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Where top VCs are investing in open source and dev tools (Part 1 of 2)
The once-polarizing world of open-source software has recently become one of the hotter destinations for VCs.
As the popularity of open source increases among organizations and developers, startups in the space have reached new heights and monstrous valuations.
Over the past several years, we’ve seen surging open-source companies like Databricks reach unicorn status, as well as VCs who cashed out behind a serious number of exits involving open-source and dev tool companies, deals like IBM’s Red Hat acquisition or Elastic’s late-2018 IPO. Last year, the exit spree continued with transactions like F5 Networks’ acquisition of NGINX and a number of high-profile acquisitions from mainstays like Microsoft and GitHub.
Similarly, venture investment in new startups in the space has continued to swell. More investors are taking shots at finding the next big payout, with annual invested capital in open-source and dev tool startups increasing at a roughly 10% compounded annual growth rate (CAGR) over the last five years, according to data from Crunchbase. Furthermore, attractive returns in the space seem to be adding more fuel to the fire, as open-source and dev tool startups saw more than $2 billion invested in the space in 2019 alone, per Crunchbase data.
As we close out another strong year for innovation and venture investing in the sector, we asked 18 of the top open-source-focused VCs who work at firms spanning early to growth stages to share what’s exciting them most and where they see opportunities. For purposes of length and clarity, responses have been edited and split (in no particular order) into part one and part two of this survey. In part one of our survey, we hear from:
- Vas Natarajan, Accel
- Stephanie Zhan, Sequoia Capital
- Tomasz Tunguz, Redpoint Ventures
- Deepak Jeevankumar, Dell Technologies Capital
- Anna Khan, CRV
- Peter Levine, Andreessen Horowitz
- Ilya Kirnos, SignalFire
- S. Somasegar, Madrona Ventures
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Cyral announces $11M Series A to help protect data in cloud
Cyral, an early-stage startup that helps protect data stored in cloud repositories, announced an $11 million Series A today. The company also revealed a previous undisclosed $4.1 million angel investment, making the total $15.1 million.
The Series A was led by Redpoint Ventures. A.Capital Ventures, Costanoa VC, Firebolt, SV Angel and Trifecta Capital also participated in on the round.
Cyral co-founder and CEO Manav Mital says the company’s product acts as a security layer on top of cloud data repositories — whether databases, data lakes, data warehouse or other data repository — helping identify issues like faulty configurations or anomalous activity.
Mital says that unlike most security data products of this ilk, Cyral doesn’t use an agent or watch points to try to detect signals that indicate something is happening to the data. Instead, he says that Cyral is a security layer attached directly to the data.
“The core innovation of Cyral is to put a layer of visibility attached right to the data endpoint, right to the interface where application services and users talk to the data endpoint, and in real time see the communication,” Mital explained.
As an example, he says that Cyral could detect that someone has suddenly started scanning rows of credit card data, or that someone was trying to connect to a database on an unencrypted connection. In each of these cases, Cyral would detect the problem, and depending on the configuration, send an alert to the customer’s security team to deal with the problem, or automatically shut down access to the database before informing the security team.
It’s still early days for Cyral, with 15 employees and a handful of early access customers. Mital says for this round he’s working on building a product to market that’s well-designed and easy to use.
He says that people get the problem he’s trying to solve. “We could walk into any company and they are all worried about this problem. So for us getting people interested has not been an issue. We just want to make sure we build an amazing product,” he said.
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8 tips for founders trying to raise their first round of venture capital
If you’re an avid TechCrunch reader, someone who loves to absorb endless startup profiles and pore through fundraising stories, you might think raising venture capital is easy. In reality, it’s very, very difficult and not the best source of capital for most businesses.
For startups hoping to scale far and wide as fast as possible, VC may be the right fit. To shed light on the process of raising equity capital from venture capital firms and provide some exclusive tips and tricks for Extra Crunch subscribers, we sat down with three experts on the subject. Below are the top pieces of advice from Charles Hudson, founder and managing partner of Precursor Ventures, Redpoint Ventures general partner Annie Kadavy, and DocSend founder Russ Heddleston. The following has been lightly edited for length and clarity.
1. First, make sure your company is fit to raise venture capital.
Charles Hudson: I think venture capital, it’s really a specialty type of capital. It’s really for companies that have the aspiration to grow really quickly, to build really large businesses … If you’re not a company that needs to grow quickly, venture capital might not be the right source of capital for you. There has to be a really big prize at the end of the journey.
2. Raise capital early if you’re stressing about small costs or fretting competition
Russ Heddleston: If you’re thinking about whether or not to raise, there are a couple of reasons that I will often advise people to raise early. One is if they’re really stressing about buying a whiteboard for their office, or like some something of relatively small cost. If you think it could be a big company, and you’re stressing about small things, raise money and buy the whiteboard, hire the additional person and get back to what you should be doing, which is running your business and growing it quickly.
The other thing is if you ask the question, ‘is there a competitor I don’t know about?’ If you heard tomorrow, that competitor just raised $2 million, or $5 million or $10 million, how nervous would that make you? For some businesses, you’re like, I don’t really care, it’s a services industry, it’s not a winner take all market. And other times, you’re like, oh, I’d be really nervous. So if either those apply, that’s a good reason to make a compelling case to someone like Charles.
The number one thing you can do to get a VC’s attention is make [your pitch] really simple. Precursor Ventures’ Charles Hudson
3. It’s OK to take a salary
Annie Kadavy: I’d be hard-pressed to think of an example where a founder is not paying themselves, the question, though, is how much? You’re paying yourself enough so that the basic costs of life and running your business are not giving you anxiety, because as an early stage investor one of our primary roles is to try and keep the baseline stress as low as it can be, because it’s really hard to go build a company.
If a founder is coming in at the Series A and they say I’m going to go pay myself $300,000, we might be like, well, that doesn’t really feel right, shouldn’t you want to put some of that money into the company? The ranges I’ve seen are anything from $60,000 up to probably $120,000 at the Series A, or maybe $150,000. Then, as the company grows and as the balance sheet grows and it’s de-risked, your salary as an executive at the company will scale with that.
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At TechCrunch Disrupt, insights into key trends in venture capital
At TechCrunch Disrupt, the original tech startup conference, venture capitalists remain amongst the premier guests.
VCs are responsible for helping startups — the focus of the three-day event — get off the ground, and, as such, they are often the most familiar with trends in the startup ecosystem, ready to deliver insights, anecdotes and advice to our audience of entrepreneurs, investors, operators, managers and more.
In the first half of 2019, VCs spent $66 billion purchasing equity in promising upstarts, according to the latest data from PitchBook. At that pace, VC spending could surpass $100 billion for the second year in a row. We plan to welcome a slew of investors to TechCrunch Disrupt to discuss this major feat and the investing trends that have paved the way for recording funding.
Mega-funds and the promise of unicorn initial public offerings continue to drive investment. SoftBank, of course, began raising its second Vision Fund this year, a vehicle expected to exceed $100 billion. Meanwhile, more traditional VC outfits revisited limited partners to stay competitive with the Japanese telecom giant. Andreessen Horowitz, for example, collected $2.75 billion for two new funds earlier this year. We’ll have a16z general partners Chris Dixon, Angela Strange and Andrew Chen at Disrupt for insight into the firm’s latest activity.
At the early-stage, the fight for seed deals continued, with larger funds moving downstream to muscle their way into seed and Series A financings. Pre-seed has risen to prominence, with new funds from Afore Capital and Bee Partners helping to legitimize the stage. Bolstering the early-stage further, Y Combinator admitted more than 400 companies across its two most recent batches,
We’ll welcome pre-seed and seed investor Charles Hudson of Precursor Ventures and Redpoint Ventures general partner Annie Kadavy to give founders tips on how to raise VC. Plus, Y Combinator CEO Michael Seibel and Ali Rowghani, the CEO of YC’s Continuity Fund, which invests in and advises growth-stage startups, will join us on the Disrupt Extra Crunch stage ready with tips on how to get accepted to the respected accelerator.
Moreover, activity in high-growth sectors, particularly enterprise SaaS, has permitted a series of outsized rounds across all stages of financing. Speaking on this trend, we’ll have AppDynamics founder and Unusual Ventures co-founder Jyoti Bansal and Battery Ventures general partner Neeraj Agrawal in conversation with TechCrunch’s enterprise reporter Ron Miller.
We would be remiss not to analyze activity on Wall Street in 2019, too. As top venture funds refueled with new capital, Silicon Valley’s favorite unicorns completed highly anticipated IPOs, a critical step toward bringing a much needed bout of liquidity to their investors. Uber, Lyft, Pinterest, Zoom, PagerDuty, Slack and several others went public this year, and other well-financed companies, including Peloton, Postmates and WeWork, have completed paperwork for upcoming public listings. To detail this year’s venture activity and IPO extravaganza, David Krane, CEO and managing partner of Uber and Slack investor GV, will be on deck, as will Sequoia general partner Jess Lee, Floodgate’s Ann Miura-Ko and Aspect Ventures’ Theresia Gouw.
There’s more where that came from. In addition to the VCs already named, Disrupt attendees can expect to hear from Bessemer Venture Partners’ Tess Hatch, who will provide her expertise on the growing “space economy.” Forerunner Ventures’ Eurie Kim will give the Extra Crunch Stage audience tips on building a subscription product, Mithril Capital’s Ajay Royan will explore opportunities in the medical robotics field and SOSV’s Arvind Gupta will dive deep into the cutting-edge world of health tech and more.
Disrupt SF runs October 2-4 at the Moscone Center in the heart of San Francisco. Passes are available here.
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Opsani helps optimize cloud applications with AI
Opsani, a Redwood City, Calif. startup, wants to go beyond performance monitoring to continually optimizing cloud applications, using artificial intelligence to help the software learn what is the optimal state.
“We have come up with a machine learning technique centered around reinforcement learning to tune the performance of applications in the cloud,” company co-founder and CEO Ross Schibler told TechCrunch.
Schibler says each company has its own unique metrics and that’s what they try to optimize around. “We’re modifying these parameters around the resource, and we’re looking at the performance of the application. So in real time, what is the key business metric that the application is producing as a service? So it might be the number of transactions or it might be latency, but if it’s important to the business, then we use that,” he explained.
He claims that what separates Opsani from a monitoring tool like New Relic or AppDynamics is that they watch performance and then provide feedback for admins, but Opsani actually changes the parameters to improve the application performance in real time, based on what it knows about the application and what the developers want to optimize for.
It is also somewhat similar to a company like Spotinst, which optimizes for the cheapest cloud resources, but instead of simply trying to find the best price, Opsani is actually tuning the application.
The company recently announced a $10 million Series A investment led by Redpoint Ventures. Previous investors Zetta Ventures and Bain Capital also participated.
For now, it’s still early days for the startup. It has a dozen employees and a handful of customers, according to Schibler. With the recent $10 million round of funding, it should be able to hire more employees and continue refining the product.
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Tundra, the zero-fee wholesale marketplace, picks up $12 million
Tundra, a new zero-commission wholesale marketplace, has today announced the close of $12 million in Series A funding. The round was led by Redpoint’s Annie Kadavy, with participation from investors such as Initialized Capital, Peterson Ventures, FJ Labs, Switch Ventures and Background Capital.
Tundra was founded by married couple Arnold and Katie Engel who previously ran a global supply chain company called Vox Supply Chain. In that world, they quickly realized just how much inefficiency is built into the wholesale market, from disorganized trade shows to transaction fees from the incumbents to a business that’s largely done on phone with pen and paper.
That’s where Tundra comes in.
Tundra allows suppliers to list their products on the platform, which is built to look and feel like a B2C marketplace. Buyers can come on the platform and shop for products, complete with ratings and reviews, supplier performance metrics, and free shipping with easy tracking.
“The wholesale market is set up to benefit big businesses, with other platforms and distributors charging anywhere from 5 percent to 30 percent commission,” said Engel. “That can be particularly pronounced for small businesses.”
Plus, it can be perilous for small players to depend on big platforms like Amazon. Just a few weeks ago, there were rumors that Amazon would focus its attention on big brands like P&G and purge smaller suppliers from the platforms. Amazon denied the rumors, saying it evaluates suppliers on an individual basis.
For Tundra, the hope is to eliminate both the time-consuming and tedious process of negotiating deals at trade shows as well as the cost of simply buying and selling wholesale products online. And, importantly, Tundra has a zero-fee model, which means that buyers and suppliers can operate on the platform without spending a penny if they so choose.
Of course, the company has to generate revenue in some way, which is why Tundra offers premium options at checkout, such as faster shipping, order insurance, and additional custom clearance and logistics services for international orders.
Having spent a year serving as Head of Strategic Operations growing Uber Freight, Redpoint Managing Director Annie Kadavy saw first-hand just how gargantuan the wholesale market is. During a phone interview, she reminded me that almost every item within view at any given moment was shipped on a truck and purchased at a wholesale price before it was purchased by a consumer in a store.
“Tundra’s greatest challenge ahead is execution, because the market opportunity here is very obvious,” said Kadavy. “It’s a huge business that is currently transacted by fax, phone call and pen and paper, so the opportunity is very clear.”
There is clearly movement in the space. Just last month, Shopify acquired Handshake to handle B2B e-commerce directly for customers. That followed its acquisition of dropshipping platform Oberlo in 2017, signaling the fact that existing platforms realize the opportunity of wholesale e-commerce, as well.
And a recent report stated that B2B e-commerce passed the $1 trillion mark for the first time in 2018.
The opportunity is there, as is the competition, but Tundra comes to the table armed with fresh capital.
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Annie Kadavy, Russ Heddleston and Charles Hudson will tell us how to raise seed money at Disrupt SF
Just about anyone can come up with a good idea. Fewer people can execute on that idea and turn it into a prototype or MVP. But there is still one final challenge for most entrepreneurs that can prove challenging.
How do you secure that initial seed capital and take your idea to the next level?
At Disrupt SF in October, Redpoint’s Annie Kadavy, DocSend’s Russ Heddleston and Precursor’s Charles Hudson will sit down together and chat it out on the Extra Crunch stage.
Kadavy, Heddleston and Hudson can offer a unique perspective on the process of early-stage fundraising.
Kadavy joined Redpoint in 2018 after a four-year stint at Charles River Ventures, where she sourced or led deals with ClassPass, Cratejoy, DoorDash, Lauren & Wolf and Patreon. She’s also spent time within firms like Bain & Company, Warby Parker and Uber Freight. She understands the importance of operational experience, and knows better than most how to take a company from point A to point B.
Heddleston, co-founder and CEO of DocSend, has a completely different perspective. DocSend is used to securely send and track documents, and one of the most prevalent documents on the platform happens to be pitch decks. Heddleston can tell us about what characteristics get (and keep) the attention of investors, as well as what turns them off.
Hudson, managing partner at Precursor Ventures, has been on both sides of the conference room table. He founded Bionic Panda Games, which was acquired by Zynga in 2010. He moved on to SoftTech VC (now Uncork Capital), where he spent eight years working on seed-stage investments in the consumer internet space. At Precursor Ventures, he’s continuing to invest in early-stage companies that are tackling problems in new markets.
These three each have their own perspective on how to get the attention of investors and how to turn a conversation into a cap table.
“How to Raise Your First Dollars” is but one of many panels that will take place on the Extra Crunch stage at Disrupt SF. The Extra Crunch stage, much like Extra Crunch on the web, is meant to serve as a resource for aspiring entrepreneurs and VCs, offering practical, step-by-step advice on how to get to where you’re going.
We’re thrilled to have Kadavy, Heddleston and Hudson join us at the show.
Disrupt SF runs October 2 – October 4 at the Moscone Center in SF. Tickets to Disrupt SF are available here.
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Public health startup Cityblock raises $65M Series B
Redpoint Ventures has led a $65 million Series B in Cityblock, a healthcare company focused on providing improved care to low-income neighborhoods.
The business launched roughly 18 months ago out of Alphabet’s Sidewalk Labs, an urban innovation incubator known for projects like mobility data startup Coord, which itself raised a $5 million round in October.
“We’re a tech-enabled services company focused on caring for a population that has been traditionally overlooked by the innovation community and generally underserved across healthcare,” co-founder and chief executive officer Iyah Romm told TechCrunch. “We believe we can fundamentally redefine the way that health services are built across the country for low-income populations. These are populations that have never been prioritized.”
Romm has spent his entire career in the public health sector. Prior to joining Sidewalk Labs as an entrepreneur-in-residence in 2017, he spent one year as the chief transformation officer of the Commonwealth Care Alliance, a nonprofit medical care delivery organization.
Cityblock provides personalized medical and behavioral health and social services across a growing number of clinics on the East Coast. The company will use the investment to open additional clinics and continue the development of its core platform, Commons. The care delivery platform helps care workers collaborate and stay up to date on patients, with real-time hospital admission alerts to tools for tracking treatment progress.
Cityblock opened its first clinic, or “neighborhood hub,” in Brooklyn, New York after forging a partnership with EmblemHealth, a New York neighborhood health insurance business. They’ve since expanded to Connecticut via a partnership with ConnectiCare, a Connecticut insurance provider. Cityblock will open clinics in North Carolina later this year. Cityblock’s services come at no additional costs to members covered by partner insurance businesses.
The startup’s hope is to get these low-income demographics regular access to more affordable care. Preventative care, after all, is a whole lot cheaper than emergency room visits.
“People end up going to the ER when problems are really bad, for conditions that can be managed,” Redpoint partner and newly appointed Cityblock board member Elliot Geidt told TechCrunch. “There are 75 million people on Medicaid alone and a good portion of these people are living in the inner cities. It’s a problem that has a scope larger than most things that we see in the venture community. The big problem with this population is the existing healthcare system doesn’t work for them, it falls short on so many levels.”
New investors 8VC, Echo Health Ventures and StartUp Health also participated in the latest round, as did existing investors including Sidewalk Labs, Thrive Capital, Maverick Ventures, Town Hall Ventures and EmblemHealth.
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Startups Weekly: Squad’s screen-shares and Slack’s swastika
We’re three weeks into January. We’ve recovered from our CES hangover and, hopefully, from the CES flu. We’ve started writing the correct year, 2019, not 2018.
Venture capitalists have gone full steam ahead with fundraising efforts, several startups have closed multi-hundred million dollar rounds, a virtual influencer raised equity funding and yet, all anyone wants to talk about is Slack’s new logo… As part of its public listing prep, Slack announced some changes to its branding this week, including a vaguely different looking logo. Considering the flack the $7 billion startup received instantaneously and accusations that the negative space in the logo resembled a swastika — Slack would’ve been better off leaving its original logo alone; alas…
On to more important matters.
Rubrik more than doubled its valuation
The data management startup raised a $261 million Series E funding at a $3.3 billion valuation, an increase from the $1.3 billion valuation it garnered with a previous round. In true unicorn form, Rubrik’s CEO told TechCrunch’s Ingrid Lunden it’s intentionally unprofitable: “Our goal is to build a long-term, iconic company, and so we want to become profitable but not at the cost of growth,” he said. “We are leading this market transformation while it continues to grow.”
Deal of the week: Knock gets $400M to take on Opendoor
Will 2019 be a banner year for real estate tech investment? As $4.65 billion was funneled into the space in 2018 across more than 350 deals and with high-flying startups attracting investors (Compass, Opendoor, Knock), the excitement is poised to continue. This week, Knock brought in $400 million at an undisclosed valuation to accelerate its national expansion. “We are trying to make it as easy to trade in your house as it is to trade in your car,” Knock CEO Sean Black told me.
While we’re on the subject of VCs’ favorite industries, TechCrunch cybersecurity reporter Zack Whittaker highlights some new data on venture investment in the industry. Strategic Cyber Ventures says more than $5.3 billion was funneled into companies focused on protecting networks, systems and data across the world, despite fewer deals done during the year. We can thank Tanium, CrowdStrike and Anchorfree’s massive deals for a good chunk of that activity.
Send me tips, suggestions and more to kate.clark@techcrunch.com or @KateClarkTweets.
I would be remiss not to highlight a slew of venture firms that made public their intent to raise new funds this week. Peter Thiel’s Valar Ventures filed to raise $350 million across two new funds and Redpoint Ventures set a $400 million target for two new China-focused funds. Meanwhile, Resolute Ventures closed on $75 million for its fourth early-stage fund, BlueRun Ventures nabbed $130 million for its sixth effort, Maverick Ventures announced a $382 million evergreen fund, First Round Capital introduced a new pre-seed fund that will target recent graduates, Techstars decided to double down on its corporate connections with the launch of a new venture studio and, last but not least, Lance Armstrong wrote his very first check as a VC out of his new fund, Next Ventures.
More money goes toward scooters
In case you were concerned there wasn’t enough VC investment in electric scooter startups, worry no more! Flash, a Berlin-based micro-mobility company, emerged from stealth this week with a whopping €55 million in Series A funding. Flash is already operating in Switzerland and Portugal, with plans to launch into France, Italy and Spain in 2019. Bird and Lime are in the process of raising $700 million between them, too, indicating the scooter funding extravaganza of 2018 will extend into 2019 — oh boy!
- Niantic finally closed its Series C with $245 million in capital commitments and a lofty $4 billion valuation.
- Outdoorsy, which connects customers with underused RVs, raised $50 million in Series C funding led by Greenspring Associates, with participation from Aviva Ventures, Altos Ventures, AutoTech Ventures and Tandem Capital.
- Ciitizen, a developer of tools to help cancer patients organize and share their medical records, has raised $17 million in new funding in a round led by Andreessen Horowitz.
- Footwear startup Birdies — no, I don’t mean Allbirds or Rothy’s — brought in an $8 million Series A led by Norwest Venture Partners, with participation from Slow Ventures and earlier investor Forerunner Ventures.
- And Brud, the company behind the virtual celebrity Lil Miquela, is now worth $125 million with new funding.
TechCrunch’s Josh Constine introduced readers to Squad this week, a screensharing app for social phone addicts.
If you enjoy this newsletter, be sure to check out TechCrunch’s venture-focused podcast, Equity. In this week’s episode, available here, Crunchbase editor-in-chief Alex Wilhelm and I marveled at the dollars going into scooter startups, discussed Slack’s upcoming direct listing and debated how the government shutdown might impact the IPO market.
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Solo.io raises $11M to help enterprises adopt cloud-native technologies
Solo.io, a Cambridge, Mass-based startup that helps enterprises adopt cloud-native technologies, is coming out of stealth mode today and announcing both its Series A funding round and the launch of its Gloo Enterprise API gateway.
Redpoint Ventures led the $11 million Series A round, with participation from seed investor True Ventures . Like most companies at the Series A state, Solo.io plans to use the money to invest in the product development of its enterprise and open-source tools, as well as to grow its sales and marketing teams.
Solo.io offers a number of open-source tools, like the Gloo function gateway, the Sqoop GraphQL server and the SuperGloo (see a theme here?) service mesh orchestration platform. In addition, the team has also, among others, open-sourced its Kubernetes debugger, a tool for building and running unikernels.
Its first commercial offering, though, is an enterprise version of the Gloo function gateway. Built on top of the Envoy proxy, Gloo can handle the routing necessary to connect incoming API requests to microservices, serverless applications (on the likes of AWS Lambda) and traditional monolithic applications behind the proxy. Gloo handles the load balancing and other functions necessary to aggregate the incoming API requests and route them to their destinations.
“Costumers who use Gloo to connect between microservices and serverless found that invocation of [AWS] Lambda is 350ms faster than the AWS API Gateway,” Idit Levine, the founder and CEO of Solo.io, told me. “Gloo also offers them direct money saving, since AWS bills per invocation. In general, Gloo offers money saving because it allows our clients to use the less expensive technologies — like their legacy apps, and sometimes containers — whenever they can, and limit the use of more expensive stuff to whenever it’s necessary.”
The enterprise version adds features like audit controls, single sign-on and more advanced security tools to the platform.
In addition to broadening its customer base, the company plans to invest heavily into its customer success and support teams, as well as its evangelism and education efforts, Levine tells me.
“Helping enterprises easily adopt innovative technologies like microservices, serverless and service mesh is our goal at Solo.io,” Levine in today’s announcement. “Melding different technologies into one coherent environment, by supplying a suite of tools to route, debug, manage, monitor and secure applications, lets organizations focus on their software without worrying about the complexity of the underlying environment.”
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