Subscribe to the Crunchbase Daily

Valuations and other key financial metrics were not publicly disclosed by the company. However, in its announcement, Netlify did say that it’s tripled its customer base (to 800,000 users) and revenue year over year. The company says that 8 percent of internet users visit a Netlify-powered site each month.

In a public statement, Netlify’s co-founder and CEO said “We started Netlify with the mission to empower developers and change the way the web is built. The growing number of developers signing onto Netlify daily and the latest investment in our business has validated that vision. With this funding we’re full-speed ahead delivering new features, investing in our enterprise-grade infrastructure and growing our team, to help more developers and businesses take advantage of the JAMstack.”

What is the JAMstack? It’s a web development architecture co-developed by Biilmann. The acronym stands for JavaScript, APIs and prebuilt Markup. Dynamic functionality is handled by client-side JavaScript; server-side operations get abstracted into composable APIs which can be called over HTTPS via JavaScript; and sites are served as static HTML which can either be written natively or be generated from source files written in Markdown format using a static site generator.2

The principal benefits the JAMstack offers to web developers is that sites can be served exclusively over a content delivery network (CDN), which improves scalability. Because a project’s entire codebase lives in a version control system like Git, and each deployment represents a snapshot of the entire site, developers are able to trace version histories and ensure consistency across an entire live site.

Netlify builds software tools that help with different aspects of JAMstack development. is a local application server developers can use for building and testing their websites prior to production deployment. is a Git workflow for web development. is Netlify’s “application delivery network” that offers features some traditional CDNs don’t.

“To enable more use cases at scale in 2020, we’re investing in new features catering to our enterprise customers, including more control and better collaboration for larger teams. We look forward to enabling the JAMstack at scale with the services they need as they look to migrate major parts of their web infrastructure to Netlify,” said co-founders Chris Bach and Matt Biilmann in about the round.

The company offers for tinkerers and small teams, but with this new funding the company is intent to scale out its . These include more processing power on the build side, higher speed on the deployment side, and other client services like security auditing and premium support.

“Netlify and the JAMstack are fundamentally changing how websites and web applications are built. The large and growing community of developers building on the JAMstack is testament to the movement that Matt and Chris and the team are spearheading, and to the unified platform they’ve built,” said Laura Yao of EQT Ventures.

±ő±ô±ôłÜČőłÙ°ùČčłÙŸ±ŽÇČÔ:Ìę

Shares of , a provider of primary care clinics and telemedicine, closed up nearly 60 percent in first-day trading a month ago. Since then, it’s largely held on to those gains.

Subscribe to the Crunchbase Daily

, a benefits management focusing on fertility, meanwhile, has seen its shares roughly double from its initial offer price back in October. While the broader markets have swooned, Progyny has held strong.

Now, another well-funded health service company is betting investor enthusiasm for the space will trump market skittishness. , a service provider that serves as a kind of go-between for consumers, employers and health insurance companies, is seeking to raise up to $100 million in an IPO, according to a prospectus filed late Friday.

The ups and downs of IPOs

Like most venture-backed companies on the IPO path, Accolade is posting both strong growth and persistent losses. Its most recent financials are for the ninth-month period ending Nov. 30, for which it reported revenue of $88 million, and a net loss of $49 million. For the corresponding period a year earlier, revenue was $60 million, with the same net loss of $49 million. (Accolade operates on a fiscal year ending in February, so results for its last full fiscal year are not yet available.)

The company’s pitch to investors is that its platform will see continued large-scale adoption as health care plans and services become increasingly complicated for people to navigate. Its customers are primarily employers that deploy Accolade to provide employees and their families “a single place to turn for their health, healthcare, and benefits needs,” per the IPO prospectus.

Accolades core offerings includes a software platform backed by a support staff of health assistants and clinicians.

Headquartered in Seattle, with significant operations in the Philadelphia area, Accolade has raised $237 million in known funding since its founding in 2007. Key backers include , and .

Illustration: .

Subscribe to the Crunchbase Daily

According to the filing, the company has raised a little over $71 million of a round aiming to raise up to $83.85 million in fresh capital for the company. Rigetti Computing disclosed in its filing that the total amount raised and the total offering amount includes approximately $23.85 million1 from the conversion of convertible securities into equity in the company.

The filing states that, so far, 65 investors contributed capital to the round, and that the company received its first capital commitment for the round on Feb. 18, 2020.

, an investor with , is a new addition to the company’s board. It’s typical for lead investors to take a board seat following a deal, so it’s likely that Bessemer is the lead investor in Rigetti’s latest round.

According to Crunchbase data, the company has in prior funding. Rigetti’s last round was closed in November 2017.

Depending on whether the convertible securities mentioned in today’s filing were previously reported, the company has now raised between $166.7 million and $190.5 million, and it is authorized to raise $12.8 million more in this offering.

The company’s valuation and information about which investors participated in the deal have not been disclosed at this time. Previously disclosed the likes of , , , , and , among others.

±ő±ô±ôłÜČőłÙ°ùČčłÙŸ±ŽÇČÔ:Ìę

Subscribe to the Crunchbase Daily

The new round, which included participation from new investors and , brings Roblox’s total funding to more than $335 million, according to CrunchBase data.

Roblox recently reached 115 million monthly active users and more than 1.5 billion hours of monthly engagement.

“If early-stage venture is about asking ‘What if it works?’, later-stage venture is about asking and assessing, ‘Is it working?’,” a16z general partners and wrote in a on the firm’s website. “With largely organic user sign-ups, highly recurring purchase behavior, a high margin structure for the platform, and a super strong value proposition for users (who derive hours of entertainment at a lower cost than they can find elsewhere), Roblox is cash flow positive. Roblox is working.”

Along with the new funding, Roblox has a secondary offering of up to $350 million to provide liquidity for early employees and stakeholders, according to a statement from the company. The company is now valued at $4 billion, according to .

Roblox last raised money in July 2018, when it pulled $150 million for its Series F, according to Crunchbase. Its other investors include , and .

Illustration: .

Subscribe to the Crunchbase Daily

ÌęČčČÔ»ć led the financing. , , and others also participated, bringing the company’s total funding to $97 million since its November 2016 inception.

New York-based K Health has developed an app that uses AI and anonymized health records to augment the diagnoses of health problems. It claims to be the first startup to use true AI in consumer health at the primary care level, as Holden Page wrote at the time of the startup’s $12.5 million Series A.  The company launched its consumer product in mid-2018.

How it works

K Health works by leveraging AI-driven health data that was accumulated over two decades by tracking billions of anonymized health events. (That data was collected by Maccabi, the second-largest HMO in Israel.) K Health has taken that data to create a predictive model aimed at enabling people to learn more about their health by comparing themselves to other people with similar characteristics such as gender, age, symptoms and medical history.

Users can chat with a licensed doctor for a diagnosis and prescription for $14 for a consultation, or $39 for an annual subscription, according to co-founder and CEO .

“K uses technology to reduce barriers to quality primary care,” he said. “Our users are able to get instant answers about their symptoms and chat with a doctor within minutes, all for 90 percent less than the cost of traditional primary care practices.”

With K Health, people can get a more reliable and accurate way to have an initial understanding of what they might have in addition to which drugs other people with a similar history took, Bloch explained.

K is available in all 50 states, and K Primary Care, the option to chat with a doctor, is available in 47 states, covering 300 million people.

The company seems to be growing quickly. Bloch said it recently saw its 3 millionth user after reaching 1 million in June 2019 and 2 million in November 2019. K Health also now employs 200 people, which is up from about 80 one year ago.

Bloch declined to comment on growth metrics such as revenue or profitability.

Looking ahead

K Health will use the latest capital infusion to scale its model and move primary care to mobile devices in an effort to improve access to health care on a global scale.

As part of that, K Health is making its app available in Spanish and plans to introduce it in additional languages “within weeks.”

Recently, K Health partnered with insurance giant Anthem (also an investor) to provide access to its more than 40 million members. Looking ahead, the company is also eyeing a global expansion “to strategically important countries.”

“This new funding will enable us to bring easy and affordable primary care to people in more languages and geographies,” Bloch said. “We will also be expanding the scope of what our primary care platform can diagnose and treat to include more chronic condition management services, pediatrics, and more.”

For, Mark Tluszcz, founder and CEO of Mangrove Capital Partners, “free quality health information is a promise no one has been able to deliver on until K Health entered the market.

“K’s efforts to provide the most precise and relevant medical information along with 24/7 medical care and doctor conversations 
 underscores the need for better healthcare realities for people struggling to afford care and the medical community challenged by a lack of doctor accessibility,” he said in a written statement.

In general, we’ve seen a rise in digital health startups. Recently, I wrote about , a digital physical therapy company focused on chronic musculoskeletal conditions, closing on a $90 million Series C round of funding led by . Last week, I also covered , a digital health platform, emerging from stealth with a $40 million round of funding led by (a16z).

Illustration:

Subscribe to the Crunchbase Daily

The Series B financing brings the company’s total funding since its inception in late 2015 to $58 million. Other backers include , , , Thirty5 Venturers, and .

Because digital health platform is such a broad term, let’s break down what it means in this case. The Redwood City California-based startup claims it can give “members” a web-based in “75 minutes or less.”

The premise behind the company is to help identify health issues before they become worse, or as it claims: “To give individuals a deeper understanding of their own body and how it’s changing over time so they have more control over their own health.”

Indeed, most of us don’t even know we’re sick until symptoms start popping up to alert us. In some cases such as certain forms of cancer–it can already be too late. Q Bio says its platform can actually identify signs of disease at the earliest stages, before symptoms arise. If this is true, I’d say it’s revolutionary.

The way it works seems straightforward. Members register online and the company begins aggregating and digitizing their medical history. On exam day, members anonymously check in for a 75- to 90-minute exam. Two weeks later, a Q “expert” will review the results over a “secure” video chat in which members’ physicians are welcome to join.

With each additional visit, Q claims, its HIPAA-compliant platform gets more sensitive to surfacing anomalous changes in your body, then tailors the set of measurements gathered based on these anomalies and changing risk factors.

In summary, membership includes a fully comprehensive exam including a full body MRI, saliva, blood and urine analysis, a summary and a 30-minute telemedicine review of the health of each of your body’s systems. Health data is continuously updated for one year and stored in the company’s BioVault with lifetime access to review and share.

co-founder serves as Q Bio’s CEO. As part of this new round of funding, Andreessen Horowitz General Partner joins Q Bio’s board, along with from Khosla Ventures.

Background

Kaditz co-founded the company with his own misdiagnoses from over a decade ago in mind.

Since then, he said, he’s “imagined a day when everything about a person’s body could be quickly measured, shared and analyzed.”

“It took some time to figure out some of the scaling issues and to wait for certain technologies to be cheap enough and mature enough,” Kaditz told Crunchbase News. “Our technology allows us to gather more clinical information, more quantitatively, faster and cheaper than anything else and it will only get faster and less expensive over time. We allow for a separation of where you go to get your body measured and where your doctor actually is.”

Over the past few years, the company has stealthily worked on fine-tuning its imaging protocols to determine the “most clinically relevant set of biomarkers” to include in its platform. It has 25 employees, up from 17 a year ago.

a16z’s Pande in a written statement said that“Q Bio makes true preventive medicine possible today.”

“By measuring everything from blood to imaging and more in a longitudinal way, patients can have personalized baselines and physicians the data and power to understand, interpret and utilize this data to personalize care,” he added.

Illustration:

Subscribe to the Crunchbase Daily

Fund III is the largest in this series of funds. Andreessen Horowitz’s previous biotech and health care funds came in at $450 million (announced in December 2017) and $200 million for (announced in November 2015).

According and , the firm has made investments in dozens of companies in the health care, biotechnology and pharmaceutical sectors.

In its announcement for Fund III, the firm’s managing directors said “[t]ech, biotech, and our healthcare system are merging—into what we call simply ‘bio.’ And whether for pharma, hospitals, or investors, bio is now officially the hot new thing.”

The firm’s portfolio companies are operating on several sides of this emerging sector.

Take as an example. It’s a broker of Medicare Advantage plans. Andreessen Horowitz led the company’s round in October 2018.

More recent additions to the portfolio include cancer drug company and , which develops cancer treatment protocols for dogs, and medical data management upstart .

“We are now approaching a new ability to rethink bio’s biggest problems, from intractable diseases and massive inefficiencies or disparities in an overburdened health care system, to what we eat, what we wear, what we build, even how we heal our planet. And we will do this by using our most advanced technological tools, as well as the engineering principles that brought them to us,” fund managers , , and said in their announcement.

±ő±ô±ôłÜČőłÙ°ùČčłÙŸ±ŽÇČÔ:Ìę

Though we chart the numbers a bit later, here’s the gist: Andreessen Horowitz’s most recent funds are performing worse than the funds the firm raised years and years ago.

Subscribe to the Crunchbase Daily

According to the information published by The Information, this is true across several dimensions.

Based on aggregated quartile data from , an institutional investment and advisory firm which also compiles data about venture fund performance, it looks like several of Andreessen Horowitz’s most recent funds lag behind other, presumably age-matched peers. Andreessen Horowitz’s and , both raised in 2016, are in the fourth quartile of fund performance, according to metrics compiled by Cambridge Associates.

There could be many factors contributing to the laggard performance of A16Z’s recent funds. Competition is one of them. Once part of a very small coterie of billion-dollar fund managers, Andreessen Horowitz is now one of many firms which can raise and deploy ten-figure funds. No doubt, there are plenty of other confounding factors at play here.

But it’s on another metric that we’ll focus most of our attention.1 As measured by the funds’ internal rates of return (IRR), A16Z’s more recent funds aren’t doing as well as funds raised earlier on in the firm’s life. This is in no way surprising.

In the chart below, we plot the data obtained by The Information for A16Z’s “flagship” venture capital funds. Not pictured are numbers for the firm’s “Parallel” follow-on funds, or its life science-focused funds. Performance numbers for A16Z’s cryptocurrency fund and its most recent investment vehicles (like the announced in May 2019) were not published by The Information.

Why is this not surprising? It’s pretty straightforward and has everything to do with how venture capital funds are typically structured. That structure dictates the pattern of how VC funds make their investments, which, accordingly, affects the return profile of the investment fund.

Venture capital funds are “closed end.” Mutual funds and most hedge funds are “open ended,” meaning they typically accept new capital and make distributions back to investors on a consistent basis, often throughout the life of the fund. Investors in open-ended funds are able to buy and sell their shares in a pooled investment vehicle more or less whenever they want (though many hedge funds have pre-set liquidation windows, often on a quarterly or semi-annual basis).

The open-ended structure of mutual and hedge funds works well for highly liquid assets, like publicly-traded stocks, commodities, and many types of financial derivatives. Such a fund structure would not work for illiquid assets, like equity in privately-held companies. Since VCs can’t up and sell private company shares on a whim, neither can investors in a VC fund freely withdraw their capital, under normal circumstances.

Because closed-end funds just can’t lock up investor capital forever, they have a contractually limited lifespan. Though there are exceptions, the industry standard is 10 years. General partners may negotiate optional extensions to a fund’s lifespan, typically between one and three years, in one-year increments.

But, in general, VCs have about a decade to raise capital, make their first and follow-on investments in portfolio startups, and then, through the governance and financial control capabilities granted to them through board memberships, they’re duty-bound to marshal their assets to the best possible financial outcome. Typically, that comes by way of a favorable “exit” via an acquisition or initial public offering, which gives VCs (and, by proxy, their limited partners) either cash or easily-salable assets. In other words, the search for eventual liquidity dictates a lot of how investors in illiquid assets operate.

In practice, it means that VC funds have generally terrible financials for the first several years of existence. Some investors call this “the valley of tears,” and for good reason. If VC financial performance is measured as the difference between capital outflows (initial and follow-on investments) and capital inflows (cash and/or stock proceeds from a liquidation event), it makes sense that a snapshot of a fund in the midst of its investment period will look, at best, lackluster.

This is a well-known phenomenon known as the J Curve, after the shape of returns over the life of a VC fund.

This J-Curve phenomenon is , and to be real. Heck, there are written about the J-Curve and its role in venture capital and private equity portfolio management.

This being said, by the suggests that the J-Curve is “an empirically elusive outcome in venture capital investing.” Moreover, the report—which was based on the foundation’s own portfolio of investments into VC funds, as well as public data from organizations like —suggests, in so many words, that the J-Curve phenomenon is sometimes used as a scapegoat by general partners of underperforming funds.

Plotting out Andreessen Horowitz’s fund performance data, by vintage, it looks like the firm’s funds fall along some sort of curve that kind of looks like a J.

Andreessen Horowitz’s most recent funds have lower internal rates of return than its older funds, as the J-Curve theory might suggest.

When thinking about Andreessen Horowitz’s performance numbers, it’s important to keep in mind that every disclosure to the press is motivated by something. Often, it’s to “blow the whistle,” so to speak. But there may be a political angle as well. From the Kauffman Foundation report: “The J-curve forms the cornerstone of the GP argument that early fund returns shouldn’t be published because they are negative (but they will eventually turn positive), and because negative results create confusion and publicity that will put pressure on LPs to reduce investing in VC.”2

Considering that public pension funds and university endowments are among the most prolific investors in venture capital, as an asset class, disclosures like this could result in backlash from a public that’s likely unaware of the unique dynamics of private-market investing and the “shape” of those returns over time. For the sake of A16Z’s limited partners, which may be investing on your behalf, here’s to hoping the J-Curve phenomenon is to blame for its younger-vintage funds’ mediocre performance.

“Only time will tell” is an awfully trite way to conclude, but with startups, that’s just the nature of the business. It takes a long time for a company to become fully-baked. Previous Crunchbase News analysis found that in North America, the average time from founding to exit is about five years. With some startups in the current crop of still-private unicorns verging on their tenth, eleventh, and twelfth birthdays, obviously it can take longer to reel in the biggest wins.

In venture, current performance might not be an indication of future returns.

Update: This post has been slightly revised from the original version. Cambridge Associates is an investment and advisory firm which works with limited partners, and is not itself an LP. We clarified ambiguous language in the subtitle of the first chart, and specified the type of data from Cambridge Associates that was provided to The Information.

±ő±ô±ôłÜČőłÙ°ùČčłÙŸ±ŽÇČÔ:Ìę

Subscribe to the Crunchbase Daily

GenĂ©: I want to welcome you both. This is new for us to have two partners. Why the name “Homebrew”?

Hunter: Homebrew was named after the Homebrew Computer Club. As a history major, there’s a certain respect for the shoulders we stand upon. It harkens back to the spirit of you do it for the love and passion, not just the disruption and economics. You’ve benefited from what came before you. So there’s a certain mentality as you continue to pay it forward.

With Homebrew we’ve taken a concentrated involved approach, as opposed to a more passive lottery ticket style, to be able to share some of those learnings across the founders in the portfolio.

Gené: How did you both meet?

Hunter: I ended up at , relatively quickly, but not necessarily intentionally. Google was still a private company, but was well known. One of the things that caused me to leave is that I wanted to touch millions, hundreds of millions of people. That very much matched Google’s ambitions. And that’s where Satya and I met. I joined late 2003 and he joined earlier in 2003. And we are on the same team. First literally on the same team, and then working under the same VP. We spent 2003 to the end of 2006 working on AdSense. The first project we worked on together is how do you bring AdSense from smaller self service websites into the larger publishers.

Satya then left to go to in 2007. And I moved over to just as it had been acquired. Google had moved from 1,000 to 12,000 people over the three years. It was just starting to change. Things were becoming institutionalized. YouTube was very much again the intersection of community and creativity.

Gené: YouTube was a bold acquisition by Google. It felt at the time as if the acquisition came out of nowhere.

Hunter: People were not congratulating YouTube. It was called Google’s folly. They’re spending a billion and a half dollars, for dogs on skateboards. Is this even legal? The hosting and streaming costs were high. At one of the internal TGIF versions, announced the acquisition. Somebody asked Eric, you paid a lot of money. How do you know that was the right amount? Eric paused for a second and said it’s definitely not the right amount. It’s either way too high or way too low. And we will know in 10 years.

Google was the perfect late stage venture capitalist to invest in YouTube.

Gené: At the time the big issues were how does YouTube make money and copyright?

Hunter: Copyright was the large one. YouTube did safe harbor and was DMCA compliant. They built copyright rights management into the licensing tool to help creators manage their content. When it came to terms of service and community standards, our big concerns back then had to do with spam, with people trying to crawl up the leaderboards. And making sure that ahead of some of the sophisticated systems that we were later able to build, that there was no pornography.

YouTube was starting to internationalize, and we realized what a dramatic world wide impact it would have. We were trying to understand and respect local laws, and sometimes local norms in countries where maybe we didn’t have a presence to operate, but we had users. During my first few years it was not taking Silicon Valley assumptions and layering them across the world. At the same time knowing you stood for access to information. This rolled right into the Arab Spring. A protestor who got shot was one of the first tests. This is violent. This is blood. This is somebody dying. This is historically important.

If you pull those strings hard enough, do you get to where we are today. It’s a challenge of a global company, global audience. We were dealing with year two through year six problems, not year fifteen problems.

Gené: Do you feel like YouTube spiraled out of control?

Hunter: I haven’t been there for seven years now. I feel like each phase has its set of challenges. The team is dealing with challenges that are often the byproduct of what worked, incredible growth, building algorithm around attention, and what the unintended consequences of that are. Google has always been a place where people have been willing to advocate for the right long term decision, no matter what the short term resources or business impact is. I hope the complexity of some of this decision making and the implementation of policy doesn’t get in the way of doing the right things. I have a lot of confidence in the people over there.

GenĂ©: Hunter and Satya, you both have a product background. How did you come together to decide it’s the two of you that should start Homebrew in 2013?

Hunter: Satya left Google early 2007 to go back to venture. People we knew called him back into duty and he went to run product at Twitter for the better part of two years pre-IPO, building what is today. When he left late summer 2012, and unbeknownst to him, I was also thinking about leaving Google at the end of the year.

Gené: What is different about Homebrew?

Satya: Coming from product backgrounds, we thought about Homebrew as a product. So we tried to identify the white space in the market, and for us that was at the seed stage. While there are lots of sources of capital, there were very few investors who were willing to be the investor of record. As angel investors and advisors to lots of companies, we were often the first call when founders were having some operational issues like hiring somebody, a product question, even though there were larger checks on the cap table. We saw this gap where the early stages of company building are incredibly difficult. Most of the time founders don’t have all the skills needed to scale a company for year zero through three. And they were asking for help, and there was no one willing to give it to them. And so the thesis behind Homebrew was to be that investor of record, come to that conversation with empathy having been on the operator side. And to do that for a small number of companies each year, where our focus was not going to be looking for the next investment, but really spending time with the founders.

Hunter: So much capital is coming into the seed stage. There’s no capital gap structurally at the seed stage. Maybe there was 15 years ago. That doesn’t mean that fundraising is equitable or easy. That’s a whole other discussion. But there’s lots of capital.

That capital has come to market in forms that sometimes have more to do with the needs of the investors, than the needs of the entrepreneurs. Increasingly large funds that are multi-stage, and or the size of the fund predetermine what success looks like. It’s just math. We co-invest with those people all the time They’re wonderful. Especially as companies get bigger and know what to do with $20 million, what to do with $27 million. You can’t grow a company without that.

Similarly, there are more and more people who like writing here either institutionally or individually 20, 30, 40, 50 smaller checks, a year. I sometimes joke, they have a general partner name Darwin, because what they do is see who survives. It’s often not in investors’ short term interest to take the model we do. Which is to keep your fund size constrained, concentrate on early investments, and spend more time servicing the deal, than trying to win it. We get involved at the seed and then stay operationally supportive into the Series B. We commit to a three to five year runway with these companies. There’s not many people willing or able to take on that model.

Satya: And this stems from why we created Homebrew in the first place. It was not to become venture capitalists. We would not naturally enjoying being venture capitalists. We really enjoyed building Homebrew, because it’s focused on what we thought for us was the most interesting thing to do was work side by side with founders to help them build businesses.

Gené: What is a Homebrew company?

Satya: A Homebrew company is one in which there is a mission-driven founder who has a firm belief about how the world should operate and a strong set of hypotheses for how to help get there. He or she has experienced the pain being addressed firsthand, has empathy for the customer and a deep appreciation for the target industry, disrupting it with love rather than contempt. The founders want to build a cap table that acts as extensions of the team, helping them increase the scale, velocity or probability of the company’s success. The company is building something that democratizes access to products, services, data or customers for constituencies and industries that haven’t had access previously. When we come across like-minded founders operating in industries in which we feel we have expertise, relationships or know-how, we think of those as Homebrew companies.

Gené: Are you wanting to be the Andreessen Horowitz services model at seed?

Satya: We’re trying to practice venture capital, the way it was originally practiced, when it wasn’t just capital. It was this notion that your investors are part of your team. They’re not your managers. While they’re on your cap table and you’re responsible to them to some degree, you’re not reporting to them.

Hunter: I was surprised to find that the market gap at venture was returning emails, showing up for meetings, spending more than 51 percent of your calendar with the companies that you funded versus that next company, that next fund to raise, that next conference to speak at. We took a model that basically says we would pick up the phone, we will answer the email, we will be on the whiteboard with you.

Satya: All companies at this stage really have to do three things well. They have to build a product, distribute that product, and build a team. So that’s where we spent a lot of time.

Gené: What do you mean by investing in the bottom-up economy?

Satya: The notion of bottom-up economy is based on this overarching arc that we see within the technology industry. As technology is getting cheaper and more flexible, more accessible, it’s finally being leveraged by constituencies, and industries that haven’t yet leveraged it. That means everything from enabling the business of one, to empowering teams within larger organizations. It’s about democratizing access to products, services, data, marketplaces, and revenue streams. That’s what the bottom-up economy encompasses. We tend to say we like to invest in sexy software for unsexy industries. So it’s a lot of financial services, healthcare, manufacturing, logistics, retail, everything from kids clothing to autonomous cars.

Hunter: You don’t see a lot of stuff in the portfolio that’s meant to sell into the top 50 CMOs or the top one percent of consumers. was an early fund one investment, also an early fund one exit. But we came to that with the prepared mind, given some of our experiences at Google and beyond, with AI and computer vision. All of a sudden you’re given some credibility and through [Vogt] the CEO there, you’re given a set of founder relationships and you start pulling the strings and it leads to a few companies in the second portfolio.

Some things are evergreen. We just have incredible domain expertise in fintech, . I don’t think there is anybody who has a better seed portfolio in financial services over the last six years. But then there’s other things where your own personal interest, or meeting the right founder at the right time, you start to build a market presence, build the capability and then you just have to decide how far you want to follow that down or not. So now the stuff we’re doing in automation, and computer vision is less to do with autonomous cars, and more to do with manufacturing.

Gené: How did the investment in Cruise happen?

Hunter: There’s been two investments in our first six, seven years that started with a password protected video. Both of those turned out to be very good investments. Kyle sent us a password protected video of him driving down the 101 Highway to demo day with periods of the drive, having no hands or feet on the wheel. Ok, we are in. At the time people thought if this was going to happen, it was going to be Google, there’s going to be an Apple car. People were not talking about componentry, what do you do with LIDAR? This is why GM bought them. That acquisition was 18 months after the seed round. And people say, how did they come up with this number for that acquisition. The GM board decided what percentage of the market cap they wanted to spend to de-risk the rest of it.

Gené: Your most recent fund in 2018 was $90 million. How are you planning to invest that fund?

Hunter: So we’ve stayed very much the same since the first fund. Each fund is a byproduct of how many companies we think we’re going to invest in doing six to eight a year. And what’s the check size needed to get to 10 to 15 percent ownership in a seed round.

Our first fund was about 20 companies over two and a half years. Our second fund was 27 companies over three and a half years. And when we went to set up fund three, we decided to do it even a little bit longer. So it’s targeting to be about 32 companies over four and a half years. If you are going to live up to the expectation that you set for founders, that cascades through fund size and fund strategy.

Gené: How much do you need to invest in this market to get your 10 to 15 percent? And are you co-investing?

Satya: We always co-invest. We’re big believers that syndicates add real value at the seed stage to get various skills, experiences, and relationships. Our average investment is probably a million dollars now, but anywhere between half a million to two million as a range. The average investment has had to tick up a little bit from when we started as round size and valuations have gone up.

Gené: How large is a typical seed round?

Satya: $3 million on an average but anywhere between $2 and $4 million is pretty established as a Bay Area seed round.

Hunter: We had a geographic collar on ourselves for the first few years. We didn’t want to stray too far out of California or New York because we really want to make sure we could deploy our model without spreading ourselves too thin. As we gain confidence, we’ve been willing to make investments in Portland, Boston, Salt Lake, San Diego, and Toronto.

In the 1990s software was a vertical. Now, every business has a software component, and sometimes the best companies being built in some of these verticals have an academic background or domain expertise that’s not necessarily native to Silicon Valley. And so we look at each geo as — is it neutral to positive for this company to be located here. Are we going to invest in a Spotify competitor in Kansas City? Probably not. Is there a lot of really compelling vertical AI work being done out of Toronto because of the university footprint there? Absolutely.

In a competitive market, how do you make sure that for the handful of verticals that we have the deepest expertise, how do we make sure we’re top choice, for founders in that area? Because there’s lots of wonderfully smart investors, lots of capital. It’s not just enough to be thought of as ‘they’re good people.’ You need to be preferenced. And so we’ve done a lot of work around some of the co-investor relationships, some of the founder relationships. In year seven, we’re finally starting to see our own proprietary deal flow from employees at the first companies. Either those companies got acquired and handcuffs are off, or people invested in doing things. We’re starting to see referrals from the companies that we back in fund one.

Satya: We really think of ourselves as seed phase investors. So while our average check is a million dollars. We’re happy to be the $200,000 check in the pre-seed, or the last $2 million that goes into the company right before the Series A. Our focus is in that early period where companies are largely pre-product market fit. Pre-product or post-product with some early customers.

Gené: You have around 20 exits with Cruise being the biggest. That is a high count of exits six years in.

Hunter: Because we’re investing in companies that are often innovating within traditional verticals, they’re quick to the customer, and quick to revenue. They are proving their worth. Why do companies choose to be acquired? Somebody is willing to pay into the future, to bring them in-house. Which means that they’ve done very well in their first few years, and developed something. Another reason is founders feel there’s a compelling offer on the table, and they’ve constructed a cap table that allows them to take that offer. We want teams to be able to play both offense, and maintain optionality until they decide that they know who they are, and raising several hundred millions of dollars of venture capital is what they need to get there.

I’ll give you an example of a company in our first fund that has provided a meaningful return. in the construction SaaS that Autodesk bought earlier this year for $265 million in cash. That company had some growth term sheets on the table, could have played forward, but decided based upon where they were in their own development that Autodesk would be a natural partner for them, the roles they would be given there, that it was something that founders wanted to do. Not controversial because they hadn’t made promises to the cap table, and raised at valuations that made only a $300 million exit a loss. Right? I would be really happy if each fund, produced one or two public companies, and a bunch of outcomes that were really great for the founders, really great for their teams, and really great for their investors, because they didn’t get so far out over their skis, that they closed too many doors prematurely.

Satya: Because we’re investing early, we’re investing in people, and our commitment is to those people. There are also situations in which things don’t work out as everybody had hoped. Maybe the offers that they’re getting aren’t of the nature that Buildingconnected got. Because our commitment is to those people, it’s our job to make sure that we help them find a home for them and their employees that ends up helping them move forward with their careers. Part of what you see reflected on the website are also acquisitions, where we’re just doing our job as good investors and good partners to these teams, and helping them land in places that are going to be positive.

Hunter: Do the early investors have not just conviction, but alignment? Some of these first time funds need to keep a company alive, so their LPs don’t ask, how come these companies are failing? Or in the face of a good offer, that wouldn’t move the needle for the fund, so they make it hard on the company and tell the companies to play on. Because it’s not a $5 billion company, it doesn’t matter to us.

Gené: Why do you do this? A lot of firms would step away.

Hunter: The best rationale is when there’s both self-interest, intersecting with it’s the right thing to do. So the self interest is those founders become incredible evangelists for us. More and more smart founders when they do diligence want to talk to founders in a portfolio where things didn’t work out, not just the ones that did. If you can get one, two, three times your money back on your dollars you get to recycle that back into the companies that are going to do that. For a sub $100 million dollar fund, we can turn that into something that actually does contribute back and we put that into a , into a , into a .

Satya: And it comes back to we didn’t start Homebrew to start a fund. We started Homebrew because we saw that there was a lack of service being provided to founders.

Hunter: I hope when we turn off the lights, years and years from now, one of the things we can say is we were the best version of who we wanted to be. We don’t want to be a junior version of Andreessen Horowitz, we don’t want to be First Round 2.0. We don’t want to be an incubator, accelerator, crypto, or whatever flavor of the month is.

We always say the way to get better fund over fund is just to make one better decision.

Gené: How many companies do you meet?

Satya: 3,000 intros, and we meet about 800.

Gené: Are a lot of the deals coming through other seed investors?

Satya: It’s about two thirds through founders, entrepreneurs, and executives in our network. It’s about one quarter from other investors, and the rest is some combination of inbound/outbound.

Hunter: So there’s this interesting trend. There’s a bunch of wonderful funds that write these $100K to $250K checks. There’s certain pockets of entrepreneurs that they’re pretty well connected to, because it’s the ex-Airbnb guy. The challenge that some of those funds face is that there is a surplus of their dollars, and they can’t make a round come together by themselves. And they’re very interested in placing the lead, not just because they care about the company, but because if they place the lead, they’re less likely to get squeezed down. Oh, I know you want $250k but sorry you’re only getting $100k.

And so one of the interesting trends over the last seven years is the increase in volume and quality of introductions from that segment of the smaller supporting seed funds, who really need to protect their allocation. Why we play nicely with them is because we’re not trying to do 80 percent of a round. They’re hoping a founder protects their allocation, but you also really need the funds to protect their allocation. That’s definitely been one of the interesting structural changes in seed that has impacted where we see deals from. It’s definitely different than 2013.

Gené: Satya, you were at Twitter as the VP of Product when Twitter was making some crucial decisions about enabling an ecosystem through a platform or becoming a destination. And they went with destination. In retrospect, do you think Twitter made the right call?

Satya: I would argue in many ways we didn’t make a decision. We tried to play the middle. And I think it’s pretty clear, in retrospect, that was the wrong answer. And frankly, I think it was probably clear to a lot of people internally, it was the wrong answer then. There was a whole host of reasons why that played out the way that it did. They did both because they closed down the platform to a smaller set, but they still wanted to be a platform. And of course they’re driving towards being a destination. I think there was a little bit of wanting to be both, but doing neither well.

Gené: Was that the biggest question Twitter was trying to answer at the time?

Satya: It was everything from making sure the service stayed up, to monetization. It was pre-IPO. Platform was certainly a big component of it. You might recall a time when there were no photos or images on Twitter. That was a big decision to do even that. So there were lots and lots of decisions that played into what Twitter became. I do think that it would be a very different service if it had moved to the platform direction. I think potentially a much more broadly used service.

GenĂ©: What are two companies in your portfolio that you’re excited by and why?

Satya: We’re investors in a company called . Shield AI was started by two brothers, one who was a Navy Seal and the other who was an engineer at MIT. And the brother who was a Navy Seal came back for his tour of duty in Iraq and Afghanistan, and he came to the realization that none of his colleagues, fellow soldiers died in battle. They died when they were doing reconnaissance into areas where there was no information about the building or the terrain that they were going into. And it seemedd crazy to him that that can’t be solved in some different way. And so he got together with his brother, and they decided to build a company called Shield AI, which is developing fully autonomous drones for the public sector. These drones can by themselves navigate into buildings and caves. Collect intelligence about what’s going on inside through thermal cameras, regular cameras and then communicate that back to people who can do analysis on it.

Gené: Is this product targeted at the military?

Satya: The public sector broadly, but DoD obviously is a big target of theirs. And so we seeded that company a few years back. Andreessen Horowitz did the Series A. The company is in the process of closing its Series B. And already the impact that companies are having in terms of keeping people out of harm’s way (both military personnel and citizens) is phenomenal. A company that nobody will probably ever hear about. It is based down in San Diego. But a company that has such a powerful mission around ensuring the safety of civilian and military lives. And started by founders for all the right reasons. One we’re super excited to be part of. And an example of a company that stems from the work that we did at Cruise. Because these fully autonomous drones are using computer vision and all the same types of technologies, that allowed us to have a point-of-view around that market.

The other company is called . They started based on the idea that every software company has become a payments company. They all want to be able to accept payments and disperse payment. And the norm for doing that is by signing up with a processor and paying that processor three percent or whatever that might be.

What Finix is doing is creating the software infrastructure for any software company to become a payments company itself. Instead of paying three percent you then turn that into a revenue center. It’s also software driven, it can be adopted and used by companies of any size. And so we think of it as democratizing access to a financial services infrastructure, helping a whole generation of software companies create more value for themselves and their employees and their customers.

Gené: Who do they sell to?

Satya: They are targeting marketplaces, software companies, and financial services companies.They work with companies like Lightspeed POS, they work with companies like Visa. Literally any company that wants to be able to accept payment of some kind, credit card or otherwise.

Gené: How do they charge?

Satya: It’s software based subscription plus transaction. We seeded that company. And , , and led the A recently. Incredible founding story where the founder is a self taught engineer, first generation college graduate, with a Latino American background and just the hardest working guy you could ever meet.

Gené: Thank you I think we have it.

Crunchbase Links:

Illustration: .