Paris-based VC firm Ventech is raising a new fund


Ventech has been around for 20 years, which is the equivalent of 80 years in tech time. And the VC firm is still going strong as it just announced the initial closing of a new fund. The firm has raised $170 million (€140 million) and wants to reach the $250 million hard cap (€200 million) within a few months.

And Ventech isn’t going to reinvent the wheel. The firm plans to do more of the same with seed and Series A investments in Europe. As the name suggest, Ventech is looking for tech investments in general. You can expect investments that range between €0.5 million and €15 million ($18.6 million).

Recent notable investments include StickyADS.tv, Vestiaire Collective and Webedia. Over the past 20 years, the firm has handled 120 investments, which led to 60 exits including 15 IPOs. That’s quite a good ratio.

Ventech Capital V represents the fifth European fund for the firm. Ventech has also raised multiple funds in China.

Behind the scene, Ventech relies exclusively on European institutional investors and family offices. You won’t find any big industrial company in the list of limited partners.

Ventech Europe has partners in Paris, Munich and Helsinki. If you’re creating a startup in one of those areas, chances are they want to hear from you. Many portfolio companies have opened offices in the U.S., so the firm knows how to enter the U.S. market too.

Featured Image: Richie Chan/Shutterstock

Do good companies ICO?

There has been a veritable explosion in the use of initial coin offerings (abbreviated ICO, sometimes also referred to as a token generating event or TGE, or a WTFLOL) to fund startups. Calculating the total investment in these offerings is complicated, but Coindesk puts the total right now at about $3.8 billion cumulatively, with the bulk invested in 2017.

That total volume pales in comparison to overall venture funding, which was approximately $41 billion last year and has hit highs of as much as $60 billion. But it is much more in line with early-stage VC funding, with some analysts suggesting that total ICO volume is now higher than angel and seed financing.

For many founders, there is now a clear fork in the road for financing their companies: continue along a traditional venture capital fundraise path, or find a way to jam tokens into their business and raise capital through an ICO. This week in San Francisco, I was surprised by just how many founders seem to be thinking about exactly this decision, even if capital fundraising wasn’t necessary in the short-term. Inevitably, the question would be asked: which should I choose?

John Biggs has covered how to properly raise an ICO before on TechCrunch, and he has some great advice for going that direction. But too often we get swept up in tactics when we should really be focused on strategy. A few major factors are important — around signaling, governance, user engagement, and general risk — and are worth considering before making the decision.

Signaling

Like Vatican-watchers during a conclave or newly graduated transit planners, venture capitalists are obsessed with signals. Signals, otherwise known as heuristics, allow VCs in an information-deprived environment like a startup ecosystem to try to glean what is “really happening” about a startup, without directly asking a founder.

Unfortunately, there are few chasms as wide as the perceptions of ICOs between founders and VCs.

VCs will talk about “signaling risk” to describe everything from taking seed money from a large venture fund to putting together a party round without a lead. Conveniently, the signals that VCs explain to entrepreneurs always seem to line up perfectly with their fund strategy, while making every other VC firm look like a bad option.

Signals are in many ways hogwash, but they should not be ignored. Venture capitalists are fragile creatures, and a single bad signal can be the difference between investing in a startup and ignoring it entirely.

Unfortunately, there are few chasms as wide as the perceptions of ICOs between founders and VCs. Traditional venture capitalists have — with some exceptions such as Sequoia, A16Z and Union Square Ventures — largely eschewed ICOs as a legitimate path of funding.

The VCs I have talked to in recent weeks have repeatedly emphasized that their worst companies are now prepping ICOs, given that they have limited hope of raising from traditional VCs. There is also a general impression that companies that attempted to raise venture capital 6-12 months ago are now launching ICOs, indicating that those who failed to fundraise are choosing an alternative path.

This creates a dilemma for a founder. An ICO may be a perfectly legitimate option that perfectly matches their startup’s business model. But conducting an ICO may send a negative signal to traditional equity investors that they failed at fundraising and therefore are choosing the next best alternative.

The way out of this situation is two-fold. First, every decision that a founder makes is going to be a positive or negative signal to some venture capitalist. At the end of the day, deep pragmatism is required since founders just need to raise capital for their businesses to keep the lights on and the employees paid. So, if you have a shot at traditional venture capital, go ahead and take that route first. The negative signaling only works in one direction — ICO investors (at least for now) don’t seem to care that startups have failed to fundraise on Sand Hill.

Second, VCs love success, and want to back successful founders. Launching an ICO may be a risk, but it is also an opportunity to show how well a company can run the operations required to maximize their return in the ICO. That negative ICO signal only lasts until the money — that beautiful, non-dilutive financing — starts to roll into a startup. So while there is negative signaling risk of talking about an ICO, there is definitely the potential for positive signaling upon successful completion.

Governance

In the traditional model of venture capital, a partner at a VC firm will invest capital into a business while becoming a director on that startup’s board. Like preferred shares, mandating a board seat is a safety valve to ensure that the firm’s capital is prudently spent.

ICOs completely eschew this notion of corporate governance. Buying tokens does not provide the buyer (in most circumstances) with any governance rights of any kind. A company can literally ICO one day and disappear the next, an event that has actually happened in the past few weeks.

For founders, few things are as attractive in the ICO model than the ability to maintain control of their companies. Indeed, when the topic of an ICO has come up in my conversations, most founders actually emphasized the benefits of governance as their number one consideration, rather than the ability to get more capital into their business.

While mediocre boards can harm a company, the flip side is also true: great boards can help steer a company to fantastical returns.

I think it is worth stepping back and asking why we are in this situation. Vinod Khosla, as is his wont, years ago posited that venture capitalists, on average, add negative value to the company. Certainly that is the perception among founders, who find it highly annoying that a group of people mostly uninvolved in a company show up once a quarter to berate the management team then send the costs of their trip back to the company for payment. Even worse, as generalists, VCs are often not even the most qualified board member available.

For founders looking to avoid governance, it might be time to do some serious soul-searching. What exactly is the fear of having a board? Is it the fear of getting fired, or being held accountable? Is it just the annoyance of all of it? While mediocre boards can harm a company, the flip side is also true: great boards can help steer a company to fantastical returns. Like every part of company building, there is an opportunity for gains and losses depending on the quality of the people you work with.

In my mind, the ideal scenario is an ICO, but coupled with a concerted search for the best board member(s) available to help drive the vision of the company. That keeps the CEO and founders in charge, but also forces them to ask what kinds of skills might be helpful for the company, and also show some level of humility that they might not always know the answers.

User engagement

Among financing options for companies, ICOs are fairly unique in their relatively democratic operation. Not since Google’s IPO in 2004, which used a Dutch auction model allowing retail investors to join in, have everyday people had the option to jump into a company’s cap table so easily and reap the potential growth of that startup. That might lead to irrational exuberance and extreme losses, but it should also be perceived as a tremendous re-opening of the capital markets beyond just a few elite investors.

In the world of VC, harassment claims aren’t necessarily a deal killer


A storm fueled by greater awareness about sexual assault and harassment has been gaining momentum in the U.S., ever since a former Uber engineer named Susan Fowler hit “publish” on a post about her jarring experience inside the high-flying ride-share company. So many man have been swept up – and out – of their respective businesses for behaving badly that Time magazine pronounced the powerful social campaign #metoo and the people behind it as “Person of the Year.” 

Silicon Valley has hardly been immune. In the world of venture capital, two of the highest-profile poster boys for this uprising (as of this writing) are venture capitalists Steve Jurvetson, formerly of the venture firm DFJ, and Shervin Pishevar, who cofounded the firm Sherpa Capital and has, in recent days, taken a leave of absence from the outfit.

While seemingly devastating body blows for their respective firms, institutional investors with whom we’ve spoken and who asked not to be named in this story say they remain interested in superstars like Jurveston if they’re able to repair their reputations.

If not, they say, plenty of family offices will rush to fill the void.

“I’m a bright line person,” says one investor (or limited partner, in industry parlance), who isn’t an investor in either DFJ or Sherpa Capital. “If you’re legally accused of a crime, that’s one thing.”  But “I’m not doing [my job as an institutional investor] for social justice,” adds this person. “I do that in my philanthropy.”

Says another LP who, like the first, has stakes in a wide number of venture firms but not in DFJ or Sherpa: “Are some of these VCs forever unbackable, or unbackable until the dust settles? As an LP, it’s easier to say right now, ‘I have a fiduciary duty to my investors’ [and pass]. But a family office doesn’t have to answer to anyone, and if they think Steve is a great investor, shit, they’ll give him money. They understand he hasn’t raped anyone.”

Indeed, while there’s no shortage of outrage in Silicon Valley about powerful men who wittingly or otherwise take advantage of younger founders, behind the scenes there is growing concern – on the part of returns-seeking LPs, in any case – that every situation involving a VC and a founder is being painted, perhaps unfairly, in black and white.

Step aside

From the outside looking in, Pishevar’s situation may make it far harder for institutional investors to bet on him in the future. Last week, Bloomberg published a piece featuring five unnamed women who say Pishevar has used his position of power to pursue romantic relationships and unwanted sexual encounters.

Yesterday, a sixth woman, speaking with Axios, said Pishevar misled her into being alone with him in an elevator in December 2011 after a charity event; there, says the entrepreneur, Laura Fitton, he aggressively kissed her. She also said she followed him to his room, having been told a group of attendees were reconvening there in the late hours, but she found the two of them alone, where he made further unwanted advances before she fled.

These accusations follow Pishevar’s arrest in May, at a hotel in London, after a woman accused him of raping her. Police said Pishevar was “released under investigation” and never charged.

Pishevar didn’t respond to a request for comment for this story. His attorney, Randa Osman of Quinn Emanuel Urquhart & Sullivan, has told media outlets that he “unequivocally and categorically denies any improper behavior toward Ms. Fitton.” Pishevar has also filed suit against a GOP political opposition research group that he alleges was conducting a smear campaign against him.

Pishevar cofounded Sherpa in 2013 with Scott Stanford, a former banker with Goldman Sachs. The firm, which had raised two funds totaling $470 million just last year, reportedly began seeking out $400 million for a new fund this fall.

Three days ago, Pishevar announced that he was taking a leave from Sherpa, along with the transportation company Virgin Hyperloop One, which he also helped found, and other company boards. Said Pishevar in a statement: “This was a decision I came to and proposed on my own accord.”

The move seemingly puts the firm’s investors in a bind. None responded to our requests for comment yesterday, but the career LPs we spoke with note that a leave of absence is highly rare in the world of VC. A fund formation expert meanwhile tells us that a leave of absence usually owes to a medical issue or happens “when general partners are voting another general partner off the island.”

New terrain

In fact, investment documents between venture capitalists and their own investors – called limited partner agreements — don’t address leaves of absence or sabbaticals. That leaves Sherpa’s LPs with roughly three options: suspend the fund, in which case Stanford would work with Sherpa’s LPs on a new game plan that could potentially involve bringing in a new venture investor; terminate Sherpa’s active funds, which would require a supermajority of the firm’s LPs to demand that any uncommitted capital be returned to them and potentially for the firm to liquidate its current positions; or let things ride for now and see how this plays out.

The first option “burns a lot of time, brain cells, and money with legal,” notes one LP. The second is extremely hard to pull off given that a “supermajority” requires three-quarters of investors, who can be hard to corral.

There’s also the question of whether Pishevar would want Sherpa to continue on were he to leave it permanently. Says one LP, “Did investors invest behind Shervin or Scott? And if they invested in Shervin” – whose rise in the industry can be traced to an early investment in Uber – “given his big personality, would he want the fund to go with just Scott?”

Steve Jurveston — an even-better known venture capitalist who has been a VC far longer and backed a greater number of winners, including Tesla, SpaceX, and Planet – is in somewhat of a different category, say LPs.

Though Jurvertson recently left his job at DFJ in the wake of an investigation into sexual harassment, the circumstances for his apparent ouster were rather different. According to Recode’s sources, the investigation “uncovered behaviors by Jurvetson that were unacceptable related to a negative tone toward women entrepreneurs.”

As part of DFJ, Jurvetson was also alleged to have been part of a “predatory culture” toward women at the firm by a founder with whom Jurvetson had a relationship, according to a source. In October, the founder, Keri Kukral, warned founders about DFJ on Facebook, adding in subsequent comments to her post that her experience was not in a professional context.

Partner Heidi Roizen came to DFJ’s defense almost immediately in the wake of Kukral’s accusations. Soon after, two former junior investors at DFJ who are women wrote on Medium that not only had they never experienced sexism at DFJ, but they credited Jurvetson specifically for their career success , writing: “The fact that we are in leadership positions in the industry today is a testament to Steve and DFJ cultivating an environment where women advance professionally.”

Soon after, Jurvetson not only left DFJ but he has taken a leave of absence from the boards of SpaceX and Tesla boards, pending resolution of the allegations.

Judgment calls

Jurvetson declined to comment for this story. DFJ also declined to comment. Further, we were unable to speak with DFJ’s LPs. But playing armchair quarterback, the LPs with whom we spoke suggest that Jurvetson’s absence weakens DFJ, which also parted ways with cofounder Tim Draper in 2013. (Draper has gone to mint many millions of dollars off some early and prodigious bets on Bitcoin.)

These LPs also suggest that whether or not Jurvetson is able to completely clear his name, that unless another shoe drops, there are plenty of people willing to give him capital to manage. They they see his failings as personal and not professional.

“You’re going to have people who’ve made one mistake in their lives, and they’re going to get hung for it, but those aren’t the people we should be talking about,” observes one investor. “It’s the people who’ve demonstrated serial, predatory behavior.”

Another LP points to the cases of Michael Goguen and Joe Lonsdale, two VCs who in recent years were accused by former lovers of being abusive. Last year, Goguen, who had spent 20 years with Sequoia Capital, was sent packing by the firm a day after his accuser filed an explosive lawsuit against him. (Goguen subsequently filed a countersuit and has largely remained out of view at his home in Montana.)

Lonsdale, who in early 2015 was accused in a civil lawsuit of sexual assault and banned from Stanford, where he’d mentored his accuser, was able to rebound after both the suit and ban were dropped, the result of new evidence that came to light during the litigation process.

He has since raised roughly $500 million from investors, but says one LP who we spoke with yesterday, “If that lawsuit happened today, Joe might have been chased of the industry.”

Some VCs are “assholes who I wouldn’t want to meet for dinner,” adds this person. “But I do think there are some assholes who are good investors.” Meanwhile, a “lot of people are getting killed before there’s resolution.”

The loss of first check investors


Victor Basta hit a nerve with his article on TechCrunch last week describing the “implosion” of venture capital over the past 36 months. Using PitchBook data, he found that the total number of VC rounds committed to startups has declined from 19,000 in 2014 to 10,000 estimated for this year, even while dollars invested has remained mostly static.

Silicon Valley is no longer making it rain so much as it is making it trickle, and that makes it much harder for startup founders who are just trying to get going building their companies. My conclusion is that we have a massive “first check problem” that goes beyond the vagaries of the investment market.

First though, let’s go through some alternative explanations. Basta posits that the end of the app and SaaS booms are largely to blame, along with a drop off in investment in fintech.

Union Square Ventures investor Fred Wilson added his own two cents over the weekend, writing that “When I talk to my friends who do a lot of angel investing, I hear that they are being more selective, licking some wounds, and waiting for liquidity on their better investments.” Similarly, “When I talk to my friends who started seed funds in the past decade, I hear them thinking about moving up market into larger funds and Series A rounds.” Wilson’s conclusion is that “For investors, it means seed rounds are going to be the place to be.”

There is some truth that investors are moving upstream. I analyzed a list of top angels and early-stage investors from 2012 to see how some of the highest-flying players in the Valley have changed their careers over the past five years.

The most common pattern is simply that highly-successful angels now have their own institutional funds or have joined well-established VC firms in the Valley. Kevin Hartz joined Founders Fund last year, Keith Rabois joined Khosla, Shervin Pishevar founded Sherpa Capital in 2013, Joe Lonsdale put together the ill-fated Formation8 in 2011 before launching 8VC in 2015. And of course, Marc Andreessen and Ben Horowitz converted a very successful angel investing career into one of the top mega funds of the Valley.

And a huge number of that list of top investors also expanded the size of their funds. Take Garry Tan, for example. He founded Initialized Capital in 2011 with a $7 million first fund, but last year closed on a $115 million vehicle for the firm’s third fund. That’s the story at a lot of places, from accelerators like Y Combinator or 500 Startups, to former super angels like Jeff Clavier, whose newly rechristened Uncork Capital (formerly SoftTech VC) increased its fund size from $12m ten years ago to $100 million last year.

Indeed, going through that list from five years ago, I had expected to find a bunch of people who had backed away from investing. There are definitely a few who are investing less today according to Crunchbase, but the reality is that success has begot success, and the most influential investors have largely remained so. So the cause for the implosion isn’t that a bunch of top investors suddenly decided to go home.

Instead, I see the challenge being purely the friction in the earliest round of a startup, what might be called the “first check problem.” Wilson is right when he says that seed investors are being more selective. As angels investing their own capital have professionalized by raising institutional dollars, they have added more and more steps to their due diligence process.

Founders I have spoken to who have recently fundraised — some of whom are on their second or third company — have told me that the level of diligence at the seed stage seems to have increased significantly over the past few years. Outside the blockchain space, where there is that “Wild West” throw-money-at-everything vibe, the days when you could load up on capital by just having a deck and a bold presentation seem to be closing.

That’s probably good on a risk-adjusted financial basis, but is devastating for a startup ecosystem. Indeed, there is a huge gap in the market for first check investors, the investor who believes in you the founder before any other data or proof is available. Being the first check in a company used to be a deep badge of honor for angel investors, but I have heard that boast less and less over the past five years. Everyone wants more data and evidence, everyone wants to reopen the last round rather than to lead the next one. So founders wait, and hustle, and try to construct a round as best they can. That friction shows up directly in the numbers.

There is still plenty of capital for great companies. Indeed, if you can build an extraordinary company, it has never been easier to go from single-digit millions to single-digit billions in valuation in a shorter period of time. But almost all startups start out ordinary before they become extraordinary, and without those first checks, they will never be able to make it.

Featured Image: Paul Heaberlin/Flickr UNDER A CC BY-SA 2.0 LICENSE

Do VC woes extend to portfolio companies? For Rothenberg, probably not


As VC brands go, Rothenberg Ventures has seen better days.

The firm built up a reputation as an up-and-coming early-stage investor a few years ago, based on bold bets on virtual reality, a flashy marketing strategy and its well-connected namesake and founder, Mike Rothenberg. Between 2012 and 2016, the San Francisco firm participated in funding rounds for more than 100 early-stage companies, commonly investing alongside top-tier VCs.

But Silicon Valley soured on Rothenberg Ventures last year, amid charges that its founder spent beyond his means, failed to pay staff and misappropriated investor funds for a side project. Lawsuits ensued, along with a name change (since changed back), an SEC investigation and a lot of unflattering profiles casting the now 33-year-old Rothenberg as a sort of modern-day Gatsby.

So it hasn’t been a good year for Mike Rothenberg. But what about the Rothenberg Ventures portfolio?

In an effort to see how firm- and investor-specific scandals might affect portfolio companies, Crunchbase News took a look at the performance of Rothenberg Ventures-backed startups. We looked at exits and up rounds, as well as closures and apparent down rounds.

Overall, the Rothenberg portfolio seems to be doing well. It’s seen multiple exits at what appear to be favorable returns, a lot of up rounds and not too many high-profile flops. It probably helps that most portfolio companies had a number of other investors. The vast majority that raised cash from Rothenberg Ventures did so as part of a larger investor syndicate, and those startups weren’t relying on the firm as a major provider of follow-on capital.

With that in mind, here’s what the portfolio looks like now.

Exits

At least 13 Rothenberg-backed companies have gone on to exit, according to Crunchbase data. Point-of-sale systems company Revel Systems sold a majority stake to private equity firm Welsh, Carson, Anderson & Stowe.

All of the exits were through acquisitions, and most of those exits involved early-stage companies selling for undisclosed amounts. Typically, Rothenberg was a non-lead investor in a syndicate for these startups. Most had raised a few million dollars prior to exit, though a few had raised larger rounds.

A couple of acquisitions involved companies that had already stopped offering their services.

Generally speaking, if an early-stage company that is not known to be in distress gets acquired, backers make money. This seems to be the pattern for most of the Rothenberg portfolio company acquisitions to date. The list includes Sweet IQ Analytics, a provider of local search tools that sold to Gannett; Payable, a provider of software for paying contractors that sold to Stripe; and Propeller, a platform for updating apps that sold to Palantir. One of the few deals with a disclosed price was a celebrity-heavy investment, Hello Giggles, a women-focused online media startup that sold to Time for $30 million in 2015. (You can view the full list of acquisitions here.)

A couple of acquisitions involved companies that had already stopped offering their services. AltspaceVR, a social VR platform closed over the summer, was snapped up by Microsoft in October. And Luxe, a valet parking app, had also shut down before it sold to Volvo in September.

So far, the firm’s big bets on virtual reality have yet to produce lucrative exits, though some have raised follow-on rounds, which we’ll look at next.

Up rounds

Seed investments take a long time to mature, so it’s not surprising to see the majority of viable portfolio companies still in follow-on fundraising mode.

To date, the Rothenberg portfolio has a number of companies that have gone on to raise much larger follow-on rounds, presumably at marked-up valuations. We assembled 30 of them here.

The portfolio includes some unicorns. Mike Rothenberg said there are three companies in the portfolio that have surpassed the $1 billion valuation mark, but did not name them. It seems clear looking at the firm’s list of investments that one unicorn is RobinHood, the zero-commission platform for buying stocks, which raised its last round at a $1.3 billion valuation. The firm is a non-lead investor and one of at least 28 known backers.

The biggest exits and biggest flops are probably yet to come.

It’s unclear whether SpaceX counts as one of the unicorns. Rothenberg invested in a 2012 Series D, but SpaceX already had a multi-billion dollar valuation at the time, (although its value has since multiplied). We couldn’t identify an additional potential unicorn, so probably we either missed it or it’s a company whose billion-plus private valuation hasn’t been publicly disclosed.

There were also a number of companies that raised early-stage funding from Rothenberg that have secured significantly larger follow-on rounds in the past couple of years. Some of the bigger ones are Patreon, an online platform for sponsoring artists; 8i, a VR software developer; Andela, a tool for finding African tech talent; and Rinse, a garment care service.

Flops

Most seed-stage startup efforts don’t end in success, so we’d expect that any firm operating this stage for a few years would have some flops.

Rothenberg is no exception. Crunchbase turned up a few portfolio investments that raised small sums a few years ago and have since closed, like Butter, an app for making new friends; Buttercoin, a Bitcoin startup; and Bloodhound, an app for managing leads at trade shows. There are certainly more, though putting together a full list is challenging, as many startups prefer to quietly fade away rather than officially announce their closure. Also, seed investors commonly don’t disclose all their micro-investments, particularly for stealth startups.

The firm’s most high-profile potentially troubled asset is River Studios, a virtual reality production house Rothenberg launched in 2015. The investment came under fire last year, with Wired and other publications reporting that River hadn’t been properly green-lit by investors, lost money and was behind on rent.

The current status of River Studios is unclear. Its blog hasn’t been updated since mid-2016, and there are no open positions listed on its site.

Takeaway

Overall, the takeaway seems to be that Rothenberg Ventures’ downturn hasn’t extended to its portfolio companies in a meaningful way.

The firm’s performance seems similar to those of other funds of a similar vintage and approach. That is, it’s largely what we would expect from a well-connected Silicon Valley angel or VC participating in large investor syndicates for hot seed and early-stage startups in hot sectors. Rothenberg was somewhat of an outlier in its heavy focus on virtual reality, a sector that continues to attract reasonable funding but has yet to produce fat exits. VR hasn’t produced any big outcomes for Rothenberg, either — yet.

Given the long-time horizons that seed-stage startups require to mature, however, it’s still early innings for the bulk of the portfolio. The biggest exits and biggest flops are probably yet to come.

Featured Image: iStockPhoto / honglouwawa