New Investment: Optimus Ride

As active investors in ‘frontier tech‘ (as described by my colleague Matt Turck), I couldn’t be more excited to announce today our investment in Optimus Ride.  We co-led a $5.25M seed round of financing with our friends at NextView Ventures, with participation by a strong syndicate of investors.

Aside from a really cool name, the team at Optimus Ride is developing Level 4 autonomous vehicle technology, meaning fully autonomous systems without any need for human interaction. While the company is not ready to discuss its plans, suffice to say it involves the intersection of leading edge hardware, computer vision, sensor fusion, mapping, and machine learning.  If the company is successful, we believe they will have a material impact on one of the most important advances coming in the next decade.  The benefits of autonomous technologies — from enhanced road safety to carbon footprint reduction to traffic optimization — are almost too numerous to name.

We were particularly compelled by Optimus Ride’s team and rich experience in such an emergent space.  With deep roots from MIT, each of the co-founders have worked on successful autonomous vehicle and transportation projects in their past. The co-founders include 3 MIT PhDs / professors – Ryan Chin, Albert Huang, and Sertac Karaman – who have worked on a number of self-driving projects over the past decade, including the MIT CityCar and DARPA’s Urban Challenge. Co-founders Jenny Larios Berlin and Ramiro Almeida bring unique experience in car fleet and transportation optimization. Beyond the founding team, the company is assembling an incredible team of engineers with experience in computer vision, robotics, and electrical / mechanical / software engineering.

We’re impressed by Optimus Ride’s accomplishments to date and are excited to see what they have in store for the autonomous vehicle market in the coming months. We’re psyched to join the team on this journey – onward to a better, more efficient transportation system!

New Investment: Frame.io

“Check out the latest edit of our promo video and let me know if you have any comments. It is a large file so I uploaded it to Dropbox here – the password is Vide0Test1. Also, to make life a little easier, you can put all of your comments in this Google Doc. In case you want to compare, the link to the previous version is here (same password). I didn’t have time to change the intro music yet, but most of the prior comments have been addressed. A handful of other comments (copied below) contradicted each other; my suggestion is that we set aside 45 minutes later this week to review as a team.”

Until recently, emails like these were the state of the art when it came to collaborating on video creation. In addition to the “real” work of actually producing video, video creators logged countless hours uploading files, drafting email updates, aggregating and acting on feedback. Wash, rinse, repeat. Again and again.

Enter Frame.io, which founder Emery Wells humbly calls “better collaboration tools for the video and creative industry.”

Today, we are proud to announce our investment in Frame.io (you can see Emery’s post here, and additional coverage here.) Simply put, the Frame.io story was uniquely compelling, and being a part of this journey was an easy decision. A few reasons why:

• A founding team who deeply understands their customers: Emery likes to call himself a “full stack video creator”; he and his co-founder, John, previously started a successful video studio, producing over 100 digital shorts for Saturday Night Live, Super Bowl spots, and much more.  The immediate product-market fit is an obvious reflection of someone who has felt the pain.
• The power of collaboration:  We have seen how software that allows enterprises to collaborate and connect more efficiently [than email] can grow in an exponential way.  Slack, Github, InVision, and others have demonstrated the power of a user driven model in terms of usage, viral growth and ultimately economics.
• Consumerization of enterprise software: In addition to defining and owning what is essentially a new category, Emery and team have built software that is beautiful, functional, intuitive, and performant. Frame.io is simple and accessible, enabling individual creators to get started immediately, while also providing a deep feature set suited to the needs of extremely large teams.
• Powerful, sustained tailwinds for video: In nearly every facet, video is growing in importance and will penetrate every corner of the market.  The number of individuals that will collaborate on video production is increasing relentlessly: from producers of TV and film, to next-generation media companies, to businesses small and large seeking to articulate their value proposition, and beyond. The rise of video driven platforms like Youtube, Facebook, & Snapchat only underscore the trend.  This is a massive market today and will only grow in the coming years.

For all of these reasons and more, we are excited to be a part of what Emery, John, and the Frame.io team are building.

If any of this resonates with you, you can check out the product here or see open positions here.

New Investment: Robin

We all know the feeling.  We have an office conference room reserved, we go to that room to find someone in it, and then the awkward dance begins.  Do I go look for another space to be polite?  Are they really wrapping up the meeting?  Do I knock?  How senior is the person in there? Does it matter?  Should I do another walk by?  We now schedule over 25 million meetings a DAY, and this is a familiar refrain in nearly all of them.

Robin wants to change that. And, I’m very excited for FirstMark to lead the company’s Series A.

Robin is a better way to manage meeting rooms and office resources. It is software, a mobile app, and a tablet display (optional) outside rooms that syncs to your calendars in Google, Office 365, and Exchange. The platform then becomes a search engine for your office, enabling users to find and book rooms based on specific needs, remove no-show meetings automatically, and get reports on how the office is actually being used.  Think OpenTable for the office.

With its current customers – which include Netflix, Kayak, and Sonos – Robin auto-unbooks more than 25% of meetings per day!  This includes those troublesome recurring meetings that don’t happen most of the time.  More than 95% of meetings booked go through some change or adjustment.  The issue is not enough space, it’s connecting the right space with the right people at the right time.  The analytics behind the platform are fascinating and reveal an incredible opportunity to optimize the management of both facilities and people.

The current problem is the sharp tip of the spear that solves an issue many face and Robin elegantly solves.  If you have more than 10 conference rooms, you should be using Robin. But the product today is just a small step in the broader vision of the smart office.  The smart office tomorrow will have data emerging from all kinds of new platforms, equipment, furniture and services.  Robin can be the platform that ties all of that data together to drive automation and optimization — the OS for spaces.  It’s a vision that is non-obvious, but we believe can be huge.

It’s been an absolute pleasure getting to know CEO Sam Dunn and his excellent team (they’re hiring) and I’m pumped for FirstMark to join Robin on a mission to overhaul office management for the better!

ROLI & The Future of Music Making

At FirstMark, we love to back companies that are pursuing differentiated ideas and building entirely new markets. ROLI is a perfect example. The Seaboard is one of the most unique music instruments ever created, and certainly the most ambitious.  It represents the intersection of deep material science, advanced hardware capabilities, high performance firmware and development framework,  an expressive sound engine, and a user facing application to boot — all of which had to satisfy the simple needs of Grammy winning musicians.  Not quite the “MVP” model of startup design.

You can read much more about the products online but please don’t mistake the ROLI for “just another keyboard.” In the place of keys on a traditional keyboard is a soft, pliable, sensor-embedded surface that enables players to shape notes like a stringed instrument. The sounds achievable with the ROLI are like no other.  We have a ROLI Seaboard RISE stationed in the FirstMark office and it’s been incredible to see and hear the reactions it receives from friends who visit FirstMark. It’s truly a product that wows people.  And yet, it is the broader vision to transform all elements of the music creation process in a seamless, elegant way that inspired us to see a different and much larger opportunity.

It’s been nearly two years since FirstMark initially invested in ROLI and I’m very proud of what Founder & CEO Roland Lamb and his amazing team have accomplished. ROLI keyboards and software are used by artists such as A.R. Rahman, Hans Zimmer, and Jamie xx; and in major studios such as Abbey Road Studios, Atlantic, and Interscope. What’s equally exciting is seeing ROLI keyboards used in music education at schools like Central Bucks High School West in Doylestown, Pa.

The keyboards are incredible, but ROLI’s software efforts have been as groundbreaking as its hardware. The free NOISE app transforms the surface of your iPhone into a powerful multidimensional instrument. JUCE is the leading engine for the creation of audio applications on all platforms. And Blend is a unique social network that helps music producers share music projects in source format for remixing, collaborating, and gathering feedback from others in the global community. Ultimately, ROLI’s vision is to build smarter ways to connect people and technology. I believe they are well on their way.

FirstMark has been a proud backer of ROLI and we were happy to re-up with Roland for their new $27MM Series B round of funding led by our friends at the Foundry Group. I couldn’t be more excited for the music that will be made with ROLI for years to come.

 

Introducing Starry!

I am excited to write about the launch of Starry today!  We’ve had the privilege of working with Starry’s founder, Chet Kanojia, now three times.  His first venture, Navic Networks, put rich, interactive software in tens of millions of cable boxes across America (and had a great exit to Microsoft). His second venture, Aereo, transformed the broadcast TV industry and accelerated OTT video by several years. Aereo’s technology was so disruptive it eventually wound up before the Supreme Court, a journey which I wrote about here.

Today, Starry comes out of stealth, with a mission to redefine how we access the internet. To call this vision “ambitious” is an understatement, and represents exactly the kind of challenge we love to get behind.  The first product is the Starry Station, which is a revolutionary WiFi router with the world’s first ambient touch screen interface.

Starry Station allows you to measure the health of your Internet service, see devices attached to your network, easily create access rules (like managing Screen Time for children), and connect to customer support all through a simple touch screen interface. Anyone that uses Internet based services will love the new platform (not just product) that Starry Station is building.

The company also announced Starry Internet, a radical new ISP for broadband access using state of the art wireless technologies.  Rather than overbuilding and digging up ground that costs $2500 per home passed, Starry Internet will be able to serve that same home with equivalent (or better) speeds at 1/100th of the cost!  While each product (the router and the ISP) can be used independently, together one can imagine what a seamless end-to-end modern Internet experience will look like.

We’re very excited to partner with Starry and can’t wait to see how they will revolutionize the way consumers connect to the internet.

To learn more about Starry’s products and service, visit https://starry.com/.

Congrats, Bluecore!

Since it’s the season to be thankful, I wanted to congratulate the team from Bluecore!  Today, the company announced a fresh $21 million Series B round of funding.  It is a testament to the 180 brands they’ve launched and the $200MM++ in ROI delivered in two short years.  It is also another plug for the rapidly growing SaaS community in NYC.

I originally met the Bluecore founders while serving as a TechStars mentor when they were called TriggerMail.  It was a classic example of a very focused product, clear ROI, and sharp tip of the spear, which several of our portfolio companies were the first to adopt.  Co-founders Fayez Mohamood and Mahmoud Arram built an extremely elegant initial product that required no integrations with off the charts performance. As I dug a bit deeper, it became clear this platform was an entirely new infrastructure to support real time personalization and automation in commerce.  We’ve just scratched the surface.

I’ve also been very impressed with the culture that Fayez and Mahmoud have built at Bluecore. With 64 team members, Bluecore is the largest startup in the Lower East Side of NYC. And, with their office in an old speakeasy, I must say it’s one of the coolest startup workspaces I’ve seen in NYC. It’s an amazing place to work, and, of course, they’re hiring!

We’re excited to be joined in this journey by Georgian Partners, who we got to know at Shopify.  This of course is just the beginning, but I think there’s a lot to stay tuned for!

Sales Tax in SaaS: A Beginner’s Guide

One of the great things about our Community platform at FirstMark is that it has become an amazing resource for our entrepreneurs to turn to when they’re trying to solve a problem. Recently, a CEO at one of our companies reached out for guidance on handling sales tax obligations for SaaS in certain states, which quickly led many others to chime in for additional information.  We quickly pulled together leading experts and had a full house session a few days later. It was a great example of how 8 years of deliberate stoking a community has turned into a powerful network, and I thought I’d share some insights from the session.

In spite of the fact that SaaS applications will generate $49 billion in revenues this year, there’s a lot of confusion and murky regulations to follow. If you haven’t put much effort into sorting through the sales tax issue, you’re not alone. Many companies’ first priority is to prove their market and scale their revenue, not to break ground on unsettled tax items.  It’s not uncommon for companies to ignore the issue and elect to throw money at it should an audit arise. An understandable position, but turns out the earlier you can prepare for the issue, the better.

Below are a few notes that came out of our roundtable on how to begin tackling the issue. While every business is different, there seem to be a few basic starting points. [Obvious disclaimer: This is not advice and consult your tax professional].

Is SaaS Taxable? – One of the trickiest parts of sales tax on SaaS is the state-by-state inconsistency in requirements. Only a few states have specifically addressed SaaS in their tax code. In some cases, digital delivery is not taxed, while some states consider all packaged software subject to sales tax regardless of delivery method. Additional levels of consideration include whether the software was delivered as a sale, lease or license, so the structure of contracts should be examined carefully.   

Gathering information for each state can be tedious. One tactic is to start with the top 10 billing states, then consider some outsourced accounting help to tackle states 11-50. Some states known to tax SaaS include: New York, Texas, Pennsylvania, Massachusetts, Ohio, Utah, South Carolina, Hawaii, Connecticut, Arizona, Illinois, Indiana, New Mexico, South Dakota, West Virginia and the District of Columbia. Keep in mind that these laws are evolving and can change any day.

The software company most commonly mentioned  in our roundtable to help with compliance was Avalara, a platform that automates sales tax compliance.

Nexus – Nexus is essentially an analysis of “sufficient physical presence” and the first real step in addressing sales tax on SaaS. This varies, as you guessed, state-by-state. Triggers could include channel relationships; physically locating employees or even independent agents within a state; or economic thresholds for payroll, revenue, or physical property. A little more below:

1. Click-Through: If a company has entered into an agreement with a state resident who refers potential customers to the seller directly or indirectly by way of a link on their website or otherwise for a commission. If commissions are greater than a specified dollar amount, nexus can be triggered.
2. Agency: A “vendor” includes a business located outside of the state that solicits sales of taxable, tangible, personal property or services through employees, salespersons, independent agents or representatives located in the state.
3. Economic: Thresholds for payroll, property and sales. For instance, a company may need to generate $500,000 in sales to trigger nexus.

Collection, Reporting, Remitting – Every company has its own complexities, which informs the need of outside resources. A large company with a clientele in many U.S. states or worldwide may choose to work with a tax automation software provider to help with compliance. For those that choose to do all of the work in-house, our group noted that it’s important to remember city, local, transit, and county taxes are also applicable.

Voluntary Disclosure Agreements (VDA) – Companies who owe back taxes in a given state can proactively disclose this fact, and in return receive certain benefits. For example, a company’s lookback window could be three years instead of unbounded. Additionally, there could be an abatement of penalties or a reduction of interest obligation.

Be prepared for probing calls from state regulators. In some instances, these probing calls can result in a VDA denial. Again, being proactive is a better stance.

Other resources – Unfortunately, there doesn’t seem to be a regularly updated resource for understanding different states’ approach to SaaS tax. However, this map – published by the Tax Foundation in January 2013 – is a good starting place for a snapshot view of policies.

This is a complex topic that continues to evolve in spite of the relative maturity of the SaaS market.  If you have additional resources, please pass them along or add them into the comments!

Convertible Notes: A Conceptual Perspective

There was a great discussion started by Mark Suster and Brad Feld around convertible notes and the many issues associated with a round in which they convert. This includes a hidden potential for a “multiple liquidation preference” if not adjusted for in the Series A and how the mechanics of the conversion could lead to differences in ownership than a new investor is expecting. Mark and Brad did a fantastic job walking through how the problem arises and the math that drives it.

I’d like to take a crack as to why, in theory, the treatment of the Notes in the pre-money valuation makes sense as the starting point. Of course everything can be a function of negotiation, as Brad points out, but it’s nice when positions have some grounding in principles, and I find many times entrepreneurs and investors can get frustrated by the advice “because that’s the way it is done”.

Let’s start with a discussion of valuation theory. In a perfect world, the value of a company is the sum of the FUTURE discounted cash flows that the business will generate over it’s life, discounted back to today. That discounted cash flow includes all expenses associated with operating the business in the future. The one assumption most Finance classes make is that the shareholding is FIXED for that analysis; however, in venture backed businesses, significant equity cost (dilution) is also required to build to those cash flows. If your share of an ownership is expected to decline over time, obviously you’d need to build in that dilution to your present value calculations. This is a subtle point but I’ll come back to it later. [Never mind whether we actually build models like these in VC or use shorthand methods, as this is a discussion of the principles.]

Convertible notes are used by a Company during its Seed to build to the current Series A valuation. The cash resources associated with them have been exhausted and any remainder is assumed in the current valuation. As such, they should be treated as part of the pre-money valuation — as part of the historical cost and cash flows that were sunk to get to a given set of assets and therefore valuation. Said differently, the expenses that the convertible notes would be funding have already occurred in the past and therefore no longer part of the future cash flows used to get to the current period valuation.  New investors are investing on top of, and building off of, that valuation.

If that’s too esoteric, here’s another way to think about it. If you were to have raised equity financing for your Seed, you would not add that invested dollar into the amount raised of the current round. Convertible notes are useful, so they say, because they are expedient and more efficient than an equity round, and are generally intended by investors to act in a similar manner (particularly where there are valuation caps). In any of these rounds, I have not heard seed investors negotiating for a more efficient way to get a multiple liquidation preference or asking future unknown investors to pay for their dilution. The treatment of convertible notes in the pre-money valuation would make it consistent with a round done as equity, which in the vast majority of times is the “spirit” of the creation.

The other way to look at convertible notes relates to my point above about how dilution must be accounted for in any valuation framework. The pre-money valuation has always, from the beginning of venture time, assumed the fully diluted share count. This is so the valuation captures any and all historical equity “cost” associated with building the company to this point when getting to a per share value (common stock, warrants, options, and … convertible notes). A convertible note clearly is an example of issuable shares that should form a part of the fully diluted share count, and therefore part of the pre-money valuation. New prospective shareholders set an “all-in” valuation so that they can clearly know the ownership they are buying in a company for a given dollar amount; everything from the past is not their burden to bear and should be resolved prior to their money coming in. This is exactly why many investors are clarifying the post money valuation and their ownership.

As an aside, I’ve sometimes been asked why is the Option Pool for future employees included in a pre-money valuation. Well, for the same reasons above, just as any valuation is assumed to be the present value of FUTURE cash flows (theoretically), it should also include FUTURE dilution. The future cash flows are generated by a certain set of employees, who require equity compensation as well as cash. The cash expense of those employees has already been incorporated by the future cash flows of the business (as expenses); similarly, the equity “cost” by way of dilution has to be be built in somewhere. This is where the Option Pool in the pre-money comes in. The market has settled out that 18 to 24 months is the reasonable range for the “options cost”, as that usually ties to the next milestone or round.

Hopefully the above offers some conceptual underpinnings to commonly discussed items. Practically speaking like anything else, everything is a matter of negotiation. The challenge is that the unintended consequences of convertible notes sometimes pit the un-informed against the ambiguous, leading to confusion. Sometimes it is helpful to understand the WHY to find a way out.

New Investment: Engagio

One of the most important things that we have built at FirstMark Capital is our platform and community.  It is an infrastructure that connects and empowers hundreds of employees across our portfolio companies and tens of thousands of people in the NYC ecosystem to world class content, relationships, customers and expertise.

Every journey has its start, and ours began shortly after we launched FirstMark Capital in 2008 and held our inaugural Marketing Summit.  The idea was simple: marketing was evolving rapidly, the channels through which customers and consumers engaged were changing, and those that moved to take advantage could build unfair scale ahead of others.  If we could get the best minds talking about leading technologies and their approaches, the entire portfolio could benefit.

One of the earliest speakers at our Marketing Summit was Jon Miller, the co-founder of Marketo, who evangelized a new way of thinking about customers, content, and marketing automation.  Jon and I stayed in touch over the years, becoming an advisor and friend to several of our portfolio companies.  Marketo, of course, went on to become a powerhouse in marketing automation and is a $1B+ public company today.

Fast forward 6 years and I’m delighted to announce that we are leading a $10MM Series A financing for Engagio, a new company created by Jon Miller and his co-founder Brian Babcock.  I have gotten to know Brian more recently, but he has a fantastic and very relevant background for what Engagio is doing from both the ad tech and big data worlds, having been an early engineer at successful companies like RocketFuel and Platfora.  Jon and Brian in fact worked together at Epiphany in the 90s, which was one of the early pioneers in the world of marketing software.

Engagio is at the start of its mission but is building a new software platform focused on Account Based Marketing.  Jon has written an entire post dedicated to the topic here.  Said simply, Engagio provides one place for B2B marketers to understand all the campaigns, touch points, and interactions a company has with a target customer and plan the optimal ways to engage them over time.

We are excited to be joined by many of Marketo’s prior investors, including Storm Ventures and Bruce Cleveland/Doug Pepper, alongside First Round Capital and Amplify.  Stay tuned for much, much more!

Alibaba vs Google & Amazon

Having felt like I was reading about a new investment every month from Alibaba, it got me thinking about how rapidly they are expanding their reach outside of China. While many have written about this recent frenzy, I had not seen anything comparing Alibaba’s investing activities in the US to that of Google and/or Amazon in China.  As the digital platforms move towards true global competition, I got curious about the data.

Thanks to the folks at CB Insights, I looked at the data of investments made in the US by Alibaba and in China by Google and Amazon as far back as the data went.

By number of deals, Alibaba has a substantial lead, but by investment value (shown below), the difference becomes staggering.

The data is fairly stark.  If you look at the individual deals, Alibaba is investing in all the areas you would expect — mobile, gaming, ecommerce — and even some you would not, expanding their sphere of knowledge and influence as they chart their inevitable global push.  For Google and Amazon, is the difference deliberate and due to different strategic choices or is it because China remains a more difficult and protected environment to enter and invest?  If it’s the latter, does that put the leading US platforms at a structural disadvantage competing in the global stage? We are entering a new era of the digital Game of Thrones and this will be interesting to watch play out.

Some notes on the data:

1) Investment dollars reflects total round size, as a reasonable proxy for invested dollars, as well as acquisitions. Some deals did not have any announced round size and are included at $0.

2) This is solely focused on investments and does not include capital associated with local operations in country.

Thanks to my colleague David Rogg for assistance pulling this post together.

A Mighty Swing

News has now spread on Aereo’s filing for bankruptcy. While folks in venture generally don’t talk about their failures, this is one I’m exceptionally proud to talk about.

We are in the business of backing innovation and taking big swings. Companies that can be change agents for their industries. Aereo is the very definition of that. Long before Aereo stood in front of the Supreme Court of the United States, the Company ignited conversations about the future of television and its delivery at a time when these services remained fixed, bundled and costly.

Since Aereo’s launch and first victory, we’ve seen cable companies introduce “TV Everywhere” strategies, networks announce over the top mobile apps and unbundled streaming options, and even the FCC take dramatic steps to define OTT players alongside cable and satellite companies. Can Aereo take credit for all of it? Probably not. But I think it’s fair to say they accelerated many of those discussions and helped re-shape an industry perspective.

While that impact may not be found financially, it is felt in the hands of consumers everywhere. For that, we at FirstMark are exceptionally proud to have partnered on this journey with Chet Kanojia and his incredible team. And as I’ve said before, we’d do it again in a heart beat.

New Investment: ROLI

I am excited to announce our investment in ROLI, the inventor of the Seaboard.

The Seaboard is a beautiful redesign of one of the world’s most iconic instruments – the piano – for the modern digital world we live in.  It is the first in a line of digitally programmable, highly interactive, connected music products for ROLI that combine novel design aesthetics, proprietary touch interfaces, and powerful social elements.

The degree of difficulty on executing a product like this is extraordinarily high.  It requires expertise in material design, fabrication, manufacturing, hardware, and software.  It has to satisfy the demands of the world’s leading artists, while incorporating social elements that appeal to the masses.  Getting to a shipping product was no small feat, and we believe ROLI is at the forefront of a transformation in the music creation, collaboration and consumption process.

We are delighted to partner with Roland Lamb, the founder/CEO of  ROLI, and welcome him to the FirstMark family!

New Investment: Gravie

Well, we foreshadowed we’d be doing more around the intersection of healthcare and technology.  On the heels of our BioDigital and Recombine announcements, I’m excited to publicly announce our newest investment in Gravie.

Gravie sits at the intersection of some profound changes in healthcare.  Consumers are becoming empowered (or forced) to take control of their healthcare decisions more than ever before.  Employers are struggling with the increasing cost curves in healthcare, and in many cases, as disinterested parties, are phasing out coverage.  Insurers and insurance remain incredibly complex to navigate and difficult for the lay person to understand, often times only figuring things out in their moment of greatest need.  And finally a regulatory backdrop that is forcing major change on the system in the form of the ACA (“Obamacare”). 

Gravie emerged to bring simplicity and transparency to this new world order.  An intelligent, easy to use platform to navigate all the complex decisions in terms people can understand and a single place to consolidate all the information around health in one’s lives.  Gravie also offers advocacy to consumers, acting as a voice for individuals and offering help when questions or problems arise.  In short, Gravie is one place to go for peace of mind around your family’s health. 

The company was founded by three fantastic entrepreneurs who have a long history together and in the space.  Abir Sen, Jill Prevost and Marek Ciolko all worked together at Bloom Health, a company they started to bring Private Exchanges to employers, and successfully acquired by Wellpoint.  Abir has also been part of the founding team at Definity (acquired by United) and Red Brick Health (pioneer of corporate health & wellness plans).

We seeded the company in the summer of 2013, and have witnessed swift execution on both product, launch and adoption.  We are delighted to announce the close of a $10.5MM Series A, in which we participated heavily.  We are quite excited to continue our partnership with the team at Gravie and welcome in Mo Kaushal and the Aberdare team!

New Investment: BioDigital

I am excited to announce one of our latest investments, BioDigital.  BioDigital is one of several investments we have made at the intersection of healthcare and technology.  I laid out our rationale at a high level here.

BioDigital is based in NYC and has built a powerful platform around 3D visualization and immersion of the human body.  Our short hand for BioDigital is “Google Earth for the human body”.  Their team sits at the intersection of 3D / CAD software, web technologies (HTML5/WebGL), human anatomy and physiology, bio mechanics and high scale back end infrastructure.  A rich, deep, powerful service made simply available via APIs.  If you want a wicked engineering challenge, apply here.

The team has been working on complex 3D human modeling for the last several years, but with the introduction of WebGL and HTML5, saw a profound opportunity to instantiate all of their models into a Web based platform called the Human.  In the brief period of time since launch, the company has surpassed over 1 million registrants.  Even more exciting to us was the breath of use cases for the product.   Frank Sculli, founder and CEO, details some of them here.

There will be a number of ways to access the Human.  Their web, mobile and tablet apps will appeal to the millions of consumers interested in learning what’s inside our body and how it works.  Consumer health sites will be able to easily use our widgets to offer much richer representations of health conditions that afflict us.  Search engines can embed physiology and conditions directly into rich snippets.  Content publishers can enrich the learning experiences for students across the globe.  Doctor offices and hospitals can use the Human as their front end UI, with patient records mapped to the Human’s ontology.  And more exciting are the ways we cannot think of via our APIs.

In addition, we also can’t predict the ways in which individual consumers will add to the platform  People will be able to append all sorts of information into the Human to improve it in a Wikipedia like model – MRIs, content, interactions, etc.  People will also be able to personalize the human to the things they care about and share them out to the people they love or groups they interact with.  It will be exciting to see how people engage with an experience that was never possible before.

We believe this will be a transformative project and we are at the very beginning.  We are delighted to partner with Frank Sculli, John Qualter, Aaron Oliker and the entire BioDigital team!  Frank’s announcement on the BioDigital blog is here.

Sun Rising in Healthcare?

One of the hardest things in venture is timing.  Pick the wrong time to disrupt a segment, and the result is a lot of optimism and lost investment dollars.  Pick the right time to disrupt and you can build a massive company in a short period of time. Ideas are rarely bad, they are often simply at the wrong time.

A few years ago, we decided that the time had come for innovative changes in education.  We followed that up with some very successful investments in companies like Lumosity, Knewton, Schoology, Straighterline, and others.  Our macro thesis was pretty simple.  First, it was an extremely large important market that hadn’t changed in a long time.  Second, the cost curves in education had increased in multiples of inflation for decades and began coming under significant scrutiny as a result of the 2008/2009 recession.  Third, the industry was supported by an array of subsidies and government regulations that was destined to change.  Fourth, technology and software had the ability to dramatically reduce cost and bring an innovative value proposition “over the top” directly to the end consumers – eliminating traditional intermediaries along the way.  The mix of market size, economic crisis, government changes, and technology created what we thought was the “right time”.

As we started observing other markets in a similar state of change, another one became obvious to us: healthcare.  The only thing you might care about more than education is health.  It’s a gigantic market.  The cost curves have been increasing at an unsustainable rate.  The government’s role is changing rapidly, and causing major shifts in who and how people pay.  Consumers are now starting to take a much more active role on the paying side of the equation and doctors are beginning to select new technologies to power their practices (“over the top”).  While different in specifics, the parallels to education are quite striking.

The exciting news is that we’ve already made a few bets in the area, and will be announcing some next week.  We believe this is a tremendous opportunity to transform the sector and have a profoundly positive impact on lives.  Stay tuned for more!

Thanks and Congrats Aveksa!

Today is one of those wonderful bittersweet moments in venture.  When a team you’ve worked with for many years and is firing on all cylinders gets acquired in a fantastic exit.  This is the case with the announcement of EMC buying Aveksa this morning.

Aveksa builds enterprise identity and access governance software.  What does that mean?  Well, in lay terms, their software ensure that the right people have access to the right data and applications at the right time.  It’s a core security function and one that is quite technically complex to solve.  And in today’s world where anyone can spin up an application with an email address and password, it’s one that’s coming under increased scrutiny.

We’ve known Deepak Taneja, the founder and CTO of Aveksa for many years.  My prior firm had backed Deepak’s last company, Netegrity, where he was CTO and VP Engineering.  Netegrity pioneered the web-based SSO market and built into a $100MM+ business before being acquired by CA.  We were of course delighted to partner again with Deepak when he founded Aveksa.  As part of that, Barry Bycoff – the former CEO of Netegrity – also joined Aveksa’s board as Chairman and we partnered with CRV to co-lead Aveksa’s Series A.

Along the way, we were joined by FT Ventures (Liron Gitig in particular) and were quite fortunate to find Vick Vaishnavi, who joined as CEO of Aveksa in late 2010.  He’s an incredibly accomplished individual, having been VP of Marketing with Bladelogic from its early days through going public and eventually at BMC when it was acquired for $800 million.  He brought together a veteran team and drove the business to 100% year over year growth.

This is a great outcome for us as shareholders and for the employees of Aveksa.  I’d like to thank the entire team, most of whom are with us today from founding and some who are not, and the Board & co-investors I’ve worked with over the years.  It’s been a thrilling ride that I’ve been privileged to be a part of and building Aveksa proved that creating complex software for the enterprise can still be sexy.  I hope to work with you all again in the future!

APIs First

Lots of discussion about whether a service should be “mobile first” or “web first”.  I tweeted it actually should be “API first”, and I got a lot of reaction to that comment and asked to expand.

First let me clarify.  I believe mobile IS important and a huge emerging channel.  Source of traffic has shifted dramatically and I don’t have my head buried in the sand in that regard.  Across many of my companies, mobile origination (tablet included) comprises anywhere from 30-50%+ of traffic.  I recognize that access patterns have structurally changed.

When I say API first, I mean that an idealized service needs to start with a core infrastructure with robust APIs that is tapped into via any number of “front ends”:  web, mobile, and even 3rd party ecosystems.  If you look behind many “web first” companies today, including in our portfolio, you’ll see a very clean architectural split between the front end and the back end.  The back end exposes a range of services that allows the front end to innovate independently and be re-purposed in interesting ways depending on changing business needs.  The rate of change on the front end is usually a LOT higher than in the back; the scale and stability requirements on the back are far more demanding than on the front.

“Mobile first” companies really are just a front end selection accessing a solid API driven backend infrastructure.  The use case, the logic, and what the app is optimized for may be a subset or different than Web, and I think this is what Fred Wilson and others are focused on.

But as I look at the world, while point of entry may vary, I believe having all three elements of web, mobile and 3rd party are going to be table stakes in the future.  You CANNOT be one only.  Users want different experiences for their different point of engagement.  Mobile is about speed of access, much more transactional and timely, very much about getting something done.  The web is great for researching, deliberating, and exploring.  Both are different aspects of the same service, and I’d want both as a user depending.  Finally, enabling third parties is a realization of the web services and SOA manifests from the late 90s that allow for programmatic distribution and can launch powerful new economic models.

Facebook has already shown us the above and what a powerful, mature, winning service looks like.  They have their core site, their massively used mobile applications, and their various graphs 3rd parties access which gives them tremendous power, platform extension, and plata.  Instagram, normally cited as the poster child for “mobile first”, recently announced they intend to move consumption to their core web site.

So to wrap up, sure, there might be some apps that are best started purely in a mobile context.  But I’d bet 99% of the services out there will have to incorporate all three elements and that starts with building an incredibly solid foundation.  API first, front end second, all screens third.

Excited to Announce Artisan!

Sometimes the best journeys are the ones into the unknown.  I remember catching up with Bob Moul after he had left Dell late last year.  He had spent a lot of time focusing on Philadelphia’s startup tech scene, passionately working with the Mayor’s offices and programs like DreamIt.  The one area Bob kept coming back to was mobile – as a new frontier, a new challenge, and potentially a new opportunity.

He met Scott Wasserman, founder/CTO of AppRenaissance, and joined on as CEO.  It was a talented team of mobile developers building custom mobile apps for companies.  While the apps they built were really solid, to say it’s not an obvious venture investment was an understatement.  But we loved Bob and the great work he had done at Boomi (sold to DELL in November 2010), and were going to partner with him in whatever area he found interesting.  “Don’t worry, by working closely with customers we’ll find the product opportunity in here,” he said.  That was a few months ago.

Well, today I am thrilled to announce they found that product far more quickly than I anticipated.  Artisan aims to bring to the mobile app world the deep set of tools and infrastructure that exist on the web today.  The initial product is an A/B/n testing software, which allows companies to target specific users with a different look and feel, without requiring coding changes and resubmission to the app store.  Simple examples could be showing a Platinum color app for holders of an American Express Platinum card, while Gold for others, and Blue for those on that product.  One could test how button placements affect conversion.  Or explore user flows within an app.  Again, all areas marketers understand well, have done on the web, now available on mobile!

The best thing is that the platform will extend to a lot of different areas, ranging from advertising to personalization.  Lots more to come here, but I think Bob’s vision of building a large public software company out of Philadelphia is much closer to reality.  I’m delighted to partner with the team and sure as heck we took that journey into the unknown!

Democratizing Education Technology

Today, we’re announcing an investment in Schoology, a next generation collaborative learning platform that combines the elements of a learning management system, a social networking platform, and enterprise resource system all in one hyper-intuitive interface.

I’ve known the Schoology team for some time, having spent the last year getting to know them.  It’s a testament to the power of building enduring relationships.  We’ve had a clear set of mutual expectations of what we were driving towards and it all finally came together.  It is a fantastic team and I am amazed at the power and complexity of the system they have built in the short while they have been around.  The uptake has been tremendous for good reason.

Teachers can sign up for the platform in under a minute and have the best in modern technologies available to them, for free!  Teachers can easily invite students into the system using a unique access code.  From there, the sky is the limit.  Teachers can build a curriculum, create lesson plans, build tests and quizzes, have students submit homework into a dropbox, grade assignments, see classroom analytics, encourage students groups formation for peer learning, and much more.  In addition, teachers can collaborate with one another and share content.  Pushes us one step further towards the notion of Open Educational Resources.  Teachers can also add apps, such as plagiarism checks, directly into their workflow.  All this with a Facebook like interface that requires no training.

The best part of the system is that technology selection has been completely democratized to the actual users.  Schoology does not spend months and years convincing heads of a system as to whether the technology suits their needs.  Users simply adopt it.  Upon seeing users within a system grow naturally, Schoology has the privilege of notifying districts or universities about additional capabilities available to them with a few clicks of a button.  Schoology can also enable powerful integrations with existing legacy systems.  No more promises of what can be, no vaporware, no millions of dollars spent on configuration and changes.

The platform also has transformational capabilities.  Because it is social at its core, it benefits from powerful network effects.  With nearly 1 million users already on the platform across 18,000 K-20 and higher education schools, you can bring the power of a developer community to build on the platform.  Content can be built, shared and purchased directly from within.  Teachers can be given micro-credits to personalize the system for their needs.  Parents can be invited to participate in the educational process.  It is truly a radical shift.

And it’s not just schools that can leverage the technology.  Any institution that views training and learning critical is a potential customer.  In addition to schools, corporations have signed up to use it internally.  One of the largest corporate users is Groupon, which uses the platform for field sales training.  They have their proprietary materials that need to be mastered and tested and revisted regularly to ensure a well trained team.

The next generation of education will bring stark changes: transition to digital textbooks and content, movement towards adaptive learning, advancement of the flipped classroom.  But most powerful of all is potentially the technology platform that connects it and us all together.  Schoology represents just that.  We’re thrilled to be involved with the team.

Education: A Call to Arms

Busy days at FirstMark, on the heels of announcing a seed investment earlier in the week, I am very excited today to announce our investment into StraighterLine.

StraighterLine is an online, low cost, subscription based provider of general education courses that many take in their  first two years of college (Algebra, Biology, Calculus, US History, etc). The courses are ACE Credit recommended and can be transferred for credit to various degree granting institutions (25+ automatically transfer today, over 200+ universities around the country that have accepted post review, and growing). What does that mean in lay terms? Well, you can flexibly and cheaply take a variety of high quality courses at a much lower cost than anywhere else, transfer into institutions that accept StraighterLine’s courses for credit, and bring your blended cost of a degree down dramatically.

The two charts below summarize well the drivers for an investment like StraighterLine:

  

Costs have skyrocketed faster than healthcare over the last few decades. Student debt has ballooned to over $1 trillion, surpassing credit card debt according to the Federal Reserve Board of New York. StraighterLine’s students pay $99/month and $39/course for their pay as you go service or $999 undiscounted for a Freshman Year equivalent. Against even public two year institutions, StraighterLine offers very significant savings for the student.

In addition to pricing, there are other issues lurking beneath the surface. Funding for public education is getting slashed. California’s 112 community colleges are having their budgets slashed by hundreds of millions of dollars. The system is having to turn away students because it is no longer able to find enough space to service them. The unfortunate incidents at Santa Monica College — where the school tried to create a higher priced system for the most in-demand courses in an attempt to balance with supply instead led to riots and maced students/children — underscore this point.

Taxpayer funding aside, the federal government is looking much more closely at graduation rates and successful job placements at institutions that accept students with federal aid.  As institutions begin to trim enrollments and focus on academic quality, their acceptance criteria will continue to grow more selective.  An institution like StraighterLine can be an effective partner in preparatory coursework to ease the transition and improve a student’s chances of success prior to formal enrollment.

Finally, as we think about structural unemployment challenges, the ability to easily access new learning, complete coursework in a flexible manner, and base competency on outcomes of learning and not on time spent in a course (ie, “credit hours”) will be a key part of solving the country’s labor issues.  The influx of non-traditional students (older, single mothers, workers retraining) is expected to grow at a much faster rate than traditional college students, and we will need institutions that can cater to this class.

StraighterLine offers a scalable solution to these challenges, where all parties benefit – easing the burden on taxpayers who fund institutions, saving money for students seeking to improve skills, improving student selection for institutions seeking to raise academic performance, and democratizing access to education for a newly mobile work force.  The ambitions of StraighterLine do not end there. Burck Smith, founder & CEO of StraighterLine, has been a passionate advocate and visionary in the education space for many years. His last company, SmartThinking, pioneered post secondary online tutoring and student support services and was acquired by Pearson.

With the round, we will invest heavily in building out a unique platform and set of services that innovate on behalf of students, embracing all of the things an online, data driven platform can do. We are working with a number of providers to build assessments to help the industry shift towards a competency based view of learning.  And we are also engaging the employer community, to create better linkages between the education students receive and the more tangible successful outcome of employment.

Stay tuned for more, but suffice to say there is a fantastic opportunity to use technology and innovation to leapfrog America once again to the head of the global class! We are delighted to play a small part and partner with a great team in doing so.

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1 [Source: New York Times, Lewin, Tamar.“Higher Education May Soon Become Unaffordable for Most in U.S.”]

2 [Source: LiveScience]