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Under The Hood: How Early Netflix And Zillow Investor TCV Uses A Crossover Strategy To Fund Growth Companies

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TCV (Technology Crossover Ventures) has been investing in private and public technology companies for the past 26 years, a time horizon that’s given it the benefit of perspective.

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The Menlo Park, California-based firm was one of the first investors in Netflix and Zillow, but perhaps more notable than the success of its early bets is its penchant for playing the long game with its portfolio companies, some of which it continues to invest in after they’ve gone public.

picture of Neil Tolaney, general partner at TCV
Neil Tolaney, general partner at TCV

With that in mind, we spoke with Neil Tolaney, a general partner at the firm, about growth stage investing, the firm’s new $4 billion fund, and what TCV is investing in this year.

“We didn’t just start five years ago,” said Tolaney of the firm, which first invested in Netflix at Series C in 1999.

Alongside its private and public market investing focus, TCV likes to be involved with its portfolio companies over a long period of time.

“There’s an incredible network effect that you build with entrepreneurs, and adding value to various efforts over a long period of time,” he said.

As an example, TCV founder and general partner Jay Hoag has been on the Netflix board for 20 years. Hoag is also on the board of Zillow, whose Series A TCV led alongside Benchmark in 2005. Amy Bohutinsky, the previous CMO of Zillow, is now a venture partner at the firm and works with a variety of TCV’s portfolio companies.

After TCV invested in Spotify by leading a growth round in 2013, a deal that valued the music streaming company at $4.25 billion, former Netflix CFO Barry McCarthy, an executive adviser with TCV, joined Spotify as its chief financial officer. TCV general partner Woody Marshall is still on the Spotify board.

Tolaney himself rejoined TCV in 2020, having spent two years at the firm a decade prior as a vice president. He was more recently a partner at Francisco Partners, a private equity firm investing in technology companies.

Crossover investor

The “crossover” in TCV’s name comes from its approach as a growth investor.

“Crossover stands for investing at the IPO, which we will do in the preponderance of situations,” Tolaney said.

He didn’t specify how much the fund invests in private companies versus public companies.

Interestingly, TCV doesn’t view an IPO as a liquidity event. “We actually view it as a financing event for the company,” Tolaney said. “And in many cases we are participating.”

He did confirm that the majority of the firm’s public investments are those where it has been a private investor. Still, there are times the firm will invest in public companies without having first invested while the company was still private.

The firm’s largest public offerings include two companies in which it first invested in 2018: Peloton and LegalZoom.

In the case of LegalZoom, which went public in June, TCV “ended up anchoring the IPO, and investing $90 million or 15 percent of the offering, in that context, when we had a trailing private investment that was over $100 million,” Tolaney said.

$4 billion fund

TCV invests on a global scale and is currently investing out of its 11th fund, its largest to date at $4 billion. Its very first fund at $100 million—just 3 percent the size of its current fund, raised in January 2021—was raised in 1995.

Tolaney said TCV will typically invest between $30 million and $40 million in a deal from its new flagship fund and up to 10 percent of the fund, or $400 million. “It’s a wide aperture by which to make growth-oriented investments,” he said.

The firm has raised funds fairly consistently up through to fund 7 in 2008. Given the size of fund 7 and the financial crisis, it did not raise another fund for more than six years until it announced fund 8 in 2014. Each fund since 2014 has increased in size.

PE doubles down

Global startup funding at the half-year mark in 2021 shattered all records as private equity and hedge funds have significantly increased funding to private companies, per Crunchbase data. Firms including Tiger Global Management, the SoftBank Vision Fund, Insight Partners and Coatue top these lists when you look at measures like amounts led or co-led. In the case of each of those firms, they’re also beating their own records for investment pace.

TCV, too, has increased its investment pace year over year, but not as dramatically as others leading in this space, Crunchbase data shows.

The firm is an investor in 33 private unicorns, including 15 unicorn companies that it has invested in since the beginning of 2020, per Crunchbase data.

TCV in 2021

Tolaney invests in consumer technology and media companies, as well as those that serve small businesses. “We invest behind great entrepreneurs disrupting very large markets through a unique value proposition that’s technology- and product-based,” said Tolaney.

To date in 2021, the firm has made 18 disclosed investments at a total of $5 billion raised by these companies.

Its investments this year include leading a $130 million investment in Hotmart, founded in Brazil, and headquartered in the Netherlands, built for creators to run their digital businesses.

“Everybody has rethought what they want to do on a day-to-day basis in a remote environment,” said Tolaney, who is focused on the global creator economy, which has grown to an estimated 50 million creators during the pandemic.

Hotmart itself has benefitted from word-of-mouth promotion. The platform allows creators to learn best practices, manage content across different platforms, and monetize through various payment platforms.

TCV this year has also made investments in German-based Trade Republic, a no-commission stock broker that raised a $900 million Series C round led by Sequoia Capital with new investors TCV and Thrive Capital. TCV also led a $400 million secondary investment with D1 Capital Partners and Falcon Edge in India-based Dream11, a fantasy sports company.

The firm is also a significant investor in point-of-sale restaurant management platform Toast, which recently filed to go public.

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Portfolio by region

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Source: https://news.crunchbase.com/news/tcv-technology-crossover-ventures-investing-strategy-under-the-hood/

Start Ups

London-based Memgraph raises over €8 million in seed funding to provide Streaming Graph Algorithms to the masses

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Memgraph-founders

Memgraph, the streaming graph application platform, today announced Memgraph 2.0, the public launch of its source-available platform, which makes it easy for modern application developers to build streaming graph applications. Additionally, Memgraph disclosed that it raised about €8 million in seed financing led by Microsoft’s venture fund M12 with participation from Heavybit Industries, In-Q-Tel, Counterview Capital, ID4 Ventures, and Mundi Ventures.

The fresh funds will be used to grow the team (headquartered in London), further accelerate R&D, and bring key features to market along with driving further adoption among the developer community.

Memgraph was founded in 2016 to to address the following problem: As the amount of data flowing through modern tech stacks increases at an exponential rate, so too does the number of data sources. Building applications while managing such high-speed workloads is a complex problem which compounds as ever more data is introduced to the environment. Building graph applications is even harder and currently a privilege reserved for very large corporations with teams of data scientists.

Dominik Tomicevic, the CEO and co-founder of Memgraph stated: “With today’s launch, Memgraph empowers all developers – from the open source hobbyist to engineers at large enterprises – to stream, graph, and build in minutes. Memgraph 2.0 gives developers the ability to wrangle all of their data sources and build graph-based applications on top of their streaming data.”

After consulting for a number of corporate clients and becoming frustrated by the status quo of graph databases, Memgraph Co-founders Dominik Tomicevic and Marko Budiselic spent the next five years building the first of its kind, in-memory graph database from the ground up and are sharing it freely with developers today.

Memgraph 2.0, with its Memgraph Community Edition (MCE), is available under a Business Source License, meaning it’s free and open for a variety of use cases – even commercial. Instead of being unnecessarily restrictive, availability under BSL allows a path to monetization for commercial creators. MCE allows data ingestion through CSV and S3, but also directly from Kafka. Once the data is ingested, it is transformed to a graph model where the real power of the graph comes in the form of algorithms.

For larger businesses, Memgraph 2.0’s Enterprise Edition (MEE) is built for companies who develop enterprise-level streaming graph applications requiring security and support SLAs. It features role based access controls, full activity auditing, encryption and advanced password policies.

Memgraph 2.0 lets developers leverage well-worn, battle tested algorithms like PageRank, Community Detection, BFS, DFS, and more, without hiring a PhD or 10 data scientists. A developer is now able to build apps on top of those results: dashboards, visualisations, permission modelling, recommendation and fraud detection systems, and more. LSI, a globally recognized leader in chemical R&D and nano-additive product formulation,
leverages Memgraph to assist with its scheduling process; a complex, mission-critical operation that dictates the management of many contingencies such as chemical ingredients, storage capacities, a finite number of reactors and other equipment.

Matthew Goldstein, M12 Managing Director and UK Lead, explained: “Memgraph helps customers advance from data overwhelm to profitable insights. Analytics capabilities that were once exclusive to tech giants are now accessible across industries with Memgraph. We’re proud to lead their latest funding round and support the democratization of smarter business insights.”

Memgraph 2.0 is available today; developers can connect their sources and spin up a Memgraph instance to build apps for free in minutes.

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Source: https://www.eu-startups.com/2021/10/london-based-memgraph-raises-over-e8-million-in-seed-funding-to-provide-streaming-graph-algorithms-to-the-masses/

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The Briefing: China Bans Crypto Transactions, Cue Health Prices IPO, And More

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Here’s what you need to know today in startup and venture news, updated by the Crunchbase News staff throughout the day to keep you in the know.

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China bans crypto transactions

China’s central bank announced today that going forward all cryptocurrency-related transactions are illegal.

The People’s Bank of China said the decision was aimed at preventing risks around crypto trading and maintaining national security and social stability.

Cryptocurrencies fell immediately after the announcement but subsequently regained some ground, with Bitcoin around $41,376 in morning trading and Ether around $2,830.

— Joanna Glasner

Cue Health prices IPO

Cue Health, a maker of tests for detecting COVID-19, priced shares for its initial public offering at $16 each, the middle of the proposed range, raising around $200 million.

Shares are set to begin trading Friday under the ticker symbol HLTH. San Diego-based Cue develops and sells tests for COVID and has a pipeline of test kits in late-stage development for for flu, respiratory syncytial virus (RSV), fertility, pregnancy and inflammation.

— Joanna Glasner

Proptech

Ukio raises $9M to simplify apartment-hunting: Barcelona-based Ukio, a startup offering turnkey apartments with by-the-month rates, raised $9 million in a funding round led by venture firm Breega.

— Joanna Glasner

Manufacturing

General Lattice raises pre-seed round: General Lattice, a Chicago-based developer of computational design tools for digital manufacturing, announced that it has raised $1 million in pre-seed funding led by AP Ventures LLC, the strategic investment arm of All Points Logistics.

— Joanna Glasner

Illustration: Dom Guzman

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Source: https://news.crunchbase.com/news/briefing-9-24-21/

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Under The Hood: Kleiner Perkins Eyes Its Busiest Exit Year In A Decade

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Kleiner Perkins is one of the most storied venture capital firms in Silicon Valley, making early investments in companies like Genentech, Amazon and Google, and serving as home to big names over the years including John Doerr and Al Gore.

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Kleiner, which celebrates its 50th anniversary next year, has always gone through iterations in its many decades of venture investing. 

But starting around 2018, the firm made significant leadership changes following the departure of partner Mary Meeker and the hiring of a slew of new investors, including general partners Mamoon Hamid and Ilya Fushman. The following year, it announced a new investing strategy and slogan—“Back To The Future”—along with its 18th venture fund.

Kleiner Perkins
From left to right: Wen Hsieh, Bucky Moore, Ilya Fushman, Mamoon Hamid, Annie Case, Monica Desai Weiss, Josh Coyne, and Haomiao Huang. Not pictured: Ted Schlein (Photo courtesy of Kleiner Perkins).

Now, even as the firm appears to be doing fewer deals than it has in the past, it’s poised to have its best year of exits from its portfolio in at least a decade.

With Kleiner’s long history and new strategy in mind, we dove into the firm’s portfolio and spoke with Fushman about the firm’s investment approach and future.

Early-stage focus

Kleiner Perkins in recent years has been especially focused on early-stage investing. 

When Fushman, Hamid and partner Bucky Moore came in during 2017 and 2018, the firm had raised its 17th fund, KP17, but hadn’t deployed it. The team got to work investing early in companies like Loom and Figma.

Most recently, Kleiner Perkins raised a $700 million fund, KP19, which it announced in March 2020, and a $750 million fund, KP Select, which it announced in April 2021. 

Of course, the venture world’s definition of what constitutes an early-stage company—and how big the check sizes for those companies are—has been changing.

“This spectrum of what early-stage investing is has been evolving, right? We heard some pretty large seed funds being raised pretty recently,” Fushman said in an interview this week with Crunchbase News. “The way I think about it is that there are moments in time for a company where having a real hands-on partnership with a great investor can be trajectory inflecting. And that moment can happen at the seed, so the letter or the number of the round doesn’t really matter. It can happen at the A, at the B. It can happen at the C.”

The team Kleiner assembled  is made up of people dedicated to careers in VC and had operating experience, Fushman said. It’s a small team that punches above its weight and wants to partner with entrepreneurs early to build companies, he said. 

As Fushman explains it, they’re generalists with a broad range but have a “core center of excellence.” 

Kleiner likes to invest early and work with its portfolio companies across talent, go-to-market strategies, and marketing, focusing on a few core things, he said. 

“The ethos is still to keep it very tight, as lean of a team as you can, while leveraging networks, activities and capital to do more,” Fushman said.

Investment pace

Kleiner Perkins appears to be investing in fewer deals these days.

The firm has made 49 investment deals so far this year, according to Crunchbase data, with about a quarter of those deals at the seed stage. 

June was the most active month for the firm so far in 2021, in terms of deals being announced. 

Some themes when it comes to the kind of early-stage companies Kleiner has recently invested in: the metaverse (Stardust, Inworld AI, Metaverse AI), workplace collaboration and communication (Coda, Spot, Sidekick, Glean) and robotics (Rapid Robotics, Chef Robotics).

The number of investments the firm makes has been lower in recent years than it was a decade ago, when it was investing in around 100 deals a year (from 2011-2014), an analysis of Crunchbase data also shows. 

Since 2016 or so, the number of investments Kleiner makes annually has been between 50 and 70, with the peak of the past five years being 2019, when it made 67 investments. 

It also appears to be leading fewer funding rounds than it was just a few years ago—in 2018 and 2019, for example, the firm was the lead investor in 26 and 28 deals, respectively. 

Founder-firm fit is key for Kleiner Perkins, said Fushman. The firm wants to focus its resources and attention to help a company grow, he said.

“A lot of what we do is with the intent of truly supporting a company over its full life cycle, which means deploying tens of millions of dollars over the lifetime, kind of the path of the company, and that has to come with conviction,” he said. “And then what it comes down to is a small team, building a lot of conviction, going all in on a company and truly helping the entrepreneurs build that company to its fullest potential. (That’s) the kind of the model that we think works.”

While the size of the deal and the stage at which Kleiner invests may change, its model stays consistent, he said: “The fundamental of it is still the same thing, which is truly, truly connecting, believing and then building.”

Kleiner has led 13 of the 49 deals it has invested in so far this year, the majority of the fundraises its led being at the seed through Series B stage.

Among the recent funding rounds it has led are Stord’s $90 million Series D, Thrive Global‘s $80 million Series C, and Settle‘s $15 million Series A.

Exits

So far this year, 26 of Kleiner’s portfolio companies have seen exits, per Crunchbase data. Among the most notable public exits were Robinhood, UiPath, Duolingo, LegalZoom and Coursera.

According to regulatory filings, Kleiner was among the largest shareholders in companies including Duolingo, LegalZoom and Coursera at the time of their respective IPOs.

With 26 exits so far in 2021 and still a quarter of the year to go, Kleiner could have its best year in at least a decade, in terms of the number of exits (not dollar value on returns). 

The only years in the past decade in which the firm has produced more exits than 2021 so far were 2014 and 2018 (both with 28 exits) and 2019 (27 exits). 

The firm is an investor in 35 unicorn companies valued above $1 billion that haven’t exited, according to the firm, including Stripe,  Epic Games, Figma, Cameo and Brex

With so much attention on early-stage companies and traditional growth-stage firms like Tiger Global Management turning their attention to them, there’s certainly competition to get in on deals. 

From his perspective, Fushman said venture deal making is as competitive as it’s ever been, but Kleiner tries to focus on building a relationship early with founders. The brand of the nearly 50-year-old firm and its network certainly helps in that regard.

“That comes down to relationship-building first and foremost,” Fushman said. “From a high-level perspective, a 50-year-old firm, it has a lot of leverage: For entrepreneurs in terms of recruiting, in terms of customer relationships, in terms of the network. If you just think about the companies that Kleiner Perkins has helped and supported over that 50-year history, that network and the expansion of that network is all accessible to our entrepreneurs today.”

Capital will become easier for entrepreneurs to obtain in a more commoditized way than ever before, Fushman predicts. 

“At the end of the day, we’re all selling capital and money is money,” he said. “But it’s really what you get with that money that should matter most. And I think the smart entrepreneurs, the thoughtful entrepreneurs really take their time to understand what value they’re getting incremental to capital.”

Crunchbase Queries Used In This Article

Illustration: Dom Guzman

Correction: A previous version of this story incorrectly stated that Kleiner Perkins recently led funding rounds for Fin.com and Stardust. We apologize for the error.

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

Real estate has long been viewed as one of the last vestiges for innovation and disruption, writes Kevin Lynch, an investor at Maschmeyer Group…

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Source: https://news.crunchbase.com/news/under-the-hood-kleiner-perkins-investing-strategy-exits/

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Aucto Raises Seed For Industrial Assets Marketplace

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Most of us will never be in the market to buy or sell a moderately used welder’s cart, engine lathe, or 40-ton hydraulic jack.

If we were, however, we’d likely encounter a corner of the industrial supply chain rife with inefficiency and waste–the kind of area that could use a startup’s fresh perspective for reinvention.

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That, at least, is the impression one gets from a conversation with Jamil Rahman, founder and CEO of Aucto, a startup marketplace for buying and selling used industrial assets. The company disclosed that it has raised $3.7 million in startup funding from venture firm NFX, the largest venture stakeholder, along with Motivate Venture Capital and individual investor Jack Greco.

The company runs online auctions for portfolios of industrial assets, with a particular focus on manufacturing equipment. It markets its platform to government and private sellers looking to market to both domestic and international buyers.

“There needs to be a better way for large organizations to sell these assets that still have a lot of lifespan left,” said Rahman, who spun Aucto out of his last venture, an Ontario company called NRI Industrial, in 2018. Aucto was previously based in Buffalo, but Rahman is currently working to scale the venture from San Francisco, where he recently relocated.

Like many startups, Rahman sees his sector was impacted heavily by the pandemic, pointing to three factors in particular. First, economic disruptions caused organizations to look for ways to generate capital quickly, motivating many to turn to asset sales.

Secondly, while companies were looking to sell assets during the pandemic, a historically popular form of sales–the live auction–was increasingly not an option, creating heightened interest in online auctions.

Third, the pandemic famously precipitated all kinds of supply chain disruptions. That pushed more businesses to the used marketplace for assets that were too difficult or costly to source new.

Beyond pandemic-related impacts, Rahman sees other tailwinds impacting the industrial equipment space. One is the ongoing shift in the auto industry and elsewhere away from fossil fuels and toward electrification. Equipment from coal plants and other shrinking industrial subsectors can often be repurposed or redeployed in other areas.

To date, Aucto says it has moved around $40 million on the platform, posting roughly 5x revenue growth during the pandemic. Commonly, assets are shipped internationally.

It’s a tiny piece of a vast market. In 2019, the last full-year estimate, U.S. non-farm businesses spent around $1.15 trillion on equipment, per the U.S. Census Bureau. Eventually, much of that will wind up back on the market as used equipment.

Illustration: Li-Anne Dias

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Source: https://news.crunchbase.com/news/aucto-seed-industrial-assets-marketplace-supply-chain/

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