Benchmark’s Peter Fenton: ’10 to 20 years of innovation just got pulled forward’

Earlier today at TechCrunch Disrupt, venture capitalist Peter Fenton joined us to talk about a variety of issues. Among them, we discussed how he’s putting his stamp on Benchmark now that, 15 years after joining the storied firm, he’s its most senior member.

Fenton said that he’s mostly focused on ensuring that firm doesn’t change. It wants to remain small, with no more than six general partners at a time. It wants to keep investing funds that are half a billion dollars or less because its small team can only work closely with so many founders. He also made a point of noting that Benchmark’s partners still divide their investment profits equally, unlike at other, more hierarchical venture firms, where senior investors reap the biggest financial benefits.

We also talked about diversity because (hint hint) Benchmark — which is currently run by Fenton, Sarah Tavel, Eric Vishria and Chetan Puttagunta — is hiring one to two more general partners. We talked about why Benchmark, a Series A investor in both Uber and WeWork, seemingly took so long to address cultural issues within both companies. And we talked about the opportunities that has Benchmark, and Fenton specifically, most excited right now.

If you’re curious about any of these things, read on or check out our full conversation below.

On whether Benchmark, which historically had all white male partners and now counts Fenton among its only white partner, might hire a Black partner on his watch, given the dearth of Black investors in the industry combined with the changing demographics of the U.S.:

“That’s a personal issue for me, which is going to be measured in the outcomes, just like we have companies that take on initiatives that matter and then measure them and hold themselves accountable. I won’t feel good about our failure if we don’t continue to tilt towards diversity. It’s not enough that I’m the only white male partner. The industry is so systematically skewed in the wrong direction, and we’ve gotten so good at rationalizing how it ended up here, that I don’t think we can tolerate it anymore.”

Benchmark is looking to reinvent itself through “three interfaces” he continued. “It’s who are we talking with and spending time with in terms of [who we might invest in] — that has to change; who are the people making investment decisions, [meaning] the partnership; and then what’s the composition of the companies we’ve invested in, meaning the executives and the boards.

“Before I’m done with the venture business, I want to be able to point to empirical outcomes . . .”

As for why Benchmark waited for the public to rally against its portfolio companies Uber and WeWork before taking action to address cultural issues (in Uber’s case, in reaction to former engineer Susan Fowler’s famous blog post and, in the case if WeWork, in reaction to its S-1 filing):

“I can’t give you a crisp answer because ultimately, what happens in the public eye isn’t the whole story of what was going on between Benchmark and those CEOs.” It’s  “far more complicated, far more nuanced, far more engaged.”

Said Fenton: “What you start with in any partnership is this idea that we’re all flawed and providing what feels like unconditional support to a founder to nurture them and help them to understand in ways they might be able to from their direct reports where they are going to get in trouble, where they’re going to fall short, and then buttress them.

“I can say, having watched both [Benchmark investors] Bruce [Dunlevie] and Bill [Gurley] in those roles that they give their heart and soul to enable to full potential of those entrepreneurs and in each case, it wasn’t enough.

“I don’t know what to say other than, I don’t envision another individual in that [board] role being able to do a better job because what they gave was everything, and those companies built enormous organizations, great success, delight and joy for customers, and they had, in each of their cases, pathologies in their culture. A number of companies that I’m involved with have pathologies in their culture. Every organization can build them. What motivated both Bill and Bruce was the constituencies that go beyond the CEO, the employees, the customers, and in the case of Uber, the drivers . . .

“You could say Susan Fowler was the reason it all happened; I can assure you that the work that was being done far preceded [the publication of her blog post]. Could we have done more, more quickly? You always look back and say, ‘Yeah.’ I think you learn as an organization. We’re not perfect.”

As for the trends that Fenton is watching most closely right now, he suggested a world of opportunities have opened up in the last six months, and he thinks they’ll only gain momentum from here:

“What I’m most excited about is, we’re not going back to normal. What’s so amazing is this shock to the system is really a big opportunity for entrepreneurs to come and say, ‘What do we need to build to recreate and unlock all these things we lost when we stopped going into workplaces?’

“So I think this opportunity to build the tools for a world that’s ‘post place’ has just opened up and is as exciting as anything I’ve seen in my venture career. You walk around right now and you see these ghosts towns, with gyms, classes you might take [and so forth] and now maybe you go online and do Peloton, or that class you maybe do online. So I think a whole field of opportunities will move into this post-place delivery mechanism that are really exciting. [It] could be 10 to 20 years of innovation that just got pulled forward into today.”

Can’t stop won’t stop: Social Capital Hedosophia just filed for its fourth SPAC, says new report

According to a new report in Bloomberg, Social Capital Hedosophia has filed plans confidentially with the SEC to raise $500 million for its newest blank-check company.

It will be the fourth special purpose acquisition company, or SPAC, to be raised by the outfit, which is headed up by Chamath Palihapitiya and his longtime investment partner, Ian Osborne.

Astonishingly, dozens more may be in the works. On the “All-In Podcast,” co-hosted by Palihapitiya, he revealed recently that has reserved the symbols from “IPOA” to “IPOZ” on the New York Stock Exchange. He also said he has $100 million of his own involved in each deal to demonstrate his alignment with potential investors.

What’s the play? In the podcast, Palihapitiya pointed to the Federal Reserve’s economic and interest rate forecasts and its plans to keep interest rates at zero for years to come. “I mean, quite honestly,” Palihapitiya said, “there’s no path to any near-term inflation of any kind whatsoever.”

It’s why he thinks investors are going to “get paid to be long [on] equities, because your risk-free rate is zero and will soon be negative. And what are you supposed to do if you’re an asset manager?”

Here’s how he framed it: “Let’s say you’re the California pension system, you have hundreds of billions of dollars, and you need to generate five or 6% a year to make sure that your pension isn’t insolvent, and the government is paying you zero. When everybody is in that situation, you’re overwhelmingly long equities . . .So all of these opportunities are generally buying opportunities, and I’m more bullish now than I was before.”

Indeed, when it comes to private or public market investing, said Palihapitiya, “I think it really is just public companies [that are worth getting behind]. . . I mean like, no offense, but if you’re a very good stock picker in the public markets, you’re generating better returns [than] Sequoia, Benchmark — name your best venture fund.  I see all these people spouting off on Twitter about how good they are in the early-stage markets, but it’s all kind of small dollars and not that meaningful.”

Certainly, he has reasoned to feel emboldened. The first SPAC of Social Capital Hedosophia, raised in 2017, ultimately merged last year with the space tourism company Virgin Galactic, and it’s now valued at slightly more than $4 billion by public market shareholders.

The outfit’s second fund, which was raised in April, announced yesterday that it will merge with Opendoor, a company that buys and sells residential real estate and that might have had trouble going public through a traditional IPO process, given its still-uncertain economics.

Social Capital Hedosophia’s third SPAC, also raised in April, has not yet named its target but the company has said it will use its IPO proceeds to buy a tech company that’s primarily outside of the United States.

Certainly, SPACs — which haven’t had a stellar reputation historically — have a growing number of other investors intrigued. According to SPACInsider, nearly 100 SPACs have been raised in 2020 already up from just 7 a decade ago.

Though Sequoia Capital is having a stellar year — given its stake in Zoom, Bytedance, and Snowflake, among many other headline-leading companies — its U.S. head, Roelof Botha, suggested in an interview yesterday that Sequoia hasn’t ruled out the possibility of forming SPACs, even while he implied that it was unlikely. “I love the fact that there’s more innovation” around the IPO process, he said. “It gives more choice to the companies.”

Zwift, maker of a popular indoor training app, just landed a whopping $450 million in funding led by KKR

Zwift, a 350-person, Long Beach, Calif.-based online fitness platform that immerses cyclists and runners in 3D generated worlds, just raised a hefty $450 million in funding led by the investment firm KKR in exchange for a minority stake in its business.

Permira and Specialized Bicycle’s venture capital fund, Zone 5 Ventures, also joined the round alongside earlier backers True, Highland Europe, Novator and Causeway Media.

Zwift has now raised $620 million altogether and is valued at north of $1 billion.

Why such a big round? Right now, the company just makes an app, albeit a popular one.

Since its 2015 founding, 2.5 million people have signed up to enter a world that, as Outside magazine once described it, is “part social-media platform, part personal trainer, part computer game.” That particular combination makes Zwift’s app appealing to both recreational riders and pros looking to train no matter the conditions outside.

The company declined to share its active subscriber numbers with us — Zwift charges $15 per month for its service — but it seemingly has a loyal base of users. For example, 117,000 of them competed in a virtual version of the Tour de France that Zwift hosted in July after it was chosen by the official race organizer of the real tour as its partner on the event.

Which leads us back to this giant round and what it will be used for. Today, in order to use the app, Zwift’s biking adherents need to buy their own smart trainers, which can cost anywhere from $300 to $700 and are made by brands like Elite and Wahoo. Meanwhile, runners use Zwift’s app with their own treadmills.

Now, Zwift is jumping headfirst into the hardware business itself. Though a spokesman for the company said it can’t discuss any particulars — “It takes time to develop hardware properly, and COVID has placed increased pressure on production” — it is hoping to bring its first product to market “as soon as possible.”

He added that the hardware will make Zwift a “more immersive and seamless experience for users.”

Either way, the direction isn’t a surprising one for the company, and we don’t say that merely because Specialized participated in this round as a strategic backer. Cofounder and CEO Eric Min has told us in the past that the company hoped to produce its own trainers some day.

Given the runaway success of the in-home fitness company Peloton, it wouldn’t be surprising to see a treadmill follow, or even a different product entirely. Said the Zwift spokesman, “In the future, it’s possible that we could bring in other disciplines or a more gamified experience.” (It will have expert advice in this area if it does, given that Swift just brought aboard Ilkka Paananen, the co-founder and CEO of Finnish gaming company Supercell, as an investor and board member.)

In the meantime, the company tells us not to expect the kind of classes that have proven so successful for Peloton, tempting as it may be to draw parallels.

While Zwift prides itself on users’ ability to organize group rides and runs and workouts, classes, says its spokesman, are “not in the offing.”

The Chainsmokers just closed their debut venture fund, Mantis, with $35 million

Alex Pall and Drew Taggart are best known as The Chainsmokers, an electronic DJ and production duo whose first three albums have given rise to numerous Billboard chart-topping songs, four Grammy nominations and one Grammy award, for the song “Don’t Let Me Down.”

Soon, they hope they’ll be known as savvy venture investors, too.

They already have some major-league believers, including investors Mark Cuban, Keith Rabois, Jim Coulter and Ron Conway, who are among the other individuals who provided the Chainsmokers’s new early-stage venture firm, Mantis, with $35 million in capital commitments for its debut fund.

It’s a surprisingly traditional vehicle in many ways. Mantis is being managed day-to-day by two general partners who respectively offer venture and operational experience: Milan Koch graduated in 2012 from UCLA and has been an investor ever since, including as a venture partner with the seed-stage fund Base Ventures; Jeffrey Evans founded the record label Buskin Records and the mobile communications platform TigerText (now TigerConnect), among other companies, and has long known the Chainsmokers’s business manager, Josh Klein.

With fundraising begun earlier this year, the firm has already made a handful of investments, too, including the fitness app Fiton (Pall says they “squeezed into the A round after its close”), and LoanSnap, a mortgage-lending startup that was founded by serial entrepreneur Karl Jacob.

Pall and Taggart take their health seriously, so the fitness app is easy to understand.

As for why the world’s highest-paid DJs would be interested in such a seemingly staid business as mortgage lending, Taggart says the firm’s mission is ultimately to find and fund a wide range of startups that could potentially benefit its young audience, and that he and Pall are happy to use their star power to help related founders when a particular technology catches their eye.

In the case of LoanSnap, he says that he and Pall were impressed by LoanSnap’s promise to process loans more efficiently than other lenders. By getting involved in the company, all sides also recognized a “massive press opportunity for LoanSnap at a time when COVID was hitting and there was going to be billions of dollars in refinancing going on that [the company] wanted to participate in,” he says.

Indeed, despite investing a relatively small amount — $250,000 — in what was ultimately a $10 million round for LoanSnap in May, Mantis was credited in numerous reports as being the deal lead.

Taggart and Pall say they also take inspiration from singer Jimmy Buffett, who has co-created numerous businesses to both benefit, and capitalize off, his own fan base. Though Buffett started with Margaritaville — a hospitality company with a casual dining American restaurant chain, a chain of stores selling Jimmy Buffett-themed merchandise and casinos with lodging facilities — he has more recently begun building retirement communities in Florida for aging Buffett acolytes, and Pall and Taggart say the strategy resonates.

“When we started eight years ago, our fans were primarily all in college,” says Taggart. “Now they are dealing with paying back their college loans, and they’re probably applying to buy their first house, so a company like LoanSnap feels like one of those startups whose services our fans have grown into needing.”

Pall and Taggart aren’t entirely brand new to investing. Pall says they’ve been making seed-stage bets as angel investors for several years, including in Ember, an eight-year-old, LA-based company that makes temperature-controlled mugs and travel mugs and has raised roughly $25 million altogether, shows Crunchbase.

“I’d like to say that we were like thinking in this incredible way about the business at the time, but we were just like, ‘This is a really great product and we love the founder,’ ” Pall says.

In fact, the two got into a number of “diverse deals,” he continues, but “all of it was inbound” until two years ago, when they “decided to kind of change our strategy and go seek out the opportunities that we thought were out there…  We thought that maybe if we institutionalize this process, [we’ll discover] a lot more opportunity out there for us to work with dynamic founders and interesting founders who are going to change the landscape of tomorrow.”

Soon after, Pall and Taggart were introduced to Koch and Evans, who had already joined forces and were looking for an investment partner who was a market influencer. The group spent the next year getting to know one another, and things began coming together from there.

Pall and Taggart — who say that all four members of the team have to want to do a deal for it to move forward — are certainly entrepreneurial themselves. Aside from performing roughly 100 shows last year before beginning work this year on a fourth album, the two also run a production studio. And they are stakeholders in a small-batch spirit brand called JaJa Tequila.

Last year, they also co-founded YellowHeart, a ticketing platform that aims to put more power in the hands of performers, rather than scalpers.

Mantis was originally targeting $50 million in capital commitments, as reported by Bloomberg. Asked if that target proved too ambitious, Koch says the original idea was to raise $30 million, and that though the fund’s limited partner agreement stated that it could raise up to $50 million, the team “just decided that for a first-time fund, in order for us to produce a great IRR, we’d just rather stick to the target.”

You can find our interview with Taggart and Pall at the 21-minute mark.

Pictured at the top of the page, left to right: Jeffrey Evans, Alex Pall, Drew Taggart, Milan Koch.

DCM has already made nearly $1 billion off its $26 million bet on

David Chao, the cofounder of the cross-border venture firm DCM, speaks English, Japanese, and Mandarin. But he also knows how to talk to founders.

It’s worth a lot. Consider that DCM should see more than $1 billion from the $26.4 million it invested across 14 years in the cloud-based business-to-business payments company, starting with its A round. Indeed, by the time went public last December, when its shares priced at $22 apiece, DCM’s stake — which was 16% sailing into the IPO — was worth a not-so-small fortune.

Since then Wall Street’s lust for both digital payments and subscription-based revenue models has driven’s shares to roughly $90 each. Little wonder that in recent weeks, DCM has sold roughly 70 percent of its stake for nearly $900 million. (It still owns 30 percent of its position.)

We talked with Chao earlier today about, on whose board he sits and whose founder, René Lacerte, is someone Chao backed previously. We also talked about another very lucrative stake DCM holds right now, about DCM’s newest fund, and about how Chao navigates between the U.S. and China as relations between the two countries worsen. Our conversation has been edited lightly for length and clarity.

TC: I’m seeing you owned about 33% of after the first round. How did that initial check come to pass? Had you invested before in Lacerte?

DC: That’s right. Renee started [an online payroll] company called PayCycle and we’d backed him and it sold to Intuit [in 2009] and Renee made good money and we made money. And when he wanted to start this next thing, he said, ‘Look, I want to do something that’s a bigger outcome. I don’t want to sell the company along the way. I just want this time to do a big public company.’

TC: Why did he sell PayCycle if that was his ambition?

DC: It was largely because when you’re a first-time CEO and entrepreneur and a large company offers you the chance to make millions and millions of dollars, you’re a bit more tempted to sell the company. And it was a good price. For where the company was, it was a decent price. was a little bit different. We had good offers before going public. We even had an offer right before we went public.  But Renee said, ‘No, this time, I want to go all the way.’ And he fulfilled that promise he’d made to himself. It’s a 14-year success story.

TC: You’ve sold most of your stake in recent weeks for $900 million; how does that outcome compare with other recent exits for DCM? 

DC: We actually have another recent one that’s phenomenal. We invested in a company called Kuaishou in China. It’s the largest competitor to Bytedance’s TikTok in China. We’ve invested $49.3 million altogether and now that stake is worth $3.8 billion. The company is still private held, but we actually cashed out around 15% of our holdings. and with just that sale alone we’ve already [seen 10 times] that $30 million.

TC: How do you think about selling off your holdings, particularly once a company has gone public?

DC: It’s really case by case. In general, once a company goes public, we probably spend somewhere between 18 months to three years [unwinding our position]. We had two big IPOs in Japan last year. One company [had] a $1 billion market cap; the other was a $2 billion company. There are some [cases] that are 12 months and there are some [where we own some shares] for four or five years.

TC: What types of businesses are these newly public companies in Japan?

DC: They’re both B2B. One is pretty much the of Japan. The other makes contact management software

TC: Isn’t DCM also an investor in Blued, the LGBTQ dating app that went public in the U.S. in July?

DC: Yes, our stake wasn’t  very big,  but we were probably the first major VC to jump in because it was controversial.

TC: I also saw that you closed a new $880 million early stage fund this summer.

DC: Yes, that’s right. It was largely driven by the fact that many of our funds have done well. We’re now on fund nine, but our fund seven is on paper today 9x, and even the fund that is in, fund four, is now more than 3x. So is fund five. So we’re in a good spot.

TC: As a cross-border fund, what does the growing tension between the U.S and China mean for your team and how it operates?

DC: It’s not a huge impact. If we were currently investing in semiconductor companies, for example, I think it would be a pretty rough period, because [the U.S.] restricts all the money coming from any foreign sources. At least, you’d be under strong scrutiny. And if we invested in a semiconductor company in China, you might not be able to go public in the U.S.

But the kinds of deals that we do, which are largely B2B and B2C — more on the software and services side — they aren’t as impacted. I’d say 90% of our deals in China focus on the domestic market. And so it doesn’t really impact us as much.

I think some of the Western institutions putting money into the Chinese market — that might be decreasing, or at least they’re a little bit more on the sidelines, trying to figure out whether they should be continuing to invest in China. And maybe for Chinese companies, less companies will go public in the U.S., etcetera. But some of these companies can go public in Hong Kong.

TC: How you feel about U.S. administration’s policies?  Do you understand them? Are you frustrated by them?

DC: I think it requires patience, because what [is announced and] goes on the news, versus what is really implemented and how it truly affects the industry, there’s a huge gap.

Report: One of Social Capital’s newest blank-check companies is looking to reverse merge with Opendoor

Some people may have slowed down in 2020, amid a pandemic that has shut down much of the world. Not Chamath Palihapitiya .

According to a new report in Bloomberg, Opendoor, the San Francisco-based company that aims to help people buy and sell homes with the “push of a button,” is in advanced talks to go public through a merger with Social Capital Hedosophia Holdings Corp. II.

The outlet says the blank-check company, which raised $360 million in April and is led by Palihapitiya, is “discussing raising fresh equity to help fund the transaction with prospective investors” and that the combined company would be valued at around $5 billion in the deal.

It adds that nothing has been finalized and that the deal could still fall apart.

We reached out to both Opendoor CEO Eric Wu and to Palihapitiya for comment. An Opendoor spokeswoman said the company has no comment; we have yet to hear back from Palihapitiya but will update this story if we do.

Assuming the deal is fairly far along, and at a $5 billion valuation, one could see the appeal for Opendoor, which was last valued by private investors at $3.8 billion and which, like many other venture-backed outfits, has had a topsy turvy 2020.

In April, it laid off 600 employees, or 35% of workforce at the time, citing the “unforeseen impact on public health, the U.S. economy, and housing,” prompted by COVID-19.

In recent months, however, home sales around the country have been brisk, spurred by low mortgage rates and a heightened appetite for more space, particularly outside of crowded cities.

According to a late-August report by the National Association of Realtors, U.S. home sales rose an unprecedented 24.7% in July, up 8.7% from the same time last year. Home sales rose 20.7% in June, too (which was a record at the time).

Opendoor is also a brand that many retail investors already know and can easily understand. In fact, its consumer appeal isn’t so unlike that of the space tourism company Virgin Galactic, which Palihapitiya’s first blank-check company ultimately went on to acquire after it raised $600 million in 2017.

The combined outfit went public last October with a $2.3 billion market capitalization; its market cap is now above $4 billion.

As for what Palihapitiya might do with a third special purpose acquisition vehicle — it raised $720 million, also in April of this year — stay tuned. The company has said it will use those IPO proceeds to buy a company in the tech sector, primarily outside of the United States.

In the meantime, Palihapitiya is separately investing in Desktop Metal, a Burlington, Ma., company set to go public via a separate SPAC. Specifically, Desktop disclosed plans last week to list on the New York Stock Exchange by merging with Trine Acquisition Corp, a blank check company that raised $261 million in March of last year.

Palihapitiya helped lead a $275 million PIPE (for private investment in a public equity) investment to finance the deal.

VC Josh Kopelman isn’t so sure about SPACs, but he thinks so-called rolling funds could prove powerful

Yesterday, we had a chance to catch up with Josh Kopelman, the founder of the now 16-year-old early-stage venture firm First Round to talk about a wide variety of issues. As part of that conversation — which we’ll run in its entirety in podcast form a bit later this week — we naturally asked Kopelman about some of the big changes afoot in the venture industry right now, including the special purpose acquisition vehicles (SPACs) that are being raised left and right, the rolling fund concept that is gaining traction, and how First Round is thinking about diversity.

We’ll be covering all of these issues next week at our Disrupt show with a wide variety of top VCs (you don’t want to miss these talks), Knowing that Kopelman is also well-regarded by founders, we thought you might be interested to learn what he thinks about some of these newer developments, too. Our chat has been edited lightly or length and clarity.

TC: Your own industry has obviously changed quite a bit since you founded First Round. There are now hundreds of firms that are going after early-stage deals. How have your results been impacted by what’s been happening in the market? Are still getting the same return on investment that you did in the past?

If you’re talking about changes in the last five years, no one’s results are in, so for me to talk about unrealized markups over the last five years, sure, they look fine. But I’ve been in this business long enough to realize that there’s a big difference between realized and unrealized [gains]. But in general, if you look at the intermediate metrics, companies where we lead their first round have twice as high a chance of raising their next round than the industry average. So we’re still seeing promising signs, but we recognize that what was a contrarian idea 15 years ago — institutional seed — is now a very consensus idea.

TC: Results take time in part because  companies have obviously waited longer and longer to go public over the last decade or so. Do you think that the IPO process is broken? We’re seeing a lot of people saying we need new vehicles to get startups across the threshold.

I’m not sure I’d argue that it’s broken. I think you’re seeing far more companies exit, and we’ve seen a real acceleration in both the number of exits and the size of those exits, which is a promising thing.

I do think there is a benefit to the transparency that a public market shines on a company, because it’s how you truly lock in a value. We’ve all seen companies that have real garnered valuation x in the private markets, only to find that it wasn’t a true representation of the company’s ultimate value when it was fully transparent in the public markets.

Now with SPACs, that’s a whole new element that’s coming in.

TC: What do you think of them?

On the one hand, just for fun, I made sure that we owned in case we ever wanted to launch our SPAC. [Laughs.]  But it’s hard to know the true benefit of a SPAC. And I think that now that we’ve begun to see a market shift toward allowing direct listings with a fundraising component, you might see that as a far more viable and frequent fundraising or a liquidity device.

TC:  What do you think the advantages are of direct listings versus SPACs?

I think direct ratings are more economical. You aren’t allocating a heavy portion of the cap table towards a promote. [Editor’s note: SPAC sponsors acquire founder shares for nominal consideration that typically ends up with them owning 20% of the outstanding common stock.] They’re not warrants that are performance based. It’s very clear that what you’re really doing is just finding the right market-clearing price for the company.

As I’ve watched the last few years develop, I sort of thought of myself in camp Gurley [meaning as a proponent of direct listings].

TC: When you have portfolio companies that are maybe asked if they might be interested in using a SPAC to go public–

That’s happening.

TC: So what do you say? How do you advise them?

It would be foolish to have a conversation about one absent the alternatives, right? You should be sitting down and having the conversation of, ‘Alright, what are you solving for? Is it liquidity? Is it a capital raise? Is it public currency? Is it to be able to offer your earliest employees the liquidity and cash to benefit from the time they’ve put in?’ You have to look at all the options. I don’t think it would ever make sense to look at a SPAC without looking at the options. I also think if you’re contemplating a direct listing, you should look at the benefits or drawbacks of a SPAC as well.

TC: What you think of these rolling funds that allow managers to share deal flow with fund investors on a quarterly subscription basis?

JK: I think it’s very creative. I’ve personally participated as a limited partner in some of them. When I started first round with Howard Morgan back in 2004, neither of us were sure [about how long we’d do this]. We had three questions when we started. Number one was, would I enjoy being a VC rather than an entrepreneur? Question number two was could I overcome my geographic handicap, because at the time I was living in Philadelphia, and most of the companies that that we were funding were on the West Coast. And question number three was ‘Am I any good at [VC]?]’ So I had a really hard time raising a traditional fund vehicle. I didn’t have a hard time in the capital markets. I had a hard time signing up to make a 10-year commitment to [the job].

FRC I is really a bunch of one-year funds. We raised funds for a one-year period of time where we said,

So instead of that I chose to sort of the first, you know, for FRC, one is really a bunch of one year funds, we raised funds for a one year period of time where we said, All right, like, we’ll invest in 2005 and see how we like it, and if we like it, we’ll raise another fund in 2006. And then we’ll do it in 2007. And after about three years, I got enough confidence on my answers to those three questions that I felt comfortable signing up to a 10-year tour of duty. So I think that anything that enables people who might want to explore a career in investing, and to be able to pursue it and to explore it without having to sign a 10-year commitment, is a really powerful thing.

TC: You mention Howard Morgan, who has since moved on to a chairman role at the investment firm B Capital. A lot of VCs are moving on from active investing roles. How are you thinking about success at First Round? Is this a brand that you feel strongly should exist 20 years from now? The industry seems to be evolving in a way where the emphasis is on individual players versus the shingle above the door.

JK: Personally, I’m not going anywhere anytime soon. I enjoy what I’m doing. I think we have a very strong team in terms of the future. We are actively looking for a new partner right now.  I think that in a world where capital is increasingly available, what differentiates more than anything is the brand.

When First Round was first getting started, there were so few seed funds that it was like walking into a Footlocker and seeing just three sneakers on the shelf. A founder could try on all three and kind of see which fit, then pick. But today, when you walk into that shoe store and you see 1,000 shoes on the shelf, it’s really hard to know where to go first. And and we believe that the brands that have proven their ability to create winners before really matter. Just like Nike is defined by the entrepreneurs who have benefited from its product, I think brand actually matters more now than ever before.

TC: You’re hiring a new partner. Obviously, diversity has been a big issue for VCs and entrepreneurs in the startup world. What are you doing to encourage diversity, not only within your fund, but also within your portfolio companies?

JK: We took the step of actually posting a public job description for it, and a call for applications [because]  all too often partner recruiting gets done in inside of proprietary networks. We’re guilty of doing that. If you look at my three other investing partners, Bill or Haley or Todd, the one thing all three have in common is that previously, they were all founders of a First Round company.

So rather than just fishing within our own community, we’re trying to go beyond that and are running an active process of trying very hard to make it a fair and open process. We recognized that we haven’t appropriately prioritized, nor done the work historically necessary, to build a diverse senior investment team, which is why we posted publicly.

We were very influenced influenced by a blog post by Brian Dixon at Kapor Capital,  where he said if you don’t publicize the jobs that are available at your venture firm, then you’re intentionally being exclusionary. People can’t get a job that they don’t know exists.

We agree with him, so we’re focusing on trying to find new sources of prospective partner talent. We have a number of initiatives throughout our firm, [including] a pledge we recently signed to make sure that every term sheet we put out preserves allocation for funders of color or underrepresented funders. So not only are we thinking about diversity inside our firm, or inside of a company, but we’re also thinking about diversity on the cap table. We’ve [also] been running a number of training programs, and we have a pretty strong process with new investments to help them focus on building diverse talent pipelines as they hire, because one of the things we’ve seen is that if you don’t focus on building a diverse team in your first 10 hires, it gets much harder to expand because people tend to hire from within networks. If you start off lacking diversity, it just gets harder later.

TC: Many questions have been raised about the culture of Silicon Valley in recent years, but it feel like there are suddenly more clashes between investors and the journalists who cover tech, too. Do you have any thoughts about why?

I wouldn’t say that I have any particularly profound thoughts. I think that what we’re seeing is that whereas tech used to be a separate ecosystem, tech is now part of everything. You no longer have sort of healthcare tech. It’s just like health care. You’d no longer have consumer or social tech, it’s just part of the fabric of the world.

So I think, rightly so, you’re seeing journalists who were maybe previously sort of tied up in the ecosystem now have to a cast a more skeptical eye on what’s happening in tech. I think it’s just part of the maturation process. And I think the more that tech grows to represent all industries. I think you’re going to see all journalists covering tech.

Meet the final round judges who will decide the winner of this year’s Disrupt Battlefield Competition

It’s never easy, deciding which of the 20 companies that make it into the Disrupt Battlefield Competition will be anointed its winner. There’s just so much at stake each year and this year at Disrupt 2020 this September 14-18 the stakes are even higher.

For that one startup that makes it all the way through the gauntlet, winning means $100,000, along with some serious bragging rights, which is non-trivial. But it can also be life-changing, given the interest the winner receives from customers, from investors, and from the corporate development teams of the world’s biggest companies. (While some past winners have gone public, like Dropbox, others have quickly sold, like Mint and like Vurb.)

The winner each year also benefits from the kind of media exposure that’s virtually impossible for a young startup to enjoy elsewhere.

It’s because TechCrunch takes such pride in getting our winners right that the group of judges who make the ultimate call is so important, and we feel confident that we have the exact right team this year. You’ll have to stay tuned to watch them at work, but here’s what to know in advance about the six individuals who — in less than two weeks —  will forever impact forever the future of one young founding team:

Sonali De Rycker joined Accel in 2008 and has helped lead its London office ever since. There, she focuses on consumer, software and fintech startups. and some of her most notable deals include Avito (acquired by Naspers); Spotify, which went public last year;  and Letgo (acquired by Naspers). Before joining Accel, De Rycker — who grew up in Mumbai and graduated from Bryn Mawr College and Harvard Business School — was an investor with Atlas Venture (now Accomplice). She also previously served on the board of

Caryn Marooney is a general partner at Coatue Management, and, as such, sits on the boards of Zendesk and Elastic, and holds an advisory role at Airtable. While newer to the world of investing — she joined Coatue late last year — Marooney knows startups as well as anyone in Silicon Valley, having previously cofounded the powerhouse public relations agency OutCast Agency, whose early customers included Amazon, Salesforce, Netflix, VMWare. Indeed, underscoring her ability to identify the most promising startups, she left her own company in 2011 for a client that seemed particularly promising to her — Facebook — where she spent the following eight years as its VP of communications and as a trusted advisor to CEO Mark Zuckerberg.

For the last two-and-a-half years, Ilya Fushman has been a general partner at Kleiner Perkins, which he joined after spending several years with Index Ventures and, before that, spending four years at Dropbox, where he was one of the company’s first 75 employees. Fushman — who was born in Russia and immigrated with his family to Israel, then Germany, then finally the U.S. — holds a PhD in Applied Physics and an M.S. in Electrical Engineering from Stanford University, and a B.S. in Physics from Caltech. Among the deals he has been involved with over the years are Slack, Intercom, and Optimizely,

Troy Carter is the founder and CEO of Atom Factory, a 10-year-old entertainment management company that famously worked early on with Grammy-Award winner Lady Gaga, among other celebrities. Carter began his career in Philadelphia working for Will Smith and James Lassiter’s Overbrook Entertainment. He more recently incorporated A \ IDEA, a product development and branding agency, as well as AF Square, an angel fund and technology consultancy. Some of his most recent bets include Good Money, an Austin, Texas-based digital banking platform, and Truebill, the New York-based app that enables users to optimize spending and manage subscriptions.

Michael Siebel is a partner at Y Combinator and the CEO of its startup accelerator. He joined YC full time in 2014 after first cofounding two YC-backed startups with serial entrepreneur Justin Kan:, the life-streaming service that birthed Twitch (which Amazon later acquired for $970 million in cash) and Socialcam, which was acquired by Autodesk for $60 million just 18 months after it was founded. Siebel is also credited with introducing Airbnb to YC soon after it was founded. Back in June, Siebel was appointed to the board of Reddit after the company’s cofounder, Alexis Ohanian, said he was giving up his role as a director and urged the company to fill his seat with a Black candidate.

Matthew Panzarino has been the editor-in-chief of TechCrunch since 2015 and a top editor with the organization since 2013. Before joining TC, he was News Editor and Managing Editor at The Next Web. He also previously founded a professional photography business and a news blog covering the Apple ecosystem. Panzarino — who has made a name for himself in the tech world through his coverage of Apple and Twitter, as well as his understanding of a broad range of fields, including robotics, computer vision, AI, fashion, VR, and AR — has served as a finals judge for each of the last five years.

We are so pleased — and thankful — that De Rycker, Marooney, Carter, Fushman, and Siebel can join us for this year’s Disrupt, which kicks off this coming Monday, September 14, and runs though Friday, Septebmer 18.

If you want to catch some of what are sure to be the fastest-rising stars in the vast startup ecosystem, you won’t want to miss your chance to nab a front row seat to the Startup Battlefield competition and much more with a Disrupt Digital Pro Pass or a Digital Startup Alley Exhibitor Package. Or you can just sign up to watch the Startup Battlefield competition and our Breakout Sessions with the Disrupt Digital Pass for just $45 for a limited time.

That Whole Foods is an Amazon warehouse; get used to it

Earlier this week, in Brooklyn, near the waterfront, Amazon opened what looks from the outside like a typical Whole Foods store. It isn’t open to the public, however; it’s a fulfillment center.

“Grocery delivery continues to be one of the fastest-growing businesses at Amazon,” the company said in a statement about the location, noting that it has hired hundreds of new employees to aid in its operations. “We’re thrilled to increase access to grocery delivery.”

Americans sort of knew this was coming. Still, the pace at which retail spaces of all sizes are being converted into e-commerce fulfillment centers has become a bit breathtaking. According to the commercial real estate services firm CBRE, since 2017 at least 59 projects in the U.S. have centered on converting 14 million square feet of retail space into 15.5 million square feet of industrial space, and that trend is “absolutely going to continue,” says Matthew Walaszek, an associate director of industrial and logistics research at CBRE.

It has played out fairly quietly to date, save for the occasional headline about, well, Amazon, typically. Last month, for example, the Wall Street Journal reported that the ever-expanding conglomerate is in talks with the largest mall owner in the U.S., Simon Property Group, about converting both former and current JCPenney and Sears stores into distribution hubs from which it can deliver packages.

Amazon needs the space. Meanwhile, Simon needs a tenant that can pay its bills. That’s a tall order right now for many brick-and-mortar retailers that were already under pressure and watched foot traffic disappear entirely with as the country largely shut down in March in response to the pandemic threat.

In fact, despite that Simon and an apparel licensing firm, Authentic Brands, recently partnered to buy apparel retailers Brooks Brothers and Lucky Brand out of bankruptcy (Simon and fellow mall operator Brookfield Property Partners are also in advanced talks to buy J.C. Penney), some reportedly view the moves as a means to buy time as these real estate companies reconfigure their properties to accommodate one anchor tenant.

That exact scenario has already played out at Randall Park Mall in a Northeast Ohio suburb (a mall, incidentally, that this editor occasionally frequented as a teenager growing up in Cleveland).

Once filled with gaudy stores like Piercing Pagoda and Spencer’s Gifts, the mall — which featured marbled columns and was among the world’s largest enclosed shopping centers when it opened in 1976 —  is now the site of an 855,000-square-foot facility filled with mobile robotic fulfillment systems that make it easier for Amazon to more quickly deliver packages.

A local outlet reported its conveyor belts would stretch farther than 10 miles if laid in a straight line.

Yet it isn’t always Amazon that’s snapping up these properties. There are a number of other large e-commerce players that are rapidly expanding their physical footprint right now, along with opportunistic developers betting the U.S. will also focus more on domestic manufacturing facilities in a post-COVID world.

That’s saying nothing of big grocery chains that, like Amazon’s Whole Foods, are increasingly focused on developing fulfillment centers — sometimes right inside a store that sees foot traffic. At an Albertson’s in South San Francisco, for example, customers blithely shop around an automated rack-and-tote system at the store’s center that preps orders for pickup and delivery.

To a certain extent, this ongoing shift in use was inevitable. The U.S. has the strange distinction of featuring 24 square feet of retail space per capita. By comparison, Canada and Australia have 16.8 square feet and 11.2 square feet per capita, respectively.

“We just have a lot of retail — we are over-retailed — so it’s not surprising that properties are struggling,” Walaszek says.

The pandemic has only poured figurative fuel on fire.

Forbes estimates that upwards of 14,000 real-world retail stores will close in the U.S. this year. Meanwhile, during the first six months of the year, consumers spent $347.26 billion online with U.S. retailers, up 30.1% from $266.84 billion for the same period in 2019, according to U.S. Department of Commerce data parsed by the news and research outfit Digital Commerce. That’s up from the 12.7% upswing seen during the first half of 2019.

Retail properties converted to industrial use remains a niche trend when considering there is 14.5 billion square feet of industrial real estate in the U.S. and it won’t transform life as we know it overnight.

For one thing, retail-to-industrial conversions involve buy-in from local zoning officials whose constituents are often concerned about congestion, noise and pollution, among other things.

Retail rents are also significantly higher than industrial rents — more than double in some markets — so it’s “a hard sell to a retail landlord to convert to industrial where revenues aren’t going to be as high,” notes Walaszek.

Still, thanks to a confluence of events — including the runaway growth of Amazon specifically —  both big and small fulfillment centers are beginning to spring up fast.

As Amazon’s first “permanent online-only” Whole Foods in Brooklyn underscores, they may wind up in what seem like the unlikeliest of places, too

An IPO expert bats back at the narrative that traditional IPOs are for “morons”

Lise Buyer has been advising startups on how to go public for the last 13 years through her consultancy, Class V Group. She built the business after working as an investment banker, and then as a director at Google, where she helped architect the company’s famously atypical 2004 IPO.

It’s perhaps because Google’s offering was so misunderstood that Buyer has come to think more highly of traditional IPOs over the years, likening herself to a golf caddie who has “played the course a whole lot of times” and can tell a management team what will happen in different circumstances.

Indeed, while Buyer says she is “paid the same regardless” of whether a team chooses a regular IPO, an auction model, a SPAC or a direct listing, she doesn’t believe the world needs direct listings or SPACs nearly as much as the investors forming them have made it seem. Rather, she thinks the traditional IPO process has been unfairly maligned in recent years, helped along by an outraged Bill Gurley.

(If you somehow missed it, the famed VC began pushing back very publicly on IPOs last year, calling them a “bad joke” because of the pre-IPO stakes handed by banks to favored institutional investors, who sometimes reap tens of millions of dollars from a company’s first day on the public market — money that would otherwise go to the issuers themselves. Gurley even hosted an invitation-only event in San Francisco last fall called “Direct Listings: A Simpler and Superior Alternative to the IPO.” )

Certainly, it irks Buyer that companies that choose the traditional route have been made out more recently to be “morons” that are taken advantage of by the investment banks that underwrite their deals.

“It’s so much more nuanced than that,” she says. “It’s a little pathetic that the conversation has evolved the way it has.”

What is it these discussions that do not ring true to her? Primarily, she says, these first-day “pops” are sanctioned by management teams. “It’s not up to Bill Gurley to choose the right price,” she says. It “isn’t just bankers [who] come in and say, ‘We think you’re worth $40 [per share] you’re going to sell at $20 [per share]. Have have it.” It is “up to the management team, which generally has to think about much more than just day one. Some want a pop, some don’t. It’s their call.”

Buyer points to the videoconferencing company Zoom, whose shares soared 72% on the day of its April IPO last year (and have kept surging through this pandemic). CEO Eric Yuan and the executive suite he’d built “knew the stock was going to jump” and agreed to the stock’s pricing anyway, according to Buyer.  They wanted to set realistic, achievable expectations, rather than begin racing to meet inflated ones.

Management “doesn’t want to be on the hook just because the market is temporarily willing to pay something astronomical — by in in many cases, people who really don’t understand the fundamentals,” she says. Otherwise, she continues, “when three months later the company comes out with a forecast that doesn’t match [those] crazy expectations, management has to live with that for very long time.”

Similarly, Buyer highlights the software company, which saw its shares jump 60% on the day of its IPO this past December.  While there might have been hand-wringing over money left on the table, she thinks it was the right move and one for which the company was quickly rewarded.

“With, management knew that demand dramatically outstripped supply and they could have priced that deal significantly higher,” she says. They didn’t raise their shares pricing because they didn’t want to “message anything unusual about Wall Street,” she continues, but also the company already had in mind its secondary stock sale. Indeed, in June, with’s business accelerating and its shares ticking upward, management sold a much larger percentage of the company — at a much higher price.

One could argue the company benefited unexpectedly from the pandemic, as have many software businesses. Buyer sees it differently, though. “Because they’d previously established a good rapport and trust with investors with that lower priced IPO, such that they were able to raise so much more money and take less dilution four months later, who’s to say they made a mistake [on opening day], giving the public pension funds a little bit of a jump?”

Whether one of the most highly anticipated IPOs of the year — Airbnb — chooses a traditional path for some of these same reasons should become apparent soon enough. It was reported by Bloomberg just today that the company rebuffed a takeover by the SPAC of hedge fund billionaire Bill Ackman in favor of a traditional IPO.

In the meantime, the accommodations giant is far from alone in having to decide right now on the best way forward for its business. SPACs in particular right now are capturing the imagination of founders and investors alike. Says Buyer of her own clients, “There are folks who were not considering a SPAC six weeks ago who are getting tapped on the shoulder now and are trying to evaluate the specific terms — and the specific trade-offs — of these potential merger-partner-slash acquirers.”

As for direct listings — which have been lauded as a less expensive way to go public and, as of an SEC order last week, will allow companies to raise money as they are making that shift — Buyer isn’t exactly on the fence when it comes to these, either.

“With a direct listing that includes primary raise, it will be interesting to see if the company engages underwriters as opposed to advisors, and therefore if the expenses are lower – or perhaps even higher – than [with] an IPO. It could be either, we just don’t know yet.

“Again,” Buyer adds, “I have no horse in the hunt. I just see this as a solution desperately in search of an actual, as opposed to drummed-up, problem.”