A few weeks ago,True Venturesclosed its newest, early-stage fund with $310 million, which is just a slight step up from its last, $295 million fund, despite some enormous wins like Fitbit, whose first check came from True. (As you likelyrecall, the wearable device maker staged a highly successfulpublic offering last year.)
We werentable to catch up with firm co-founders Phil Black and Jon Callaghan at the time, but we talked this week about the firms strategy and how it views the startup worldright now. For example, we discussed its $100 million opportunity fund, Select One, which True has been investing since last year to take outsize positions in roughly eight of its portfolio companies. Among them isfour-year-old Peloton, whose stationary bike with built-in console allows users to live stream instructional cycling content; Ring, the four-year-old video doorbell company; and Namely, a nearly five-year-old HR, benefits and payroll platform. All three are achieving a level of operational excellence that were just thrilled by, says Black.
True which iscurrently raising a second Select fund and this timetargeting $175 million also talked aboutwhat it sees as the next bigfrontier;whether theres too much money in themarket; and why WordPress parent Automattic, which is one of Truesearliest and most richly fundedportfolio companies, has yet to announce any kind of plan to go public.
TC: Youve been early to a lot of things, from 3D printing to wearables. What about the autonomous driving future, which now dominates the headlines. Where have you placed your bets?
JC: Weve been in that category for a while now. Weinvested in Renovo, the all-electric supercar, in 2011. We also invested in Nexar, anapp that lets camera phones video and monitor and intelligently score in real time all the cars on the road around you, so if a Blue Prius cut you off yesterday in Palo Alto, [everyone on the platform] will know not necessarily that that Prius is bad but that you should watch out. Its AI for hybrid roadways. [Editors note: More on the company here.]
TC: Truehas traditionally writtenchecks of between $1 million and $3 million for between22 to 25 percent of acompany. Is that still possible to pull off in 2016?
JC: Yes. We start small, but we dont think small. Weve been the first investors in a lot of very big markets.
TC: Where might founders be surprised to learn youre focusing alot of time right now?
JC:I guess neuroscience mightbe perceived as out there, but weve invested in four neuroscience applications that are really fascinating, including Neosensory[which gives people new senses via haptic feedback] and SonicSensory,a stealth company thats doing more neuroscience in entertainment. We also love Tuild, which specializes in brain acuity, and theres another out of MIT that we havent announced yet.
TC: And early-stagevaluationsare where right now?
PB:Valuations have gone up over the last 10 years [since we launched True] but not unreasonably so. I kind of feel like theres a bit of a stasis in terms of good companies getting funded. Meanwhile, its becoming rare forhigh-value late-stage companies to go off at some price thats well outside of [where their public market counterparts are trading].
Nutanix [whose devices combine storage and computer servers in one unit], just set its IPO price at [below its last private market valuation]and itdoesnt take many of these for late-stage investors to say, There are limits on the price I should pay. So I think the market is self-correcting, I think werein a fine spot whichcould change in two months. [Laughs.] Solid companies dont have a hard time getting funding, but its not being done in two calls, either.
TC: BenchmarksBill Gurley is worried that Silicon Valley is still being flooded with too much money. Do you agree or, given your very early-stage bets, is that not a concern right now?
JC: Im not sure the same sources of late-stage capital are there, but yes, its still comparatively easy and cheap for companies to raise money privately, and thats not the best thing for companies or the economy and the country, by the way. Its important for investors to get more democratic access to healthy, small, growing private, risky companies.
PB: I do thinkwellsee many more IPOs in the next fiveyears than in the past five years. Its a function of supply and demand. There was and remains atremendous supply of capital for privately held companies in the system, but I think everyone would like companies that have raised a lot of capital to go public. Liquidity is an elementof investment. Theres absolutely nothing wrong with a company going public with a market cap of $750millionto $1.25 billion, but it seems like thats a late-stage venture round now, and I dont think thats right, particularly given the many good reasons for going public: Youre better managed, you enjoy better liquidity, you likely have more capital on your balance sheet
TC: Why hasnt Automattic gone public? Its 11 years oldand has raised close to $200 million from investors. Is it a question of revenue?
PB: [Founder] Matt [Mullenweg]is continuing to build a very large and successful company. It now has north of 500 employees; it made a very successful acquisition last yearofWooCommerce, so its now in the e-commerce businessand doing somethingvery similar to what Shopify does,and they did a big product revamp called Calypsothatsallowing them to do new thingsthat they didnt before. WordPress now powers more than 26 percent of the Web.
Were in a situationwhere theres noneed for outside capital. We raised $160 million in 2014 and were only slightly negative on a cash flow basis; in the meantime, I think we want to get our proverbial ducks in a row [before contemplating an IPO]. Calypso was a huge undertaking, and [between] that and Woo, which is producing revenue on a slightly more rapid pace, and having newly hired[renowned designer] John Maeda [away from his last role as design partner at the venture firm Kleiner Perkins Caufield & Byers], there are a few things operationally that the company wants to nail down.
TC: Foundry Group announced itsbiggestfund to date on Monday, and it confirmed plans to invest a quarter of the money in other venture funds. Thats an interesting new wrinkle. Would you ever do the same?
JC: Do we want to own a fund of funds? No. But Foundry is one of our investors, and were very glad to have them in the mix.
