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The Kingmaker Strategy

New post up on TechCrunch: The Kingmaker Strategy. Tried to go into a bit of depth on how the Chinese Internet giants are approaching their (increasing) investments in private technology companies.

Our Newest Fund: GGV V

GGV_logo 2013This morning we announced the closing of our newest fund, GGV V. It’s a $620 million venture capital fund focused on investing in great entrepreneurs in the U.S. and China, and mirrors the size and strategy of our prior funds: Fund IV ($525 million) and Fund III ($600 million).

The most important takeaways:

1) It’s another $620 million that will go towards the financing and growth of great companies. That’s good for entrepreneurs.

2) It’s another strong sign that the venture capital model is alive and well. We had more than 2X committed demand from our limited partners (our investors) and a relatively short fundraising process. The message was clear: investors in the VC asset class believe the opportunity for disruption and innovation over the next 5-10 years is as great as it’s ever been, and returns from top VC firms have been stellar for the past few years (outpacing hedge funds and other “alternative” investments).

We want to be the first call for entrepreneurs building category-defining companies across the U.S. and China. Thanks to the support of our LP’s, Fund V will enable us to continue to focus on that mission.

Read the TechCrunch article on the new fund here.

The Real Winners of 2013: Tech IPOs from 2012

This morning I posted an article on Fortune.com entitled “The Real Winners of 2013: Tech IPOs from 2012.” Ted Tobiason (@TedTobiasonDB) and the team from Deutsche Bank helped us pull together some astonishing stats about the IPO Class of 2012, starting with the fact that the average tech IPO from 2012 is up 170%. You can read the article at Fortune.com or below. 

The year 2013 was a banner year for venture-backed technology IPOs. According to the National Venture Capital Association (NVCA), 82 VC-backed companies raised $11.25 billion in IPOs in 2013, the most VC-backed IPOs since 2007. Public market investors showed strong interest in many of these offerings at IPO as well as afterward – the average IPO from this class had traded up 64% through the end of the year (and 15 were up more than 100%).

Fig 1 IPO Trend

Impressive numbers for the Class of 2013 by any measure. It is worth noting that 2013’s numbers were significantly up from 2012 in both number and dollar volume if Facebook (which accounted for $16 billion of 2012’s total of $21.5 billion) is excluded from the 2012 numbers (as shown in the chart above).

From the vantage point of venture capitalists, founders and employees of these tech companies, however, the most important measure of a company’s IPO is how the stock is performing a year or two down the road. The reason for this is simple – most VC’s and employees aren’t selling at the IPO. The standard lockup (a window in time where insiders cannot sell shares) is typically 6 months, and many insiders and employees will wait (or vest) and sell down their positions over time. Performance beyond the first year is also critical for the health of the overall IPO market, as public market investors who bought into high performing IPOs are often inclined to support additional offerings over time (in other words, the Class of 2012 is an important leading indicator for 2014 and beyond).

So for technology investors (and the pension plans, endowments and individuals that invest with them) and employees, the important question to ask is “How is the IPO Class of 2012 doing?”

The short answer – unbelievably well. To the tune of over $100 billion of market capitalization increase since IPO. To look deeper, I reached out to Ted Tobiason, Managing Director at Deutsche Bank, whose team helped craft the following data points (all data as of 1/2/2014):

–          The average tech IPO from 2012 is up an astonishing 170% from its offering price

–          18 of 42 tech IPOs from 2012 are up over 100% from their offering price, while just 9 trade below their offer price and 4 have been acquired (Acquity, Eloqua, ExactTarget and Kayak)

–          The IPO Class of 2012 has added more than $111 billion of market capitalization since IPO ($57 billion by Facebook, $54 billion by all other IPOs combined)

–          Here are the top 10 performers from the IPO Class of 2012, ranked by percentage increase from the IPO offering price to January 2nd, 2014 (market close last week):

Fig 2 IPO Top 10 Class of 2012

(Note that this data reflects an analysis for 42 of the 49 IPOs from 2012, as the NVCA data also includes biotech IPOs, while our analysis does not.)

While IPOs from high-profile companies like Facebook get the bulk of media attention, an astonishing amount of value has been created broadly by the IPO Class of 2012 over the past two years. In fact, more value has been created by these companies since IPO than was created prior to IPO: the $54 billion referenced above is up from a starting point (at IPO) of $33 billion.

So – what conclusions can we take away from these data points? To be fair, they have to be taken in the context of an overall bull market which saw the NASDAQ Composite rise 56% and the Dow 34% from the beginning of 2012 to the end of 2013. Nonetheless:

1)      Public market investors are clearly showing a massive appetite for new offerings and the growth rates that typically come with them; the average IPO from 2012 and 2013 was growing at 44% in the calendar year of its IPO

2)      The Class of 2012 performance is not just driven by a few outliers; though the top 10 drive up the average (mean) performance considerably (to 170%), the median for the Class is an impressive 84%

3)      Pricing at the time of IPO is often considered an indicator of the “hotness” of an IPO, but may not be a great indicator of future performance; all 5 of the top performers from the Class of 2012 priced below the midpoint of their IPO filing range

It will be interesting to see how the Class of 2013 fares in 2014, when lockups expire and early shareholders and employees can begin to sell their holdings.

They’ve got big shoes to fill – the Class of 2012 has knocked it out of the park.

Disclosure: GGV Capital is an investor in YY. Related to this topic: why certain companies do well post-IPO; for more, see my Partner Glenn Solomon’s post “How LinkedIn Became a Wall Street Juggernaut.”

Recently Read: The Everything Store

Everything StoreJust finished reading Brad Stone’s excellent book “The Everything Store: Jeff Bezos and the Age of Amazon.” I’ve recommended it to every entrepreneur I’ve met for the past few weeks. So many great nuggets to take away about entrepreneurship, product development, innovation and execution.  I highlighted many sections throughout the book, and here is one of my favorites from Rick Dalzell, Amazon’s CIO from ’97-’07:

“Jeff does a couple of things better than anyone I’ve ever worked for. He embraces the truth. A lot of people talk about the truth, but they don’t engage their decision-making around the best truth at the time. The second is that he is not tethered by conventional thinking. What is amazing to me is that he is only bound by the laws of physics. He can’t change those. Everything else he views as open for discussion.”

A great read for anyone who is an entrepreneur or who cares about the inside story of development of industry game-changers like AWS or the Kindle.

“This is Not Just for the Menlo Mom”

I read an article by Nick Bilton this week in the New York Times entitled “Disruptions: The Echo Chamber of Silicon Valley.” I think he makes some solid points, and it reminded me of my first meeting with Mauria Finley, founder and CEO of Citrus Lane.

Citrus Lane FBOne of the first things Mauria told me when we met was “Citrus Lane has to be about products and a community that is not just for the ‘Menlo Mom.’  We have to reach the Nebraska Mom, the Tennessee Mom – the broader audience of moms around the country and eventually the world.”

Mauria and her team had spent a ton of time talking to moms around the country as well as the brands behind the products they buy. They learned a ton, and applied it towards their business strategy and business model. There are 10,000 babies born every day in the US, and the average first time mom spends more than $12,000 on her child in the first year (think diapers, baby food, strollers, etc.). If Citrus Lane had started out with a product mix focused on moms from Silicon Valley (or the “Menlo Mom”), chances are the company would end up reaching a very small percentage of those 10,000.

Everything the company does reflects this thinking. I won’t give away all the secrets, but the company’s $25 price point, the product mix, the content and engagement models (heavy on mobile and Facebook, for example, given that many moms spend their days out and about – not sitting in front of a desk) are all designed in the context of how the majority of moms throughout the US think, not just those based in Silicon Valley.

Citrus Lane Sold Out Tweet

The results speak for themselves. The company has grown more than 10X from when we invested a year ago, and has sold out 6 months in a row. Click here to view a recent presentation from Mauria on how she’s building Citrus Lane and why “Social is the Very Essence of our Brand.”

In contrast to the data points in Nick’s article, Mauria and her team launched with a product offering that appeals to the market at large, avoided getting overly focused on the early adopter crowd in Silicon Valley, and they nailed it. Maybe a good topic for Nick’s next article :).

Article I wrote this week for VentureBeat: “8 Tips for Entrepreneurs from a Founder-Turned-VC”

VC Tips: Qualifying the Buyer

I recently had an email exchange with a CEO that I was impressed with, and thought I would share.  I have eliminated some of the details that are proprietary to the conversation and the company, but you’ll get the point.  It highlights a key part of the fundraising process – qualifying your “buyer.”

I wrote a post a few months ago titled “Sell  Burgers to Meat Eaters,” which highlighted the importance of meeting with investors who know and have demonstrated success in your space.

Along these lines, it is just as important to ensure you are meeting with venture investors who a) have capital to invest, b) invest on the kinds of terms you are thinking of (stage, amount, valuation, etc.), and c) can move in the timeframe you’d like them to.  Experienced sales reps qualify their buyers all the time, but it’s an important part of the fundraising process as well.

Here’s the email exchange.  The first email was sent after our first meeting, and prior to our second meeting.  The CEO’s key email is highlighted.


From: CEO
Sent: Monday, February 13, 2012 6:46 PM
To: Jeff Richards
Cc: Adam Altman
Subject: Re: Thank you


A polite ping on what you are looking for us to cover tomorrow. Thanks.



From: Jeff Richards
Sent: Monday, February 13, 2012 10:22 PM
Cc: Adam Altman
Subject: Re: Thank you

First meeting covered a lot of key details.  In tomorrow’s discussion we’d like to dive deeper on a) product roadmap, b) go to market plan (sales in particular), and c) competitive landscape.  Hope this helps.



From: CEO
Sent: Monday, February 13, 2012 10:30 PM
To: Jeff Richards
Cc: Adam Altman
Subject: Re: Thank you

It does, Jeff. Thanks. Before we spend more time further covering our business,  one question on my side, what is your appetite to invest in our next round of funding, which we are looking to do before end of this quarter?



From: Jeff Richards
Sent: Tuesday, February 14, 2012 7:00 AM
Cc: Adam Altman
Subject: Re: Thank you

Great question.  We wouldn’t ask for the follow-up meeting if we didn’t have an appetite to invest.  I spent 10 years as an entrepreneur and raised more than $100M for my companies before joining a VC firm, so I know what fundraising is like and I am very focused on not wasting your time.

We’ve been tracking the space and the company for a year, and are looking to make an investment in this area.  My primary concerns center around XXXX, XXXX and XXXX (redacted).  The XXXX have existing relationships with customers and are clearly focused on the XXXX arena.  They shouldn’t own it, in my opinion, but my checks with XXXX tell me they are aggressively pitching your story.

Being direct here to try and facilitate open conversation.



From: CEO
Sent: Tuesday, February 14, 2012 7:16 AM
To: Jeff Richards
Subject: Re: Thank you

Jeff. I really appreciate the perspective. This is just what I want from an investor, especially one who has sat on my side of the table. I came from the XXXX space and can talk to your viewpoint. I look forward to a spirited discussion this morning.


Recently Read: Boomerang by Michael Lewis

I’ll admit I’m a sucker for a new Michael Lewis book.  He’s written several of my all time favorites, including Liar’s Poker, Moneyball, The Big Short and the New New Thing.

Boomerang is a quick – but scary – read about the recent economic meltdowns in Iceland, Greece, Ireland, Germany and the US.  Boomerang doesn’t go into nearly as much detail as a book like Too Big To Fail (highly recommended read), but it does provide some high level insight into the origins of the issues (it wasn’t all the housing meltdown), the players involved, and, in most cases, the incompetence that led to where we are today.

Sample scary stat from Lewis’ section on California (“Too Fat to Fly”): “This year the state will directly spend $32 billion on employee pay and benefits, up 65% over the past 10 years.  Compare that to spending on higher education (down 5%), health and human services (up just 5%), and parks and recreation (flat), all crowded out in large part by rising employment costs.”

If you like Michael Lewis’ writing style and are interested in what’s happening in our global economy, Boomerang is worth the read.

VC Tips: Sell Burgers to Meat Eaters

One of the most common pieces of advice I give to early stage entrepreneurs is to “sell burgers to meat eaters.”

I, like many Californians, believe In N Out Burger is one of the great restaurant concepts of our time (it’s also a compelling entrepreneurial story: read the history of In N Out).  The company’s menu is ridiculously basic – you can order a variation on the same three things – burger, fries, drink.  That’s it.  In N Out really knows its customer, and they don’t worry about catering to “everyone” (you can get a burger with no meat, but it’s still a “burger”).  In N Out delivers a really simple value proposition to a very simple core audience – people who love burgers.

So how does this apply to raising money from VC’s?

If you are pitching your company to a VC, make sure the Partner you are meeting with knows something (ideally, a lot…) about the space you are focused on.  Look up his/her track record.  Ask the person who referred you.  Do some research online.  What are his/her successful companies in the sector?  If he/she doesn’t have any experience in the sector, ask yourself (and him/her) if it’s worth meeting – you don’t want to waste his/her time or yours.

The corollary of this is to not get upset when a VC declines a meeting with you for this reason.  The best VC’s I know will politely tell an entrepreneur something to the effect of “That’s not my area of focus,” “Our firm is not investing in that space,” or “That’s not my area of focus, but I would be happy to introduce you to my Partner who is focused on that area.”  As an entrepreneur, this VC is doing you a massive favor.  The most valuable commodity you have is your time.

Sell burgers to meat eaters.

In this case, meat eaters are venture capitalists who are pre-disposed to like your concept.  They know the market (to the extent that they might even say you can skip the Market slides in your presentation).  They get the business model, no matter how unique it may be.  They understand the financial implications of a successful business in your space (things like high CAPEX, customer acquisition models, bookings to revenue conversion, etc.).  They know executives at relevant larger companies and can make introductions, even if they don’t invest.  In short, a meeting with a qualified meat eater can be worth your time if you leave with nothing more than some valuable feedback, a few pieces of advice, and an introduction or two.

Should you turn down a meeting with someone who doesn’t know your space?  Yes.  Do it in a polite way, but at least probe a bit via email as the meeting is getting scheduled. It might lead the Partner to do a bit of homework and invite a colleague who might be deeper in the space.

This sounds like Sales & Marketing 101 (and also applies to how and to whom you sell your product), but at least once a day I have a conversation with an entrepreneur who tells me about a disappointing meeting at a good venture firm.  When I dig a bit, I often come to the conclusion that he/she met with the wrong Partner.  Had he met with the right Partner, the meeting might have gone really well.  Which leads me to say:

“You gotta sell burgers to meat eaters, my man!”


Epic Steelheading on the Klamath River

Just came off two incredible days of fly fishing for steelhead with a great crew of tech execs on the Klamath River.  Special thanks to Chuck and John at WildWaters Fly Fishing for making the trip spectacular as always and the inimitable Ken Loveless from SVB for pulling it all together.

A good sized Klamath steelie

Will nailed a beauty on day 2

An awesome fish


Ted and Ken about to hit the river with guide John

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