Fifth Wall Ventures’s new $100 million “retail” fund aims to back online brands that need real world space

Fifth Wall Ventures, a four-year-old, the L.A.-based, real-estate focused venture firm, has just closed a $100 million vehicle called that it’s calling its “retail fund.” The vehicle comes hot on the heels of a $212 million debut fund that Fifth Wall closed in 2017, which was itself soon followed by a second, $503 million flagship fund. The firm is also reportedly raising a $200 million carbon impact fund.

So why raise more money via this separate pool? What does the Fifth Wall even mean by “retail”?

We’d talked with firm cofounder Brendan Wallace a couple of weeks ago about the opportunity the firm sees. As Wallace said then, there are growing number of venture-backed e-commerce brands that do — or will — rely heavily on physical real estate at some point. Fifth Wall — which is backed by a long list of real estate heavyweights, including landlord giants like Macerich Co. and Acadia Realty Trust — thinks it can play matchmaker. The idea is to introduce the startups to spaces owned by members of its investor base, while meanwhile enhancing the investors’ properties by ensuring they have the latest and greatest brands as tenants.

Thanks to Fifth Wall, for example, Taft Clothing, a Salt Lake City-based band that makes men’s shoes, opened its first brick-and-mortar store in New York’s SoHo district late last year. The building is owned by Acadia.

Fifth Wall has similarly helped another portfolio company, the men’s apparel brand UNTUCKit, find some of its many locations across the U.S.

Even further afield, Wallace also pointed to Fifth Wall’s investment in the e-scooter company Lime. While the deal raised questions at the time about how Fifth Wall could rationalize the deal, “[W]hen you look at that business, a huge part of it depends on distribution to where consumers are, which is real estate assets and establishing charging and docking stations at those assets,” Wallace said. “There is a huge real estate dependency to the scooter business [because you need a] network of charging stations, you need to structure relationships and deals with landlords and you also need to be able to deliver these devices in an organized way at these consumer endpoints at malls, office buildings and multi-family buildings.”

Meanwhile, by working with Lime and installing docking stations, those same building owners are navigating around sometimes onerous parking requirements.

Kevin Campos, a partner at Fifth Wall, is the head of its retail fund. In addition to Acadia and Macerich, some of its real estate backers include Cushman & Wakefield and Nuveen Real Estate.

Fifth Wall Ventures’s new $100 million “retail” fund aims to back online brands that need real world space

Fifth Wall Ventures, a four-year-old, the L.A.-based, real-estate focused venture firm, has just closed a $100 million vehicle called that it’s calling its “retail fund.” The vehicle comes hot on the heels of a $212 million debut fund that Fifth Wall closed in 2017, which was itself soon followed by a second, $503 million flagship fund. The firm is also reportedly raising a $200 million carbon impact fund.

So why raise more money via this separate pool? What does the Fifth Wall even mean by “retail”?

We’d talked with firm cofounder Brendan Wallace a couple of weeks ago about the opportunity the firm sees. As Wallace said then, there are growing number of venture-backed e-commerce brands that do — or will — rely heavily on physical real estate at some point. Fifth Wall — which is backed by a long list of real estate heavyweights, including landlord giants like Macerich Co. and Acadia Realty Trust — thinks it can play matchmaker. The idea is to introduce the startups to spaces owned by members of its investor base, while meanwhile enhancing the investors’ properties by ensuring they have the latest and greatest brands as tenants.

Thanks to Fifth Wall, for example, Taft Clothing, a Salt Lake City-based band that makes men’s shoes, opened its first brick-and-mortar store in New York’s SoHo district late last year. The building is owned by Acadia.

Fifth Wall has similarly helped another portfolio company, the men’s apparel brand UNTUCKit, find some of its many locations across the U.S.

Even further afield, Wallace also pointed to Fifth Wall’s investment in the e-scooter company Lime. While the deal raised questions at the time about how Fifth Wall could rationalize the deal, “[W]hen you look at that business, a huge part of it depends on distribution to where consumers are, which is real estate assets and establishing charging and docking stations at those assets,” Wallace said. “There is a huge real estate dependency to the scooter business [because you need a] network of charging stations, you need to structure relationships and deals with landlords and you also need to be able to deliver these devices in an organized way at these consumer endpoints at malls, office buildings and multi-family buildings.”

Meanwhile, by working with Lime and installing docking stations, those same building owners are navigating around sometimes onerous parking requirements.

Kevin Campos, a partner at Fifth Wall, is the head of its retail fund. In addition to Acadia and Macerich, some of its real estate backers include Cushman & Wakefield and Nuveen Real Estate.

Report: Outdoor Voices founder Tyler Haney is stepping down as CEO as growth slows

Tyler Haney, the founder and chief executive of activewear label Outdoor Voices, has stepped down, according to the Business of Fashion.

We’ve reached out to Haney directly, as well as board members from the venture firms that have backed the company, including General Catalyst and Forerunner Ventures, and we hope to update this story accordingly.

According to BoF, the transition follows a previously unreported capital injection from Outdoor Voices’ investors at a lower valuation than previous rounds. It says the company tried raising new funding late last year but “had difficulty.”

It cites mismanagement as one overriding reason that Nike and Under Armour veteran Pamela Catlett joined the company a year ago as president but left months later.

Retail legend Mickey Drexler, formerly of J.Crew fame — who was named chairman of Outdoor Voices’ board in the summer of 2017 as part of a $9 million convertible debt round led by Drexler’s family office — also resigned his position last year, though he maintained a director’s seat.

According to BoF, operational challenges aside, Outdoor Voices has had trouble replicating the kind of excitement that met its earliest offerings, including flattering, color-blocked athleisure wear, like leggings, sports bras, tees and tanks.

The company has since rolled out an exercise dress that has gained traction with some consumers, but newer offerings meant to extend the brand’s reach, including solidly colored hoodies and terrycloth jogging pants that are less distinguishable from other offerings in the market, have apparently failed to boost sales.

Indeed, according to the BoF report, the brand was losing up to $2 million per month last year on annual sales of around $40 million.

The BoF story doesn’t mention the company’s brick-and-mortar locations and how they factor into the company’s narrative. But certainly, as with a growing number of direct-to-consumer brands that have been encouraged by their backers to open real-world locations, they’ve become a major cost center for the outfit. Outdoor Voices now has 11 locations around the U.S., including in Austin, L.A., Soho in New York, Boston, Nashville, Chicago, and Washington, D.C.

Even with (at least) $64 million in funding that Outdoor Voices has raised from investors over the years, it’s also going head-to-head with very powerful, very entrenched, and endurably popular brands, including Nike and Adidas. While Outdoor Voices is still in the fight, the shoe and apparel giants have vanguished plenty of upstarts over the years.

What happens next to Haney — a former track athlete from Boulder who first launched the business with a Parsons School of Design classmate  — isn’t yet clear. Still, she isn’t going far, reportedly. BoF says she still owns 10 percent of Outdoor Voices and will remain engaged with the company in some capacity.

Featured above, left to right, Emily Weiss of Glossier and Tyler Haney of Outdoor Voices at a 2017 Disrupt event.

At his company, Tock, this restaurant group owner and former trader is building a Spotify for reservations

Tock, a nine-year-old, Chicago-based culinary reservation service, has never had the kind of brand-recognition that other companies in the space have enjoyed, from publicly traded OpenTable to Resy, the New York-based company that was founded in 2014 and acquired last year for undisclosed terms by American Express.

That’s largely because Tock operates a white-label service for its customers, many of them high-end restaurants like French Laundry that, with Tock’s encouragement, began years ago selling prepaid “tickets” for meals. These aren’t unlike buying tickets to a concert or NBA game, sometimes weeks or even many months in advance.

Yet the reach of Tock appears to be growing. Late last month, in an interview with this editor, founder Nick Kokonas said the platform has been processing $2 million a day in these pre-paid tickets. He insists that by rethinking the reservations process for higher-end spots, Tock has drastically reduced both wasted food and no shows. As he said during our sit-down, “If you think about it, if you’re going to buy a ticket to the Rose Bowl and see a game, and suddenly your dog gets sick and you’ve got to go to the vet, you do not call the Rose Bowl and say, ‘I’m really sorry, I can’t make it tonight. Give me my money back.”

Tock has since announced a partnership with Chase, a partner of two years that just expanded its tie-up with Tock such that Chase Sapphire, Freedom, and link cardholders will now have access to a dining page within the Chase mobile app that, driven by Tock, enables cardholders to browse, book and pay ahead for dining experiences at restaurants, bars, pop-ups, and wineries. (It gives Tock, which says it already had 10 million users, another “30 million households at once,” said Kokonas.)

That bit of momentum begs the question of whether Tock — which is backed with $17 million from Origin Ventures, Valor Equity Partners and others — might go the Resy route and itself become part of a credit card giant. But Kokonas — a hyphenate who also co-owns a prominent restaurant group that includes the famed Alinea in Chicago — suggests he’s inclined to keep building the business for now. He has too many ideas of where to take it, including turning into a Tock into a kind of Spotify that recommends and customizes booking experiences for diners around the world.

More from our sit-down, at the Upfront Summit last month, follows, lightly edited for length and clarity. It was an interesting conversation, particularly for anyone fascinated with the evolution of the restaurant industry over the last 15 years — and how tech is changing it.

TC: We’re both Greek Americans [and many Greeks used to open restaurants when they came to the U.S]. My family had restaurants. Your father had a diner. But you didn’t jump into the restaurant business right away. 

NK: I had the usual where I started a derivatives trading firm right out of college because I was a philosophy major. [Laughs.] That’s really important. Then did that for 11 years, built that through about 100 employees. Then I met Grant Achatz, the chef who, if you want to learn more about him, check out Netflix’s “Chef’s Table” [or the documentary] “Spinning Plates.” He had tongue cancer and a very incredible outcome. He’s still 10 years cancer free. But I met him when he was very young and he was the same kind of person who I would want to hire in my trading firm. It was more about backing a great person.

Grant was doing was what I think we all try to do anytime we build anything. He was doing something that’s emotionally resonant with consumers [at the restaurant where he was working at the time]. So you would go in there and you’d have this incredible experience . . . I felt like I knew how to build businesses. I started investing in the internet 1996. And I just said to him ‘One day like if you ever want to do something more than this, let me know.’ And he said, ‘Well, what kind of restaurant, do you want to build? and I said, ‘How should I know? I’ve never built a restaurant before. But I want to make it great.’ And so, I knew nothing about it, a year to the day later of that conversation we opened Alinea.

TC: And . . .

NK: I remember on the first day, I thought I was done. It was kind of like a film production, where you produce the film, and then people can watch it. But of course with the restaurant, you’re making art every day that people consume. It’s one of the only art forms or forms of entertainment that’s consumable. And so, I remember [Grant] just grabbed me by the tie I that opening night and said, ‘Go over table 40 and make sure that [the wait staff is] doing it the right way.’ Sixteen years later, I have six restaurants and about 300 employees, between Chicago and New York. And what I learned when I actually started running the restaurant when Grant got sick was that no one else knew anything about running a restaurant, either. It’s one of those areas where tradition exceeds expertise, and the software for it was built in a way that looked like 1998.

TC: How so?

So in 2005, an Open Table salesman would come literally with a briefcase and [with its legacy reservation system], say, ‘Look at this bad boy; I could leave it here for you today.’ And that’s kind of what they still do.

I came from a trading organization where we could process hundreds of thousands of transactions without a problem, yet in 2010 [when we opened Alinea], I couldn’t even know who my customers were; that held from me [by OpenTable] and whenever I see opaque information, I see an arbitrage [opportunity].

[I wanted a way to ] looking up every single thing that you eat and what you liked what you didn’t like and left on the table, but your wife or spouse likes to drink. We were doing that in a very real way [in house, but] we couldn’t share that information with our other restaurants. [That information was] siloed on purpose because of the business model of OpenTable and Booking.com. So, I started building it for myself.

I remember [famed restaurateur] Danny Meyer told me, ‘You’ll never sell a ticket to a restaurant,’ I thought of it 20 years ago. ‘It won’t work.’ But we process about $2 million a day now in pre paid tickets [beginning with what I built] by myself with one programmer. It was a very rudimentary system, and we sold $562,000 of tickets in the first day,

TC: What is a ticket?

NK: There are three kinds of reservations that you make in the world. There are free reservations, like ordinary reservations. There are times when you have to make it put a deposit down something, And there are times that you prepay something. [Regarding the last] when you think about it, if you’re going to buy a ticket to the Rose Bowl and see a game and suddenly your dog gets sick and you’ve got to go to the vet, you do not call the Rose Bowl and say, ‘ I’m really sorry I can’t make it tonight. Give me my money back.’ They play the game without you.

With restaurants where demand exceeds supply by two or three times, there’s an opportunity to charge, like a movie or concert or some other form of entertainment. And that’s what was going through my head [at the start of Alinea] because we’re running 8% no show rates; we had [staff] answering the phone every day, disappointing people, telling people “no” when they wanted [ a reservation] at seven o’clock on a Saturday. It’s like walking into a sweater store and [asking] ‘Do you have a black cardigan?’ [and being told] ‘Nope, try again.’

I just knew that I needed to solve my own problem. And now we’ve got 100 employees building all sorts of different iterations of dynamic and variable pricing for time-slotted businesses. Pricing will be differentiated in real time.

TC: What is that sales process like [when it comes to your software and this ticket idea?] Do restaurants see it as a big gamble? Do they want to try it first for some period of time?

NK: Any time you’re ripping and replacing a system that’s been around for 20 or 30 years, you have some convincing to do. The crossing-the-chasm thing is real. The first couple of years, we’d add 15, 20 restaurants a month, and we had to learn, really quickly, that they were either really great and had high demand, or they were failing and willing to try anything. So you had to really learn to pick your the right customers when you were early in the process.

Now what’s happening is that we built out a system that is cloud based — we’re the only independent system left [of meaningful scale] — and we built it for enterprise. So we have 400 API endpoints. We can integrate with Salesforce. But we can also do specialty integrations with, you know, Vail Resorts, which is now a client of ours.

So all of that now is going laterally and we’re getting the halo effect. We spend very little on marketing to to businesses. We spend an awful lot of money now [on] building out that consumer network, [which the Chase deal should help with meaningfully]. The cool part about that news is that every single one of those people in the largest rewards program in the country is going to get an account. So that’s how I get 30 million US households all at once.

TC: What other ways are you sharing your customer data?

NK: One of the most important pieces of data within a restaurant group that we don’t share across, is that we want to know your preferences, your dietary restrictions, your spouse’s birthday — all those things. Those are for better hospitality. Now, for the next step we want you to give us that information. We already know your dining history — why is there no platform like Spotify or Netflix for restaurants that anticipates your needs, knows what you enjoy and suggests little nudges to you [like],  ‘Hey, your anniversary is coming up in a little while — maybe you should book something now, and we’ve got these great five choices that are in your (playlist). So that that mass personalization for the consumer is coming, that’s something that we’re building. You have to get to a point where you have enough of that data to to do it well enough that it’s meaningful, but we’re there now.

TC: The restaurant industry is brutally competitive. Is there a chance that some of your restaurants maybe don’t want to be part of a suggested rotation alongside other restaurants?

NK: We don’t know. We haven’t done it yet.

You know, restaurants are incredibly myopic in the sense that I don’t care how good you are, they are concerned that when I turn on bookings from March. I hope we have customers. It’s a really weird business that way. And what we’re going to be able to do is that because of some of the data and people indicating interest before the reservations are available, we get to show the restaurant the elasticity of their demand before they actually put those bookings on. That’s incredibly powerful because now, for the first time, they can know they can project out months into the future what their demand will look like.

TC: You’re working with restaurants and wineries and the like. What’s the vision? Are you going to be getting into other verticals within hospitality or beyond?

We’ve experimented with other verticals; we’re focused on hospitality.We’re in 30 countries organically already. It’s a huge huge huge space. But you know, if I was left to my own devices and didn’t have people managing me, I’d already have dentists using it.

Codeacademy has already outlived many rivals — is that enough?

Codeacademy, the New York-based online interactive platform that offers coding classes in a wide variety of programming languages, is a little like background noise; it’s been operating reliably since founder Zach Sims created the company while still a Columbia University student in 2011. It’s a brand that people know and that millions have used, but because it has grown steadily, without headline-making funding rounds — or, conversely, newsworthy layoffs —  the 90-person company doesn’t routinely attract a lot of press attention.

That’s fine with Sims, who we spoke with last week following the most recent bout of bad publicity for Lambda School, a younger rival that has raised $48 million from investors, compared with the $42.5 million that Codecademy has raised over time. Sims says his company is continuing to chug along nicely.

The question, increasingly, is whether that’s ‘nice’ enough for VCs. Indeed, Codecademy — like a lot of startups right now — is in the awkward position of being a smart, solid, steadily but not massively growing business — which raises questions about its next steps.

The last time we’d spoken with Sims, roughly two years ago, Codecademy — which struggled for years with how to produce meaningful revenue —  had recently launched two premium products. One of these, Codecademy Pro, helps users who are willing to spend $40 per month (or $240 per year) on the service to learn the fundamentals of coding, as well as develop a deeper knowledge in up to 10 areas, including machine learning and data analysis. Sims says this has taken off, though he declined to share specifics.

A second offering, Codecademy Pro Intensive, that was designed to immerse learners from six to 10 weeks in either website development, programming or data science, has since been dropped.

Sims says the company’s international have meanwhile been growing, with 60 percent of its paying users based in the U.S. and the rest elsewhere, including in India and Brazil. (The need for coding skills “isn’t a U.S.-only phenomenon,” Sims notes.)

Who are these users? He says they tend to fall into one of two buckets: those who are learning a discrete skill set, perhaps to build a website in a pinch, and those who are gainfully employed but looking to climb the ladder or switch jobs and who see Codeacademy as a way to spend a couple of hours a week to develop the skills to get there.

Sims says the payback is typically quick and that its customers easily rationalize the cost of the courses, which are exceedingly affordable as these things go. By way of comparison, some on-premise coding schools charge upwards of $20,000 a year — a big enough expense that in order to make themselves more accessible, they invite students to pay nothing upfront and instead collect a percentage of their salary once they find a job.

Naturally, because Codecademy largely lives online, so, too, do criticisms sometimes about its perceived shortcomings. One customer — a self-described computer science major — authored a thoughtful review in December, writing that “being a programmer is more than simply being able to memorize syntax,” While Codecademy has introduced “thousands to the fundamentals of computer science,” through “addictive bite-sized pieces that are easy to accomplish,” it falls short in helping cultivate a “coders’ mindset,” he wrote.

Either way, enough people are finding value in Codecademy’s vast number of offerings that it recently reached an important milestone —  it’s now cash-flow positive — having doubled it revenue last year. Sims is understandably proud of this accomplishment, noting that “there are few [coding platforms] that are growing sustainably and profitably and generating cash that can be invested back into the business.”

Codecademy is enjoying the same tailwinds it has from the start, too. While skepticism has grown around coding schools more broadly, the ability to design, shape, correct, and secure software will only grow more valuable. Receiving a related education that comes affordably and doesn’t require an income-share agreement remains an appealing proposition, too.

In fact, the company is continuing to paint that picture for consumers and, we gather, it’s talking more to enterprises that are starting to offer Codecademy type classes to employees. Though Codecademy already sells classes in volume packs, Sims suggests that a big push in 2020 will involve tie-ups with companies that want to provide what it teaches as a perk.

Whether it intends to paint a picture for investors, too, is another question, one that Sims declined to answer when we asked about fundraising more broadly.

Certainly, follow-on rounds are growing harder to land, as described in our piece last week about “portfolio bloat.” The reason: VCs have raised so much money in recent years that they’re funneling it into new startups faster than ever, too (They need to find the Next Big Thing to return all that capital.)

That’s leaving a lot of solidly run companies to fend for themselves for now.

Given Codecademy’s cash-flow positive status, at least, it can afford to wait.

VCs to antitrust officials: We’d rather take our chances than see tech regulated

Last week at Stanford, antitrust officials from the U.S. Department of Justice organized a day-long conference that engaged numerous venture capitalists in conversations about big tech. The DOJ wanted to hear from VCs about whether they believe there’s still an opportunity for startups to flourish alongside the likes of Facebook and Google and whether they can anticipate what — if anything — might disrupt the inexorable growth of these giants.

Most of the invited panelists acknowledged there is a problem, but they also said fairly uniformly that they doubted if more regulation was the solution.

Some of the speakers dismissed outright the idea that today’s tech incumbents can’t be outmaneuvered. Sequoia’s Michael Moritz talked about various companies that ruled the world across different decades and later receded into the background, suggesting that we merely need to wait and see which startups will eventually displace today’s giants.

He added that if there’s a real threat lurking anywhere, it isn’t in an overly powerful Google, but rather American high schools that are, according to Moritz, a poor match for their Chinese counterparts. “We’re killing ourselves; we’re killing the future technologists… we’re slowly killing the potential for home-brewed invention.”

Renowned angel investor Ram Shriram similarly downplayed the DOJ’s concerns, saying specifically he didn’t think that “search” as a category could never be again disrupted or that it doesn’t benefit from network effects. He observed that Google itself disrupted numerous search companies when it emerged on the scene in 1998.

Somewhat cynically, we would note that those companies — Lycos, Yahoo, Excite — had a roughly four-year lead over Google at the time, and Google has been massively dominant for nearly all of those 22 years (because of, yes, its network effects).

Well, Bill Gates is never going to buy a Tesla now

Elon Musk is not one to mince words, but he may have just lost a potential customer because of a cutting tweet.

That customer is renowned big deal Bill Gates, who sat down recently with YouTuber Marques Brownlee, who joined the platform in 2009 and has amassed more than 10 million viewers. Gates and Brownlee have met before, and the idea was to have Gates discuss some of what the Bill & Melinda Gates Foundation has planned for this year, which marks the 20-year-anniversary of the organization.

Unsurprisingly, the conversation touched on climate change and in pretty short order sustainable transportation, with Brownlee bringing up Tesla and asking if, when “premium” electric cars grow more affordable, they’ll also become more ubiquitous.

Gates didn’t exactly malign Tesla with his answer, telling Brownlee: “The premium today is there, but over the next decade — except that the [mileage] range will still be a little bit less — that premium will come to zero. [When we look at all the sectors addressing climate change] passenger cars is certainly one of the most hopeful, and Tesla, if you had to name one company that’s help drive that, it’s them.”

What Gates did next, however, did not sit well with Musk, apparently. He expressed excitement about his first new electric car, which happens not to be a Tesla.

Said Gates: “Now all the car companies, including some new ones, are moving super fast to do electric cars. The biggest concern is, will the consumers overcome that range anxiety? I jut got a Porsche Taycan, which is an electric car. I have to say, its a premium price car, but it’s very, very cool. That’s my first electric car and I’m enjoying it a lot.”

Musk felt compelled to weigh in with a  tweet after learning about the exchange.

Specifically, after a Twitter account associated with an unofficial Tesla newsletter tweeted “a lot of people are going to watch the interview and they are going to trust Bill’s word for it and not even consider EVs. Why? Because Bill Gates is a really smart guy!” Musk responded, “My conversations with Gates have been underwhelming tbh.”

It’s funny, because they are both billionaire geniuses and it’s unexpected.

It’s also nasty enough that you can guess Gates won’t be buying a Tesla or speaking in a positive way about the company any time soon.

Fifth Wall’s Brendan Wallace on coronavirus, WeWork and what’s shaking up proptech

Last week, we interviewed Brendan Wallace, a real estate-focused venture capitalist whose portfolio companies include Opendoor, which buys and sell homes, and scooter company Lime, which helps building owners navigate around parking requirements by installing docking stations instead.

We first talked with Wallace almost exactly three years ago when he and partner Brad Greiwe took the wraps off their venture firm Fifth Wall Ventures and its $212 million debut fund. What really stood out to us at the time is that it was backed by a long list of real estate heavyweights. They’re understandably eager to get a peek at up-and-coming technologies and, in some cases, deploy them.

Wallace and Greiwe have been awfully busy since that initial conversation. Last year, they closed a second flagship fund with $503 million in capital commitments. Fifth Wall is also working to close two other funds, including a $200 million retail fund focused on matching online brands with real-world real estate and a reported $500 million carbon impact fund whose capital will enable its limited partners to expressly invest in sustainable technology.

Wallace declined to discuss the last two funds, presumably owing to SEC regulations, but he did talk with us about what he says is the biggest thing to shake up the real estate industry in “the last five decades.” We also chatted about how the coronavirus impacted a recent fundraising trip to Singapore and how WeWork’s public retrenching has affected how investors feel about real estate startups right now (he suggests WeWork’s fall definitely made an impression). Some excerpts from our conversation follow, edited lightly for length and clarity.

TechCrunch: We’d read that you were recently in Singapore meeting with new investors.

Brendan Wallace: Yes, I was in Singapore meeting with our existing investors and it was a pretty unique time to be there. When I went, which was about two weeks ago, the outbreak of coronavirus was fairly contained in China. But then as you probably read, it spread pretty rapidly in Singapore, so at the moment, I’m actually kind of self-quarantining myself in my own house.

Portfolio bloat: What’s happening to thousands of startups going nowhere fast

Earlier this week, much was made of the e-commerce business Brandless deciding to shutter its doors. Industry observers found its fate particularly interesting, given that Brandless was only a few years old and had raised substantial funding, including $100 million from the SoftBank Vision Fund alone.

Still, Brandless is far from alone in having tried — and failed — to break away from its many rivals and become the kind of juggernaut that makes venture investors money. There are now thousands of venture-backed companies that once looked like bigger opportunities or whose growth has slowed, and which aren’t finding follow-on dollars.

Ravi Viswanathan of the venture firm NewView Capital sums up what’s happening out there this way: “Firms and funds are generally coming back to market faster with bigger funds, and they’e investing a lot more, so you’re seeing portfolio bloat across the industry. But [limited partners, the outfits and people supplying money to venture funds] are investing for you to make money, and that means spending time on the needle movers.”

So what’s a startup with dwindling attention from its investors to do? There are numerous options, some newer than others, and some more desirable than others.

Option #1

Naturally some — maybe most — of these companies will eventually, like Brandless, close down. This is the least favorable scenario for everyone involved as it means lost jobs, lost dollars and often an uncertain future for the founders who’ve poured their heart and soul into the company.

Venture capitalists don’t love closing down companies, either, as it means writing down the holdings in their financial statements, something they’re always loathe to do — though external events can also impact the timing.

As Jeff Clavier of the venture firm Uncork Capital explains it, “We maintain a company’s valuation on our books until we decide to impair it.” But if a venture firm has a “big gain [because another company sold or went public], we might as well take advantage and sell the shares for $1 or forego them altogether,” minimizing the firm’s overall tax bill in the process.

Option #2

Other companies that have grown more self-sufficient might look to buy back their shares from investors at a discount. Joel Gascoigne, the founder of a now six-year-old social media management company called Buffer, publicly outlined his own process for saving up enough money to buy out the company’s main venture investors a couple of years ago.

It’s not easy to pull off. Gascoigne says it took more than a year to persuade the VCs to take the deal he was offering them, and their relationship suffered as result.

The reason, offers Clavier, is that in a buyback scenario, an “investor has to admit complete defeat, and that’s kind of the last stop on the road.” Unsurprisingly, Clavier suggests a far better strategy is to “get out sooner, when there’s more time for a proper exit.”

Says Clavier, “The best thing you can do is find a nice home” for the founders, including so they can “move one, get a new gig, join something, rather than toiling away for the next three to five years” on a company that might eventually fail anyway.

At least, in some cases where the investors have essentially written the deal down to zero, they’ll let the founders retain their intellectual property.

“It’s worth something to him or her or them,” says Hunter Walk, co-founder of the venture firm Homebrew, “and it’s really not worth anything to the investors and maybe the founder wants to re-start it as a non-venture-backed company.”

Important to note, says Walk, this “usually occurs when they haven’t raised too much money.”

It’s a different story for startups that have raised bigger rounds, as VCs need to wring what they can from a company to fulfill their firm’s fiduciary obligations. That means selling off assets, from office chairs to IP.

Option #3

Thankfully, for startups going nowhere fast, there’s also a third option that’s picking up traction: private equity firms that have grown increasingly focused on tech. Their terms might not always be ideal, but the founder gets to claim an exit, while the private equity firm gets to roll up sub-scale properties or bolt a startup onto one of its core assets and re-sell the package to another buyer.

These deals can sometimes be a “bitter pill to swallow” for investors, notes Viswanathan, but the “sooner you do it, the faster you free up resources and show your LPs that you can manage your portfolio.”

Sometimes, too, he notes, investors hang on with the expectation that the PE firm will fuel a better outcome for everyone.

Just last month, for example, Insight Partners, the New York-based private equity and venture firm, agreed to paid cash for Armis Security, a five-year-old company whose tech helps businesses secure their connected devices. Though terms of the deal weren’t disclosed, a number of Armis investors have rolled their stakes into the new, Insight-controlled company.

A similar situation played out when the 13-year-old web content management company Acquia sold to Vista Equity Partners last fall.

Options #3 and #4

What if such a deal never materializes? Well, there are other alternatives still for startups that are chugging along — if less quickly than expected.

One is to try debt lenders. Debt is always a gamble, but one that sometimes pays off.

Another is to use convertible notes if one’s investors (or even outsiders) are open to the idea. These notes are structured as debt that convert into equity upon a specific event like a certain date or the closing of a priced investment round.

The Hail Mary pass

There’s always the hope, too, that if a company is doing decently, a venture investor will let a bet ride.

Jason Lemkin, a former entrepreneur who now runs the venture firm SaaStr fund, says he’s open to doing this when he can.  “My view as a founder and investor has evolved over time, but if I think it’s a good team and the company is achieving a few million in revenue and doesn’t need to raise money and has high retention and recurring revenue but is no longer on a venture trajectory, I’ll wait,” says Lemkin. “I’ll wait because things can change.”

It’s true of SaaS startups in particular, he says, “because competitors get acquired, they quit, they take too much money and they stumble.”

It can take some time, of course, but “if you’re the last man or woman standing, if you’re still out there fighting” he says, “you can win.”

Tuesday Capital teams up with design powerhouse Frog to grab startups’ attention — and keep it

In a day and age when everyone seems to have their own seed-stage venture fund, it’s hard to stand out. But Tuesday Capital, the San Francisco-based outfit formerly known as CrunchFund, thinks it has found a way. Today, the firm announced a new partner in Frog, the renowned design firm whose past clients include the headset maker Oculus, among countless others.

The partnership dates back nearly four years. It was then that Tuesday’s cofounder and managing partner Pat Gallagher was introduced to FrogVentures, the design firm’s investment incubator.

P.J. Gunsagar, the CEO of one of Tuesday’s portfolio companies, KidAptive, had hired Frog to help this company–an online adaptive learning program for children — design a portal that parents could use to see how their children were progressing. Wowed with what they came up — Gunsager believes it helped KidAptive land its Series B round — he suggested that Gallager meet with Ethan Imboden, a former designer and the Frog division’s head.

It was apparently a match. In fact, soon after the two connected, Tuesday rebranded from CrunchFund. “They helped us with our own branding and to navigate around a lot of confusion” tied to the venture firm’s earliest connection to both TechCrunch and Crunchbase. (All three companies were cofounded by entrepreneur and investor Michael Arrington, who has since moved on to form Arrington XRP Capital.)

Says Gallagher, “We were incredibly impressed with the quality of the marketing folks and the technologists and the branding folks,” whose suggestion tied to the belief that Tuesday is the most productive day of the week.

Before long, Gallagher and Imboden were sharing their networks and their deal flow. Now, out of that organic collaboration, the new partnership has been more formally imagined.

How it will work exactly: early-stage ventures will be eligible to receive investment from Tuesday Capital to engage Frog, giving the startups the option of covering the cost of their design projects with equity. Ostensibly, by making it easier for partners to access Frog’s services — which include brand, product, go-to-market strategies, digital product and connected hardware design — they’ll get to market faster and be stronger when they get there.

To cement the deal, Tuesday purchased a share of FrogVentures’s venture portfolio — it now owns stakes formerly owned by Frog in eight companies — and Frog committed to become one of the largest limited partners in Tuesday’s current (fourth) fund so that it continues to get upside from those companies and future Tuesday startups with which it consults. Imboden is also now a venture partner with Tuesday, sitting in all all of the firm’s partner calls and “integrating himself into our workflow,” says Gallagher. “When we talk about new investments, he’s now part of those conversations.”

Considering Frog’s past client list, that could prove a powerful perspective for Tuesday to have around the table.

Of course, Tuesday still has to battle its way to get the attention of top founders who are getting pulled in all directions by investors, both new and old. But the firm, typically writes initial checks of between $250,000 and $500,000, suddenly has a a lot more to offer. “We’ve always tried to be additive to investor syndicates. We help with PR and media and content services.” Now, it can provide access to Frog, too.

It could certainly tip more deals in its direction. “If you need access to design services, if you need to talk with an industrial designer for a couple of hours, if you want an all-day seminar [alongside other portfolio companies]” Frog, with its vested interest in Tuesday, will be there, he says.

Photo, courtesy of Frog.