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Should your new VC fund use revenue-based investing?
David Teten is a Venture Partner with HOF Capital. He was previously a Partner for 8 years with HOF Capital and ff Venture Capital. David writes regularly at teten.com and @dteten.
You’re working on launching a new VC fund; congratulations! I’ve been a traditional equity VC for 8 years, and I’m now researching revenue-vased investing and other new approaches to VC. The question I’m asking myself: should a new VC fund use revenue-based investing, traditional equity VC, or possibly both (likely from two separate pools of capital)?
Revenue-based investing (“RBI”) is a new form of VC financing, distinct from the preferred equity structure most VCs use. RBI normally requires founders to pay back their investors with a fixed percentage of revenue until they have finished providing the investor with a fixed return on capital, which they agree upon in advance.
This guest post was written by David Teten, Venture Partner, HOF Capital. You can follow him at teten.com and @dteten. This is part of an ongoing series on Revenue-based investing VC that will hit on:
- Revenue-based investing: A new option for founders who care about control
- Who are the major revenue-based investing VCs?
- Should your new VC fund use revenue-based investing?
- Why are revenue-based VCs investing in so many women and underrepresented founders?
- Should you raise equity venture capital or revenue-based investing VC?
From the investors’ point of view, the advantages of the RBI models are manifold. In fact, the Kauffman Foundation has launched an initiative specifically to support VCs focused on this model. The major advantages to investors are:
- Shorter duration, i.e., faster time to liquidity. Typically RBI VCs get their capital back within 3 to 5 years.
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Startups Weekly: Lessons from a failed founder
I sat down with Menlo Ventures partner Shawn Carolan this week to talk about his early investment in Uber. Menlo, if you remember, led Uber’s Series B and has made a hefty sum over the year selling shares in the ride-hailing company. I’ll have more on that later; for now, I want to share some of the insights Carolan had on his experience ditching venture capital to become a founder.
Around when Menlo made its first investment in Uber, Carolan began taking a step back from the firm and building Handle, a startup that built tools to help people be more productive. Despite years of hard work, Handle was ultimately a failure. Carolan said he shed a lot of tears over its demise, but used the experience to connect more intimately with founders and to offer them more candid, authentic advice.
“People in the valley are always achievement-oriented; it’s always about the next thing and crushing it and whatever,” Carolan told TechCrunch. “When [Handle] shut down, I had this spreadsheet of all the people who I felt like I disappointed: Seed investors who invested in me, all the people at Menlo and my friends who had tweeted out early stuff. It was a long spreadsheet of like 60 people. And when I started a sabbatical, what I said was I’m going to go connect with everyone and apologize.”
Today, Carolan encourages founders to own their vulnerabilities.
“It’s OK to admit when you’re wrong,” he said. “Now I can see it on [founders’] faces, I can see when they’re scared. And they’re not going to say they’re scared but I know it’s tough. This is one of the toughest things that you’re going to go through. Now I can be there emotionally for these founders and I can say ‘here’s how you do it, here’s how you talk to your team and here’s what you share.’ A lot of founders feel like they have to do this alone and that’s why you have to get comfortable with your vulnerability.”
After Handle shuttered, Carolan returned to Menlo full time and made the firm a boatload of money from Roku’s IPO and now Uber’s. Anyway, thought those were some nice anecdotes that should be shared since most of our feeds are dominated by Silicon Valley hustle porn.
Want more TechCrunch newsletters? Sign up here. Ok, on to other news…
IPO corner
- Uber dropped its S-1: We’ve got the basic deets, a rundown on key stakeholders, the company’s plan to help drivers buy stock, a look at all the money it’s has made from global divestitures and a glimpse at the company’s R&D spending for self-driving cars.
- Pinterest is an “undercorn”: The visual search engine set its IPO range at $15 to $17 per share earlier this week. That translates to a midrange valuation of $10.64 billion, nearly $2 billion less than the company’s most recent private market valuation of $12.3 billion, hence “undercorn.”
- PagerDuty pops: The SaaS business’s shares began trading on the NYSE on Thursday, popping more than 60 percent on their debut.
- Jumia makes history: Jumia became the first startup from Africa to list on a major global exchange this week when it debuted its shares on the NYSE under the ticker symbol “JMIA.”
- Lyft declines: The Uber competitor finished out the week trading at less than $60 per share, significantly below its initial share price of $74. Ouch.
There were so many fund announcements this week; here’s a quick list.
- Source Code Capital raises $570M
- B Capital nets $406M
- Defy.VC gets $262M
- Slow Ventures grabs $220M
- LiveOak Venture Partners secures $105M
- Octopus Ventures nabs £83M
Lots of great new exclusive content for our Extra Crunch subscribers is on the site, including this deep dive into the challenges of transportation startup profits. Plus: When to ditch a nightmare customer, before they kill your startup; The right way to do AI in security; and The definitive Niantic reading guide.
Sinema, that one MoviePass competitor, has run into its fair share of bumps in the road. TechCrunch’s Brian Heater hopped on the phone with the startup’s CEO this week to learn more about those bumps, why its terminating accounts en masse, a class-action lawsuit its battling and more.
Photo by Stephen McCarthy / RISE via Sportsfile
- Grab plans to raise $2B more this year
- Online fantasy sports service Dream11 surpasses $1B valuation
- The SoftBank Vision Fund backs travel platform Klook
- Klaviyo raises $150M Series B
- Mos raises $4M for its college financial aid platform
TechCrunch’s Startup Battlefield brings the world’s top early-stage startups together on one stage to compete for non-dilutive prize money, and the attention of media and investors worldwide. Here’s a quick update on some of our BF winners and finalists:
- Bouy Labs, which builds IoT monitors for water use and response, was acquired by Resideo
- Connect Med, a telemedicine platform focused on serving the sub-Saharan African market, has sold to Merck
- Pi, a wireless charging startup, has rebranded to Spansive as it expands to new countries
- Unbound brings the first ever high-fashion jewelry vibrator to market
If you enjoy this newsletter, be sure to check out TechCrunch’s venture-focused podcast, Equity. In this week’s episode, available here, Crunchbase News editor-in-chief Alex Wilhelm, myself and Phil Libin, the founder of Evernote and AllTurtles, chat about the importance of IPOs. Plus, in a special Equity Shot, Alex and I unpack the Uber S-1.
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Ian Small, former head of TokBox, takes over as Evernote CEO from Chris O’Neill
Former TokBox head Ian Small is replacing Chris O’Neill as CEO of Evernote, the note-taking and productivity app company said this morning. In a blog post, Small said that the leadership change was announced to employees this morning by Evernote’s board. “We are all hugely appreciative of the energy and dedication Chris has shown over the last three years, and in particular for putting Evernote on solid financial footing so we can continue to build for the future,” he wrote.
Small added, “When Stepan Pachikov founded Evernote, he had a vision for how technology could augment memory and how an app could change the way we relate to information at home and at work. Evernote has been more successful at making progress towards Stepan’s dreams than he could have imagined, but Stepan and I both think that there is more to explore and more to invent.”
O”Neill had been Evernote’s CEO since 2015, when he took over the position from co-founder Phil Libin. Small previously served as CEO of TokBox, which operates the OpenTok video calling platform, from 2009 to 2014, and then as its chairman from 2014 to July of this year.
O’Neill’s departure as CEO is the latest significant leadership shift for Evernote, which has withstood several key executive departures over the last few months. In early September, we reported that the company had lost several senior executives, including CTO Anirban Kundu, CFO Vincent Toolan, CPO Erik Wrobel, and head of HR Michelle Wagner, as it sought funding in a potential down-round from the unicorn valuation it hit in 2012. According to TechCrunch’s sources, Evernote had struggled to grow its base of paid users and active users, as well as enterprise clients, for the last six years.
Then a few weeks later, Evernote announced that had to lay off 54 people, or about 15 percent of its workforce. O’Neill wrote a blog post about the company’s future growth strategy, including streamlining specific functions like sales so it could focus on product development and engineering.
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Evernote refines integrations with Slack and Salesforce
When you’re working in a key business tool like Slack or Salesforce, you don’t want to switch focus by opening up another application to pull additional information. Evernote Business has let you access Evernote content from these applications for some time, and today it announced some refinements to enhance those integrations.
The Slack integration had worked with the old slash commands to display Evernote content directly within Slack, but Slack has changed that to allow you to access applications like Evernote in a more visual way, says Erik Wrobel, chief product officer at Evernote.
“Earlier this year, Slack announced something called Slack Actions. It allows you to surface an application in a more visual way, so discoverability and ease of use is better to reduce friction,” he said.
Evernote embedded inside Slack. Screenshot: Evernote
Evernote has take advantage of this new capability in this release to get away from the command interface style that Slack had previously used and make it easier for their core knowledge workers to access Evernote content inside of Slack.
Users can take an Evernote note in Slack, which will then show up in Evernote automatically in a “Notes from Slack” folder. From there, users can edit the notes and move them to other folders (or tag them) to further organize them in any way they see fit. Similarly you can save a conversation you’re having in Slack to Evernote as a note and move it or edit from Evernote later on.
The Salesforce Connection
While Salesforce deals with structured systems of record, Evernote works with unstructured content and bringing the two together can be useful and powerful for users. Typically, a team member interacting with the customer on the phone or in the field, will take notes in Evernote, and they want to share that information with other members of the team in the Salesforce record, Wrobel explained.
The user who took the note can link one or more notes inside Salesforce, so they essentially become part of the customer record. The newer version improves the technical connections between the two cloud applications including the ability to “pin” a note to a record. What’s more, once a note is linked there is two-way sync, which means regardless of whether you change that note in Salesforce or Evernote, it will update in both places (because the integration is a live version of Evernote).
Evernote notes embedded in Salesforce record. Screenshot: Evernote
Evernote also surfaces related content automatically at the bottom of the customer record to help users find other Evernote subject matter connected to the record. While you can’t link a note to Salesforce directly from Evernote yet, that is a requested feature and Wrobel said they are working on it for a future release.
These updates are available today for Slack and Salesforce customers using Evernote Business.
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Box acquires Butter.ai to make search smarter
Box announced today that it has acquired Butter.ai, a startup that helps customers search for content intelligently in the cloud. The terms of the deal were not disclosed, but the Butter.AI team will be joining Box.
Butter.AI was started by two ex-Evernote employees, Jack Hirsch and Adam Walz. The company was partly funded by Evernote founder and former CEO Phil Libin’s Turtle Studios. The latter is a firm established with a mission to use machine learning to solve real business problems like finding the right document wherever it is.
Box has been adding intelligence to its platform for some time, and this acquisition brings the Butter.AI team on board and gives them more machine learning and artificial intelligence known-how while helping to enhance search inside of the Box product.
“The team from Butter.ai will help Box to bring more intelligence to our Search capabilities, enabling Box’s 85,000 customers to more easily navigate through their unstructured information — making searching for files in Box more contextualized, predictive and personalized,” Box’s Jeetu Patel wrote in a blog post announcing the acquisition.
That means taking into account the context of the search and delivering documents that make sense given your role and how you work. For instance, if you are a salesperson and you search for a contract, you probably want a sales contract and not one for a freelancer or business partnership.
For Butter, the chance to have access to all those customers was too good to pass up. “We started Butter.ai to build the best way to find documents at work. As it turns out, Box has 85,000 customers who all need instant access to their content. Joining Box means we get to build on our original mission faster and at a massive scale,” company CEO and co-founder Jack Hirsch said.
The company launched in September 2017, and up until now it has acted as a search assistant inside Slack you can call upon to search for documents and find them wherever they live in the cloud. The company will be winding down that product as it becomes part of the Box team.
As is often the case in these deals, the two companies have been working closely together and it made sense for Box to bring the Butter.AI team into the fold where it can put its technology to bear on the Box platform.
“After launching in September 2017 our customers were loud and clear about wanting us to integrate with Box and we quickly delivered. Since then, our relationship with Box has deepened and now we get to build on our vision for a MUCH larger audience as part of the Box team,” the founders wrote in a Medium post announcing the deal.
The company raised $3.3 million over two seed rounds. Investors included Slack and General Catalyst.
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Milanote bags $780k seed to tool up its ‘Evernote for creatives’
Milanote’s visual workspace platform feels part Evernote, part Pinterest — offering users digital spaces (“boards”) paired with a drag and drop interface that can be used to add and position photos and notes to create visual moodboards and/or display a grouping of ideas as part of a research project. Read More
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Evernote attempts to simplify with its new iOS app
Did anyone really love the Evernote mobile app? No? Well, good news then: the company is giving it another crack today, introducing what it hopes will be a simpler, more efficient tool to help you record your ideas, as well as search through and organize your Evernote content. As a reminder, the earlier app was a bit busy. Spread across the top of the screen were posting shortcuts –… Read More
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Evernote is moving all its data, machine learning tech to Google Cloud Platform
Evernote — the popular note taking and productivity startup with 200 million users — has built its reputation around an app that lets you record and track all your life’s details hold them there, for life. Today, the company is shifting gears on the question of how it will keep hold of and track that information: Evernote is migrating all of its data, including some… Read More
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Evernote tweaks features in free plan and raises prices in paid ones
Evernote’s Freshly Minted COO Linda Kozlowski Is Leaving The Company
Evernote made a name for itself as the platform where you could store your ideas and notes for life, and beyond. But the same permanence does not apply to the people who work there. We’ve confirmed through multiple sources that Linda Kozlowski, Evernote’s COO, has put in her notice and will be leaving the company by the end of this year. It’s the latest in a series of… Read More
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