Thoughts on OnDeck Capital IPO

New York City based OnDeck Capital filed for their IPO.

This is how they describe themselves “OnDeck powers the growth of small business through lending and technology innovation”.

I’m excited about this upcoming IPO for several reasons.  First, this is going to be a positive event for the NYC tech scene, including several NYC based VCs who invested early and many of the employees (216 based in NYC per LinkedIn). Secondly, I’ve been in the financial services sector for over 15 years and haven’t seen many financial related IPOs, so that is nice to see and it is a trend.  Lastly, since the market downturn of 2008, majority of banks have lost their appetite to lend to small business, so this is a much needed product, which is one of the main drivers of their growth.

Some highlights:

  • They have choose the NYSE and will be traded under the symbol ONDK
  • Company started in 2007
  • Major investors are RRE (15.4%), IVP (14.4%), Village Ventures (10.8%), SAP Ventures (10.1%), First Round Capital (6.5%), Google Ventures (6.3%), and Tiger (6%)
  • Top line revenue has grown over 2.5x over the last year.  $107.6M (2014) vs $42M (2013).  Both figures are for 9 months.
  • They are at a $143.4M annual revenue run rate
  • Net loss has shrunk in the last year, which is great news considering revenue has grown over 2.5x.  $14.4M (2014) vs $18.8M (2013).   Both figures are for 9 months.
  • While sales/marketing expense has gone up, it is going up at a slower rate of 1.6x compared to revenue which has grown at 2.5x:  $21.8M (2014) vs $13.6M (2013).  Both figures are for 9 months.
  • Loans originated: $788.3M (2014) vs $290.9M (2013).  Both figures are for 9 months.
  • They are originating more loans (both number and dollars) directly vs indirectly.  43% (2014) vs 19.4% (2012).  This is % of total dollar volume loans.
  • 15+ day delinquency ratio has gone down from 8.9% (2012) to 5.4% (2014).

Global Smartphone Market Share

IDC recently published a report on global smartphone market share.   A few highlights from my perspective.

  • Apple market share as a % has gone down from 12.9% to 12.0%.
  • Xiaomi has more than doubled their market share
  • The majority of the devices are running Android, so it puts into perspective how large an opportunity Android is for developers that are thinking about a global audience


Tech Education in NYC

If you have been following the activity in NYC, you have a sense of the grassroots movement of fixing the problem of the lack of tech talent in the city but also globally.

The NYC community continues to impress me on how it has taken challenges head on and does its best to address them.  Similar to other active startup communities, there is a lack of quality engineering talent in NYC.

The following NYC based organizations are DOING something to fix this problem, many of them are focused globally, not just NYC.

General Assembly – a global network of campuses for technology, business and design.

Girls Who Code – a new organization working to educate, inspire and equip 13- to 17-year-old girls with the skills and resources to pursue opportunities in technology and engineering.

Codecademy – the easiest way to learn to code. It’s interactive, fun, and you can do it with your friends.

Flatiron School – school for passionate people who want to love what they do.  Students learn how to build awesome things with code.

SkillShare – a community marketplace for classes

Turing Fellows – matches top computer science students with outstanding summer internships at leading NYC Startups

hackNY – aims to federate the next generation of hackers for the New York innovation economy

Cornell / Technion Campus – educate the next generation of leaders who will advance technology, generate cutting-edge research that addresses critical issues

Academy For Software Education – a high school that provides innovative software engineering and computer science skills and knowledge

Enstitute – 2 year apprenticeship program for people who want to get into the startup sector

Startup Institue – an eight week program to train and place professionals in the startup sector

I genuinely believe that within the next five years, NYC can leapfrog both the Bay Area and Boston when it comes to having the best software engineers.

Instagram vs Indeed

I had a brief twitter chat with two active people in the NYC tech ecosystem, but wanted to further clarify my perspective in a blog post.

As a prelude, this post is not a reflection as to which company is better or which specific community is better but an example of how two separate exits can have a distinct impact on their respective tech communities.

Both Instagram and Indeed ($1.1B) were amazing exits for the Founders and early investors. That being said, the Indeed exit is much better for a tech ecosystem than the Instagram exit. Here are a few reasons why.

  1. Instagram had a total of 13 employees at the time of the exit. Per LinkedIn, Indeed has 553 employees. Indeed has created a lot more jobs.
  2. Indeed will continue to operate, grow their business and hire more people. Instagram was essentially a defensive acquisition by Facebook. I’m sure the Instagram team will continue to improve the product but I wonder how much larger the team is going to be and if they are going to be run somewhat independent than other teams at Facebook.
  3. Instagram was a no-revenue based startup with the focus on growing users and figuring out a monetization later. Indeed was built with the mind set of generating revenue in their early days and according to their investor, USV, Indeed didn’t need VC funding to grow their business. The Instagram exit propagates the idea that you can just build an application without a revenue model and become successful. Many entrepreneurs are trying to replicate an Instagram but sadly 99% will fail.
  4. Per Crunchbase, Instagram raised $57.5M, Indeed raised $5M. The Indeed acquisition provides a great example of how you can scale your business without raising a lot of money. The mindset of minimizing how much you raise is positive. VC funding is critical for many startups but raising too much money can have very negative consequences and I don’t want to see other entrepreneurs have the idea that raising a lot of money is some sort of badge of honor.
  5. To my earlier point, Indeed has a lot more employees, as a result, a lot of experienced employees will have the ability and money to start their own companies. My guess is that Indeed employees will create more startups than the Instagram employees.

As a last point that is not as relevant to which is better exit for a tech community, Indeed took nearly eight years to build, scale and sale their company.  Instagram was built,  scaled and sold in two years.  Startup Founders need to understand that building a valuable company takes a lot of time, like an Indeed and not an Instagram.

[View the story “Instagram vs Indeed” on Storify]

Yahoo’s Next Steps

If you follow the tech news, you heard that Marissa Mayer just became CEO of Yahoo!

The big question is what happens next, which products/services become a priority and what direction does Mayer take Yahoo.

We need to understand how Yahoo describes their business currently, here are a few quotes from their 10-K, Yahoo is a “premier digital media company” and “Yahoo! Properties currently fall into three categories: Communications and Communities; Search and Marketplaces”


Their revenue is generated from three areas: Display, Search and Other.  Display generates $2.1B or 43% of revenue.  Search generates $1.8B in revenue or 37% of revenue.  Other generates $970M in revenue or 20% of revenue. If you look at the revenue trends of these areas, search revenue is decreasing, other is decreasing but display is roughly consistent the last few years.  It is not a surprise that search revenue is decreasing, they have been losing marketshare for many years, Yahoo is in third place when it come to search engine traffic, behind Google and Microsoft.

A few thoughts and suggestions as to what happens next for Yahoo:

  1. There are 14,100 Full Time employees at Yahoo (per their 10-K).  That is a lot of employees and provides a great opportunity for Yahoo to reassess and identify their star players.  There will be some additional lay-offs
  2. They have $2.2B in cash and short-term investments.  Similar to what Facebook, Google and Twitter are doing, they can make some acqui-hires or small acquisitions ($100M or less), mainly to bring on new product people with specific skill sets
  3. Hire 20+ highly competent/skilled developers to engage the startup communities in areas such as Bay Area, LA, Seattle, Boulder, Austin, Boston, NYC, Durham, Tel-Aviv, London, Berlin, Shanghai etc.  These would be developer outreach professionals, helping spread the word about some of Yahoo’s APIs (current and future) and scouring the communities to identify developer talent
  4. Bring on a handful of professionals to engage the investor community, specifically to identify emerging startups that could be partnership opportunities and/or acquisition targets.  These people would work with accelerators such as Y Combinator, Techstars, 500 Startups, etc. and early stage funds such at SV Angel, Lerer Ventures, 500 Startups, First Round Capital, True Ventures, etc.
  5. Ad-tech is an evolving sector and there are always some new technologies being developed, there is an opportunity to make a few acquisitions in this space, especially since display is their main revenue stream
  6. They need to make a big push on mobile, they don’t seem to have any strategy in this area, this includes viewing content, communication and ecommerce
  7. ecommerce is big opportunity and they should become a player in this area.  There continues to be a trend of content and ecommerce being done in unison.  Yahoo can integrate ecommerce to existing content
  8. They have some interesting things on high-end content (video) and would like to see them focus more in this area.  I like what YouTube is doing with its premium channels, could see Yahoo doing something similar
  9. Become specialized in a few verticals within search where they can become the number one player
  10. Flickr is a property that needs some immediate attention.  Either enhance this area and focus on people profiles (such as Facebook) or sell it off it is not part of their core offering
  11. They need to figure out what they do with Alibaba.  There has been some bad blood between both companies but Mayer might be able to fix that relationship

NYC Seed Syndicates

I wanted to understand who the most active seed investors are and which syndicates were the most prominent. For the purpose of this report, the search criteria were:

  • Startups based in NYC
  • First round of financing must have been between January 2010 and April 2012
  • Round size between $250K and $1.5M

The research yielded interesting results. The most active investors over the time period were SV Angel and Lerer Ventures, each with a total of 17 investments.  The other most active firms were RRE Ventures and Founder Collective with 15 while First Round Capital had 14.

The most active investment syndicate was SV Angel & Lerer Ventures with 9 co-investments. This is not a surprise as it was mentioned in May 2011, that the two firms would work together closely. Next was SV Angel & Founder Collective with a total of 7 co-investments followed by Lerer Ventures & Thrive Capital with 5.

When you see firms syndicating frequently, it could suggest that the firms know each other well and/or have similar investment themes; As an entrepreneur raising a seed round, knowing this information can be very helpful.

The two diagrams below help to illustrate the findings. The first is a venn diagram attempting to show some of the major investment connections while the second diagram gives a more complete view of the connections between the different firms. In each diagram, the total number of investments made by that firm is in parentheses next to their names.

All of data used for the diagrams below were from sources available to the public. The vast majority of the data was sourced from CB Insights (a NYC startup).  Some of the rounds of financing are not disclosed or file State documents, so these diagrams don’t represent 100% of all financings using the criteria mentioned above.

Thank you to our Intern, Jacob Laufer, for compiling the data and putting together the diagrams.

Top NYC Tech Companies

When I ask people about the NYC startup scene, most people can only rattle off a short list of startups, typically it’s Foursquare, Tumblr, Etsy, Gilt Groupe and Kickstarter. Those are all great companies but there are at least 60 additional tech companies in NYC that I think will have a substantial exit (in the next few years) and you should be aware of them.

  1. 1010data
  2. 10gen
  3. 2u (fka 2tor)
  4. Aereo
  5. Appnexus
  6. Arkadium
  8. Birchbox
  10. Bonobos
  11. Boxee
  12. Buddy Media (update – acquired for $698M by Salesforce on 6/4/12)
  13. Buzzfeed
  14. Chloe & Isabel
  15. Collective Media
  16. Comixology
  17. DoubleVerify
  18. Enterproid
  19. Etsy
  20. Everyday Health
  22. Fancy
  23. Foursquare
  24. Gerson Lehrman Group (GLG)
  25. Gilt Groupe
  26. HowAboutWe
  27. ideeli
  28. Indeed (update – acquired on 9/25/12 for $750M+)
  29. Intent Media
  30. Kaltura
  31. Kickstarter
  32. Knewton
  33. Learnvest
  34. Lot18
  35. Major League Gaming
  36. Makerbot (update – acquired on 6/19/13 for $403M+)
  37. Medialets
  38. MediaMath
  39. Media6Degrees
  40. Meetup
  41. MOAT
  42. Moda Operandi
  43. Newscred
  44. Offerpop
  45. OMGPOP (update – acquired for $180M by Zynga on 3/21/12)
  46. On Deck Capital
  47. OpenSky
  48. Outbrain
  49. Quirky
  50. Rent The Runway
  51. Return Path
  52. SailThru
  53. SecondMarket
  54. Shapeways
  55. Stack Exchange (aka Stackoverflow)
  56. SumAll
  57. Tapad
  58. TheLadders
  59. Thrillist
  60. Tremor Video
  61. Tumblr (update – acquired by Yahoo on 5/19/13 for $1.1B)
  62. Undertone Networks
  63. Unified
  64. Vibrant Media
  65. Warby Parker
  66. Yext
  67. Yodle
  68. Zocdoc

There are ~600 NYC startups that have raised VC funding in last two years (per CBInsights). I wanted to keep the list closer to 50 but as you can see it is beyond 60 at this point. If there are any obvious breakout startups that I missed, please let me know.

NYC hasn’t had a large IPO ($1B+ valuation and/or raised $100M+ at IPO) in the last 10 years, yes, isn’t that shocking?! Assuming the stock market stays steady, I can see at least 10 of these startups mentioned above going IPO in the next few years.

Disclosure: This list of companies was put together based on insights gathered during conversations with VCs and other players who are an active part of the NYC startup scene. In addition, I used the following sites for research: LinkedIn, CBInsights (a NYC startup), Crunchbase, Compete, Quantcast and Made in NY.

Tech Trends for 2012

The 2011 tech trends that stood out to me were startups addressing education, healthcare, ecommerce, distributed workforce and marketplaces.  We saw vertically focused incubators pop up.  The seed bubble and Series A crunch never materialized, despite the prognostication of VCs and bloggers.  Startups led by Women founded grew significantly.  We had a fair amount of VC backed IPOs (most haven’t performed well): Zynga, LinkedIn, Pandora, Groupon, Fusion-io, Cornerstone OnDemand, Zillow, Zipcar, Angie’s List, Jive, Demand Media.

Here is a list of newer trends I expect to see in 2012:

  1. Microsoft builds momentum with developers: Windows Phone and Kinect will draw the attention of developers
  2. Startups are going to disrupt the book and magazine industry by allowing anyone to write longer forum content without having to go through the typical route of being “approved/accepted” by traditional publishers
  3. Startups are going to focus on gaming and education applications for young children, two to six year olds
  4. Applications specifically made for enterprise workforce, mainly for those in the field
  5. We are going to see more startups addressing the security space

Despite the fact that there are a lot of incubators/accelerators and co-working facilities, we are going to see more of them come online.  Although many pundits have been predicting a seed bubble for the past two years, I don’t see the level of funding for seed rounds diminishing in 2012.  In addition, there is plenty of cash available for companies who have the product/traction and want to raise a Series A.

List of Active Series A Investors

Here is a list of active investors who invest in Series A rounds of NYC (New York) based startups: If you are looking for Seed stage investors, see this post.

This firms are currently writing checks for companies who are raising Series A rounds that range from $3M to $10M.

NYC Based (meaning they have a full time investor(s) living in NYC & you don’t have to fly to another city for a partnership meeting(s)):

  • Bain Capital Ventures
  • Bessemer
  • Bloomberg Beta
  • Canaan
  • Contour Venture Partners
  • DFJ Gotham
  • First Round Capital
  • FirstMark
  • General Catalyst
  • Greycroft
  • High Peaks Ventures
  • IA Ventures
  • Matrix
  • New York City Investment Fund (NYCIF)
  • Polaris
  • Raptor Ventures
  • Rho
  • RRE
  • RTP Partners
  • Softbank Capital
  • Spark Capital
  • Tiger Global
  • Tribeca Ventures Partners
  • Union Square Venture Partners
  • Venrock
  • Zelkova Ventures

Non-NYC Based:

  • Accel
  • Battery
  • BlueRun Ventures
  • Fairhaven Capital
  • Foundry
  • Flybridge
  • Google Ventures
  • Highland
  • Javeline Venture Partners
  • Khosla
  • KPCB
  • Lightbank
  • Lightspeed
  • Menlo Ventures
  • NEA
  • Norwest Venture Partners
  • Sequoia
  • Shasta Ventures
  • Social+Capital Partnership
  • True Ventures

The $240 Billion Opportunity

This is a great time to be a startup in the broader software sector.  The image below represents some of the largest public tech companies and the dollars figures shown is their respective cash on hand.  This cash will be primarily used to acquire private technology startups.  In total, these 10 public tech companies have $240 BILLION in cash!  Go get the money!