• About Jeff Richards

    - Venture Capitalist @ GGV Capital
    - Dad
    - Entrepreneur

  • Subscribe with Feedburner

  • Enter your email address to subscribe and receive notifications of new posts by email.

    Join 60 other followers

  • Top Posts & Pages

  • Recently on 13 hrs to think

  • Join 60 other followers

  • Admin

Success, Reality and the Myth of “Up and to the Right”

New post up today on TechCrunch where I provide a bit of an insider’s look at the success of BlueKai. It’s a story I think will resonate with many entrepreneurs, and is titled “Success, Reality and the Myth of “Up and to the Right.”

path-success

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.”

Excited to Welcome Hans Tung to GGV Capital

Hans Tung_09Really happy to share the news that Hans Tung, one of the top venture capitalists in China, is joining GGV Capital as a Partner.

As an entrepreneur and CEO, I was always amazed at the impact one key addition to our management team could make. Now, having been a VC for 5 years, it’s something we see regularly in our portfolio. A company brings in a rockstar to fill a key role on the management team and boom! – he or she makes an immediate impact, bringing new ideas, new insights and generally disrupting the status quo (in a good way). We think we’re going to see the same with Hans, and that’s great for entrepreneurs, our Limited Partners, and our firm.

We’ve had the benefit of knowing Hans for more than 8 years – often competing or collaborating to work with the best entrepreneurs in China. Hans is well-known for leading investments in several of China’s top companies, including mobile device leader Xiaomi (the fastest company ever to go from $0 to $1 billion in revenue), mobile game company Forgame (which recently completed its IPO at a valuation of over $1 billion) and e-commerce innovator Vancl (one of China’s emerging e-commerce leaders).

Over the next 5-10 years, the most significant companies in the mobile and Internet sectors will find ways to succeed across the US and China like never before, with US companies expanding to China and Chinese companies coming to the US (see our recent co-investment with Alibaba Group in Quixey). As a firm, we are laser-focused on being the #1 choice for entrepreneurs seeking to expand across these two markets. When we had a chance to add Hans to the team to further that mission, we jumped at the opportunity.

Welcome Hans!

Quixey Raises $50 Million from Alibaba and GGV

quixey logoPretty excited today for my friends at Quixey, who announced their Series C round of investment led by Alibaba Group with participation from GGV Capital and existing investors.

I first met Tomer and the team at Quixey in 2011, and have been amazed at what they’ve accomplished since then. We’ve had a longstanding relationship with Alibaba since investing in the company in 2002 and jumped at the chance to work together with Quixey.

Why are we so excited about Quixey?  For starters: 102 BILLION.

That’s the number of apps Gartner projects consumers will download on their mobile phones this year worldwide, generating more than $26 billion in revenue. For a market that by all respects didn’t even exist 6 years ago.

The team at Quixey has a very, very big vision in which consumers are able to leverage the apps, data and capabilities of their smart mobile devices to the max. It’s also a vision that is decidedly “open” (i.e. not controlled by Google, Apple, or…) and focused on enabling consumers and app providers to deliver the best possible experiences to consumers.

Perhaps both GGV and Alibaba are colored by our experiences in China, but we see the market accelerating at warp speed to a mobile environment. Industry segments we don’t even recognize yet will be created overnight by companies we are just starting to hear about today. Uber and Instagram are perhaps the best examples to date, but there will be others.

Alibaba is one of the strongest technology and consumer companies on the planet, with an e-commerce business that is larger than Amazon and eBay combined. The company has an enormous strategic focus on mobile (see the announcement earlier this year that Jack Ma joined the board of UCWeb, a GGV portfolio company with more than 400 million users worldwide).

It’s going to be awesome to watch the Quixey team execute on its vision, now with plenty of capital and the support of Alibaba Group.

By the way – Quixey has amazing offices on Castro St. in Mt. View and is hiring!

amazingteam1

Travel Goes Mobile: HotelTonight Raises $45 Million

hotel_tonight_app_logoA massive industry shift is underway: the $400 billion online travel industry (roughly 40% of the $1 trillion total travel market) is moving from desktop to mobile. Travel industry research firm analyst PhocusWright expects mobile travel sales to triple from 2012-2014 (reaching $25.8 billion) and research firm eMarketer projects will reach $48 billion in 2017 (see chart below).

Leading the charge in the $300 billion hotel industry is HotelTonight. Launched in 2010 by travel industry veterans Sam Shank , Jared Simon and Chris Bailey, HotelTonight has grown to become the #2 hotel travel app on the iOS app store and support millions of travelers in over 120 cities in 12 countries.

To continue its global expansion, the company today announced its $45 million Series D round of financing from Coatue Capital and GGV Capital, along with existing investors Accel Partners, Battery Ventures, USVP and First Round Capital.

emarketer travel

As tech media readers are probably tired of hearing, the global shift to mobile is massive, and is happening rapidly across many, many industries. Notable examples where new entrants have entered large existing industries, rapidly captured significant share and created billions in market value include (desktop leader on left, mobile innovator on right):

– Music: iTunes -> Spotify (private, est. $3B)

– Social: Facebook -> Instagram (acqu. by Facebook for $1B)

– Maps: Mapquest/Google -> Waze (acqu. by Google for $1.1B)

– Urban travel: Numerous -> Uber (private, est. $3.5B)

Consumers and the media are probably tiring of VC’s talking about this massive shift, but it’s hard to overstate. In almost every industry, analysts and CEOs are talking about the shift happening “faster than anticipated.” This is especially true when taking a global view (as we do), and take into consideration markets like China and India, where more than a billion consumers will experience the Internet for the first time on a mobile device over the next few years.

Mobile users want a mobile experience, not a web experience on a mobile device (for more on this, read Sara Lacy’s Pando article today). HotelTonight nails it with a great experience for both end users (I happen to be one – my favorites in SF via HotelTonight are the The Westin, Hotel Vitale and the Clift) and more than 3,000 hotel partner properties around the world.

With this new financing, HotelTonight will continue to expand on a global basis, an effort we are thrilled to help support. We’ve had a terrific window in the travel market in Asia via Qunar, China’s leading online travel site, and Tujia, the leading platform for home vacation rentals in China.

In short – great team, great product, huge market, massive disruptive shift underway. Very excited for Sam, Jared, Chris and the team at HotelTonight!

Edit @ 11:00 am PST: Here are are a few links to media coverage of HotelTonight’s announcement today:

TechCrunch: “HotelTonight Raises $45M with an eye on continued global expansion”

Financial Times: “HotelTonight finds room for $45M”

PandoDaily: “Will HotelTonight be the next big travel IPO?”

VentureBeat: “HotelTonight raises $45M to spread same-day booking around the world”

Skift: “Last-minute mobile booking app HotelTonight gets a big $45M round”

BusinessInsider: “HotelTonight raises $45M round”

C/C/C: Verticals Win(ning)

Houzz AppsA few months ago I wrote a post titled Content, Community and Commerce: Why Verticals Win. It’s been a frequent topic of conversation over the past few months, and today PandoDaily wrote an article on Houzz that brilliantly dissects a number of factors leading to the company’s rapid rise in the home improvement vertical.

Click here to read the article: “The Numbers Say Houzz Has Lit a Fire Under the Home Remodeling Market”

In a nutshell, it highlights the self-reinforcing benefits of a highly engaged, growing user base with common interests and passions – and the magic that combination can generate, particularly with respect to content. From the Pando article:

But it’s not the sheer number of people using Houzz, be it as a daily obsession or an integral part of their business, that’s so impressive. It’s the level of content that this audience outputs and the rate at which it’s accelerating. Today, Houzz announced that it has surpassed 2 million HD design and remodeling images available on its platform. It took the company more than three years to see the first 1 million images uploaded, and yet it doubled that amount in just the eight months since the beginning of the year.

While Adi, Alon and team are leading the charge in many ways, we are seeing this happen across many market segments as users migrate from horizontal platforms to vertical ones (see my original post for other examples).  And yes (disclosure), my firm GGV Capital is an investor in Houzz.

Quiet Success

EdgeSpring websiteReally excited to post this article today on Fortune.com: The Quiet Successes That Drive Silicon Valley. So many great entrepreneurs doing so many great things every day – but you don’t read about them on Twitter or TechCrunch. Sorry Vijay and Ryan for shining the spotlight on you 🙂

“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 :).

The Best Ecommerce Company You’ve Never Heard Of (Until Now)?

Sam ReebonzIt’s always a lot of fun for us when an entrepreneur who has worked for many years to build an awesome company finally starts to receive well-deserved recognition. The latest example is Sam Lin at Reebonz, which announced its new $40 million financing round yesterday (read the article in TechCrunch).

Sam founded Reebonz in 2009 with a clear focus on the $200 billion+ market for luxury goods, about 30% of which is in Asia – Reebonz’ core market focus. A two-time entrepreneur, Sam has an intuitive understanding of the Asian consumer and her shopping preferences. GGV Capital was fortunate to invest in Reebonz in 2010 along with Vertex and Matrix China, and we’ve since watched Sam build Reebonz into one of the fastest growing e-commerce businesses on the planet.

I won’t go into too much detail because there are some elements of Sam’s business that we haven’t seen anywhere else, but will highlight a few things we see Sam doing that have been critical to Reebonz’ success:

1) Maniacal focus on customers and the customer experience. Packaging, design, product, delight. Every detail has Sam’s touch (see my photo above with Sam in front of a packaging display).

2) Extreme focus on quality. The best brands, the best products – backed by Reebonz and its world-class level of customer service.

3) The element of surprise. There is always something unique, something hard to find, something amazing about a limited offering from Reebonz – and customers love it.

4) Get local. Sam has country managers in each core market who have a tremendous amount of autonomy and are able to cater to local preferences.

5) Market online and offline. Reebonz does a terrific job of creating unique experiences and events offline, building its brand and relationship with customers in a very personal way.

Very fired up for Sam and his team. Well deserved recognition for a category leader like Reebonz and a terrific entrepreneur like Sam.

Content, Community and Commerce: Why Verticals Win

Houzz1When it comes to the three C’s – Content, Community and Commerce – we have a very basic thesis we have been investing around for several years now: vertical platforms win.

What do I mean by “win?” Deliver a (much) better experience for users. Create value for brands and advertisers. Deliver higher monetization rates (and thus value) for management and investors. Win for consumers, win for brands, win for management. And they can do it at scale, which is where we believe many of the horizontal platforms start to degrade.

How do they do it?

Content. By focusing their efforts on a specific interest area, vertical sites can deliver the best user experience around content. Images, text, search and sharing are all tailored to the area of interest. Don’t believe me? Look up “kitchen” or “kitchen remodel” on Pinterest, then go to the “Kitchens” section on Houzz. For someone who is interested in architecture, design or remodeling kitchens, the experience on Houzz is dramatically better (unless you want a random picture of a naked woman in a kitchen, which did pop up in my search on Pinterest).

Community. If in a large enough category (think: home improvement, music, fashion, travel), a vertical platform can amass a big enough audience to truly create a thriving community. Yelp has done this exceptionally well in a giant vertical, and now has more than 100 million unique monthly users. Google, Foursquare and startups like Ness are challenging (especially using mobile as a trojan horse), but Yelp has the largest and most focused community, and it’ll be tough to beat Yelp if it continues to innovate. Another great example is Zillow, where users are encouraged to “claim” their home and input their own data and photos. It’s working – Zillow has more than 45 million unique visitors every month, and more than half are on a mobile device. Last year we invested in an e-commerce business called Citrus Lane which is focused on building a large community of moms around its brand; a community opportunity we don’t see with many other e-commerce businesses. Given that moms spend more than $45 billion each year on their babies (first time moms spend $16 billion alone), and more than 100,000 babies are born every day in the U.S. alone, we think this category is not only large enough to support a vertical winner but also emblematic of a “mobile first” opportunity. More and more moms spend the majority of their time on their iPhone or Android device and very little in front of a PC.

Commerce. The beauty of nailing content and community in a vertical platform is your users actually want a commercial experience. And when I say “commercial experience,” I don’t just mean “ads” (which tends to be the de facto model for horizontal platforms). Meilishuo, the top vertical platform in China for women’s fashion has more than 4 million daily active users, almost all of whom are females between the ages of 20 and 35. It’s a highly focused, engaged and active community. When you utilize Meilishuo (best on iPad), one of the first things you’ll notice is it’s intentionally commercial – you can click to purchase more than 95% of the content on the site. You don’t see that on horizontal platforms like Instagram or Pinterest. As a result, Meilishuo is driving hundreds of millions of dollars of GMV (gross merchandise volume) in the fashion category. (Funny anecdote – when I was in NY with Meilishuo CEO Xirong Yu, I showed him Instagram. He kept clicking on images and saying “Why can’t I buy it?”)

Perhaps the most important point is this last one: these vertical sites are intentionally set up to drive commerce. It’s part of the core user experience. Upon introducing several friends to Houzz last year, more than one came back to me and said “I’d like to see more tags!” The products are part of the user experience and – done in a tasteful manner – play an integral role in the consumer’s engagement on the site.

The biggest challenge with vertical platforms – historically – has been getting enough critical mass to matter.  There are vertical sites all over the web for almost every niche interest you can think of. Many of these are in fact small, thriving communities with no venture capital backing and a highly profitable business model. Others – like those mentioned above – are already big and getting bigger (think Spotify, in music). Given the commercial aspect of these vertical platforms, they tend to monetize at a much higher rate per user than their horizontal peers. As Xirong from Meilishuo put it to me: “I don’t want a billion users. I want the most valuable 200 million users.”

Horizontal platforms play an important role in the Internet ecosystem, and my bet is Facebook and its social graph will play a really important role for a very long time. But – it will be very hard for other vertical platforms to gain prominence, and few (if any) will monetize as well as the rising vertical platforms. These new vertical platforms are also the most likely to develop innovative forms of monetization as we move to a “mobile-first” environment (phone & tablet).

A few questions we’ll be watching closely over the next year or so (that this post doesn’t attempt to answer):

– Will the horizontal platforms (Facebook, Google, Tencent, Baidu, etc.) eventually “win” in these large categories, despite early leads from the upstart innovators?  Seems unlikely, unless… (see next point)

– Will the big horizontal platforms acquire the new vertical leaders in the interest of garnering eyeballs and also alternate / non advertising-based models of monetization?

– Will the emerging vertical platform leaders be able to go global – as the horizontals have (more than 75% of Facebook users are from outside the U.S.)? As they do, will they be beaten to the punch by local vertical leaders?

– Will we see many, valuable vertical players (sort of like the SaaS space in enterprise), or consolidation and just a few winners?

Many unanswered questions, but a battle that will be fun to watch with billions of dollars at stake.

Disclosure: my firm, GGV Capital, invests across the US and China, and is an investor in Houzz, Citrus Lane and Meilishuo.

%d bloggers like this: