very clearly, the mini-crash in the U.S. through the second half of 2015. For its part though, China hasn’t yet had a serious “crash” in supergiant rounds during this cycle.
  • Startups outside the U.S. and China are beginning to raise supergiant rounds at a faster rate, although the uptick is significantly less dramatic.

What’s less obvious in the chart above is just how quickly China became a mega-round powerhouse. The chart below plots the same data as above, except this format shows what percent of mega-rounds originated in each market. Additionally, rather than displaying somewhat noisy monthly amounts, we aggregated data in six-month increments.

After the start of 2013, it only took a couple of years for Chinese companies to consistently account for roughly 30 to 40 percent of the $100 million-plus VC rounds raised in any given six-month period.

This also reinforces a trend shown in the prior chart: since the beginning of 2017, Chinese startups and U.S. startups are raising roughly the same number of supergiant venture rounds as one another. That number has risen fairly consistently over time.

Before concluding, it’s worth mentioning that our definition of “supergiant” is ultimately arbitrary. Indeed, $100 million is just a tidy, round-numbered threshold to measure against. Our findings would be similar (if somewhat less dramatic) if we counted, say, the set of rounds raising $50 million or more.

The important underlying trend is that round sizes are getting larger on average. And a supergiant wave of money ultimately lifts all rounds, at least a little bit.

Stay up to date with recent funding rounds, acquisitions and more with the Crunchbase Daily.

Wonderschool raises $20M to help people start in-home preschools

Educators already don’t get paid enough, and those that work in preschools or daycares often make 48% less. Meanwhile, parents struggle to find great early education programs where kids receive enough attention and there’s space, but they don’t need special connections or to pass grueling admissions interviews to get in. Any time there’s a lousy […]

Educators already don’t get paid enough, and those that work in preschools or daycares often make 48% less. Meanwhile, parents struggle to find great early education programs where kids receive enough attention and there’s space, but they don’t need special connections or to pass grueling admissions interviews to get in.

Any time there’s a lousy experience people have an emotional connection to and spend a lot of money on, there’s an opportunity for a startup. Enter ‘Wonderschool‘, a company that lets licensed educators and caretakers launch in-home preschools or daycares. Wonderschool helps candidates get credentialed, set up their programs, launch their websites, boost enrollment, and take payments in exchange for a 10 percent cut of tuition. The startup is now helping run 140 schools in the SF Bay, LA, and NYC where parents are happy to pay to give their kids an advantage.

That chance to fill a lucrative gap in the education market has attracted a new $20 million Series A for Wonderschool led by Andreessen Horowitz . The round brings the startup to $24.1 million in total funding just two years after launch. With the cash and Andreessen partner Jeff Jordan joining its board, Wonderschool is looking to build powerful lead generation and management software to turn teachers into savvy entrepreneurs.

Finding good childcare has become one of the most difficult experiences for families. I’ve seen parents who are making a livable wage in urban cities like San Francisco and New York still struggle to find and afford quality childcare” says co-founder and CEO Chris Bennett. “We wanted to deliver a solution for parents that also had the potential to create jobs and empower the caregiver — that’s Wonderschool.”

By spawning and uniting programs across the country, Wonderschool could scale as the way software eats preschool. But without vigorous oversight of each educator, Wonderschool is also at risk of a safety mishap at one of its franchises ruining the brand for them all.

Airbnb For Schooling

Wonderschool started when co-founder Arrel Gray was having trouble finding childcare for his daughter close to home. “My little sister went to an in-home preschool, so I suggested he check them out” says Bennett. “But he wasn’t very satisfied with the options – the majority were full and some didn’t meet the expectations for his family. We also found that they didn’t use the internet much so they were hard to find and contact.”

The two were seeking to pivot their social commerce startup Soldsie after Facebook algorithm changes curtailed its growth. Their research led to the discovery of just how much lower preschool and daycare workers’ wages were. “When we had the idea we thought, ‘what the best way to test this?’ Why don’t we start a preschool ourselves'” says Bennett. “So we rented a home in the Berkeley Hills, hired an amazing educator, set up a school and started one. The school ended up being a huge success. Five-star reviews on Yelp. A high NPS. Parents loved the place.” It also netted the teacher a 3X higher salary than before.

With that proof, Wonderschool went on to raise $4.1 million from Josh Kopelman at First Round Capital, Omidyar Network, Cross Culture Ventures, Uncork Capital, Lerer Ventures, FundersClub, and Edelweiss. That let Bennett and Gray flesh out the business. Wonderschool would recruit existing teachers and caregivers or guide people to get licensed so they could become “directors” of in-home schools. Wonderschool acts almost like Airbnb by turning them into small businesses earning money from home.

Teachers can pick whatever schedule, curriculum, or format they want, like Montesori or nature-focused learning. Wonderschool now has over 500 directors working with its software, with some making as much as $150,000 or $200,000. In exchange for its 10 percent cut of tuition, Wonderschool provides directors with a “bootcamp” to prep them for the job. It pairs them with a mentor, then helps them build their website and figure out their pricing options. Coaching guides train the directors to scout for new leads, offer appealing tours, and track their fledgling business.

The $20 million from Andreessen, OmidyarGary Community Investments, and First Round will go to expanding the Wonderschool software. Each student slot it can help director fill, the more it earns. The startup will also have to compete with  companies like Wildflower Schools, which Bennett admits has a similar business model but he says “We are focused on in home and they also focus on Montessori while we are curriculum agnostic.” There’s also Cottage Class which powers homeschooling for students up to age 18, Tinkergarten that concentrates on short-term outdoor education, and VIPKid connects kids in China with U.S. teachers over video chat.

They, like Wonderschool, are trying to scale up to meet the massive existing demand. “The challenge is that there aren’t enough programs for the number of children needing public or private schooling – 1st grade or earlier – and our goal is to provide enough supply for every child” Bennett explains.

Still, safety remains a top concern. Bennett notes that “Wonderschool has a support team that helps school Directors prepare their homes for operation. With regard to safety, each state’s licensing office covers this in their approval process for being granted a license to operate.” But could a problem at one school shake the businesses of all the rest of its franchises? “We have a system of checks in balances in place that we feel confident would allow us to anticipate any potential issues, including regular, weekly check-ins with Directors and a feedback loop with parents. We also email parents on a regular cadence to get feedback from parents and we step in and work with the Director if we find that there are issues” Bennett insists.

If Wonderschool can keep its brand clean through thorough oversight, it could both create better paying jobs in a field rife with undercompensated heroes, and open early schooling to a wider range of students. Bennett’s parents moved to the U.S. from Honduras, pouring their efforts into supporting his and his sister’s education. Now he’s building the next generation of teachers the tools to give more kids a head start in life.

Cowboy Ventures just rounded up $95 million for its third fund

Cowboy Ventures, the early-stage venture firm launched in 2012 by longtime VC Aileen Lee, has lassoed $95 million in capital commitments for its third fund, up from the $55 million that it raised for its second fund and more than twice what it raised for its $40 million debut fund. That investors are doubling down […]

Cowboy Ventures, the early-stage venture firm launched in 2012 by longtime VC Aileen Lee, has lassoed $95 million in capital commitments for its third fund, up from the $55 million that it raised for its second fund and more than twice what it raised for its $40 million debut fund.

That investors are doubling down on the firm isn’t a surprise, given its track record. The firm’s very first check was to Dollar Shave Club, which sold in 2016 for a reported $1 billion to Unilever. Other early exits include the sale of the nutrition coaching app Rise to One Medical for a reported $20 million; and the sale of the cloud monitoring firm Librato to SolarWinds for $40 million.

More recently, Accompany, a business intelligence startup that drew an early check from Cowboy, sold in May to Cisco for $270 million. (It had raised roughly $40 million from investors.) Tenor, a GIF platform that also received early backing from Cowboy, sold to Google in March (for undisclosed terms). Another Cowboy portfolio company, the smart lock maker August, sold to the Swedish lock giant Assa Abloy last fall (also for undisclosed terms).

Cowboy is a generalist fund that is managed by Lee and Ted Wang, a startup attorney for many years with Fenwick & West who joined as a general partner in January of last year. The outfit added an associate, Samantha Kaminsky, earlier this summer. Among its current bets is the consumer goods company Brandless, the cybersecurity company Area 1 Security and the mobile linking platform Branch.

The team typically invests in between six to 10 companies each year, writing initial checks on average of $1 million. Its biggest bet to date is on Guild Education, a Denver-based tech-education startup that partners with employers, including Walmart, to offer education as an employee benefit, right alongside healthcare. The company, which closed on $40 million in new funding just two weeks ago, also happens to be the biggest bet to date of another firm that just closed its newest fund, Felicis Ventures.

In a quick exchange earlier this week, we talked with Lee about Cowboy and the market more broadly. (We’ll also be talking onstage with her about this at TC’s upcoming Disrupt show.)

We asked where Cowboy is shopping right now, for example, and she said some areas include back-office tech, including startups that are transforming unglamorous tasks like tax accounting, sales ops and scheduling that can be transformed by modern software; “learning loop software” that builds on prior experiences and on underlying data; and startups that are building tech that’s aligned with improving users’ physical and mental health.

We also asked whether she had concerns about the very long bull market the tech industry has been experiencing, and it sounds like she does as it pertains to “increasing valuations, size of rounds, and dollars going into venture.”

In fact, Lee said Cowboy has turned “extra cautious” with its investment pace over the past year, given that both Lee and Wang have lived through previous cycles.

“It worries me we’re meeting with more startups than ever who are thinking about raising a $4 million seed round,” she said. “Four million dollars is what we used to call a Series A not too long ago. We don’t think bigger and more expensive rounds starting at seed stage will set companies and cultures up for long-term success and could also depress returns for everyone on the cap table.”

Still, on the whole, Lee sounded optimistic, both about longer-term startup trends, and about the venture industry as a whole. Perhaps unsurprisingly, she thinks there is little to stop new technology companies from impacting every industry and creating new opportunities for many, while “possibly displacing traditional jobs,” she said. “We just have to work harder to make new technology jobs accessible to the widest set of people possible,” she added.

Lee — who this spring co-founded All Raise, a nonprofit founded by 34 female investors that’s dedicated to diversity in funders and founders — also said she expects the venture-backed startup industry to look fairly different five to 10 years from now, and in a good way.

“I hope and expect because of demographic shifts, the influence of founders and employees, organizations like All Raise, and because diversity is proven to deliver better results that” the ecosystem will change for the better, she said. “We’ll have greater gender balance, and we’ll have more people from historically underrepresented groups in positions of power.”

If you’re curious to learn additional details, Lee and Wang have written a bit more about their new fund and its intentions here.

RiskRecon’s security assessment services for third party vendors raises $25 million

In June of this year, Chinese hackers managed to install software into the networks of a contractor for the U.S. Navy and steal information on a roughly $300 million top secret submarine program. Two years ago, hackers infiltrated the networks of a vendor servicing the Australian military and made off with files containing a trove […]

In June of this year, Chinese hackers managed to install software into the networks of a contractor for the U.S. Navy and steal information on a roughly $300 million top secret submarine program.

Two years ago, hackers infiltrated the networks of a vendor servicing the Australian military and made off with files containing a trove of information on Australian and U.S. military hardware and plans. That hacker stole roughly 30 gigabytes of data, including information on the nearly half-a-trillion dollar F-35 Joint Strike Fighter program.

Third party vendors, contractors, and suppliers to big companies have long been the targets for cyber thieves looking for access to sensitive data, and the reason is simple. Companies don’t know how secure their suppliers really are and can’t take the time to find out.

The Department of Defense can have the best cybersecurity on the planet, but when that moves off to a subcontractor how can the DOD know how the subcontractor is going to protect that data?” says Kelly White, the chief executive of RiskRecon, a new firm that provides audits of vendors’ security profile. 

The problem is one that the Salt Lake City-based executive knew well. White was a former security executive for Zion Bank Corporation after spending years in the cyber security industry with Ernst & Young and TrueSecure — a Washington DC-based security vendor.

When White began work with Zion, around 2% of the company’s services were hosted by third parties, less than five years later and that number had climbed to over 50%. When White identified the problem in 2010, he immediately began developing a solution on his own time. RiskRecon’s chief executive estimates he spent 3,000 hours developing the service between 2010 and 2015, when he finally launched the business with seed capital from General Catalyst .

And White says the tools that companies use to ensure that those vendors have adequate security measures in place basically boiled down to an emailed check list that the vendors would fill out themselves.

That’s why White built the RiskRecon service, which has just raised $25 million in a new round of funding led by Accel Partners with participation from Dell Technologies Capital, General Catalyst, and F-Prime Capital, Fidelity Investments venture capital affiliate.

The company’s software looks at what White calls the “internet surface” of a vendor and maps the different ways in which that surface can be compromised. “We don’t require any insider information to get started,” says White. “The point of finding systems is to understand how well an organization is managing their risk.”

White says that the software does more than identify the weak points in a vendor’s security profile, it also tries to get a view into the type of information that could be exposed at different points on an network,

According to White, the company has over 50 customers among the Fortune 500 who are already using his company’s services across industries like financial services, oil and gas and manufacturing.

The money from RiskRecon’s new round will be used to boost sales and marketing efforts as the company looks to expand into Europe, Asia and further into North America.

“Where there’s not transparency there’s often poor performance,” says White. “Ccybersecurity has gone a long time without true transparency. You can’t have strong accountability without strong transparency.”