Crowdstrike, which provides endpoint-oriented cloud-native cybersecurity, will acquire U.K.-based log analysis and observability startup Humio for $400M. The deal will be transacted mostly in cash. 

More:

• Humio was founded in 2016 and had only raised $30M prior to the acquisition. Its tech will allow Crowdstrike to offer its customers unlimited logging capacity.
• Crowdstrike saw its stock price grow six-fold in the last year as its business model profited from increasing digitization during the pandemic. It is currently valued at $50B and had raised $480M before going public in 2019.
• Meanwhile: Just a few weeks ago, SentinelOne announced the acquisition of high-speed logging platform Scalyr for $155M. Though not yet a trend, the two deals together indicate cybersecurity companies’ growing awareness of logging’s value for their business models. 

• Of the 267 articles published about reverse mergers between 2001 and 2012, 148 were neutral, 113 were negative, and only 6 were positive. By 2010, when reverse merger activity peaked, 70% of media articles on the phenomenon had a negative tone.
• In 2010, reverse merger activity dropped 45%, and then another 35% in 2011.
• New SPACs have already raised $26B in 2021, almost 33% of their sum total of $83B for 2020. The $83B was six times the amount raised in 2019, and almost equal to the figure achieved by IPOs.
• SEC rules require SPACs to either identify firms they could merge with within 24 hours or return their raised funds to investors. As there are only so many good targets, this could result in lower-quality companies being targeted, setting off the same bad-reputation-spiral that discredited reverse-mergers in the past.
• Continue reading: The FT published a similarly skeptical article about SPACs in December. To see what Bill Gurley has to say about the financial vehicle, click here.

How Much Should You Bet To Maximize Your Investments, or Your Company's Odds of Success?

Tomasz Tunguz is a partner at Redpoint Ventures

Tunguz gives us a refresher on the Kelly criterion, named after John Kelly, a researcher at Bell Labs. The principle has two goals: 

1. Avoid total loss: The investment strategy should never result in a 0 or negative balance.
2. Grow the value of the investment as quickly as possible.

First, this requires abandoning the arithmetic mean for its geometric equivalent. An example: Three equally likely investment opportunities have expected returns of 100%, 50%, and 0%. The arithmetic mean, and thus expected value, is 50%: (100+50+0)/3. The geometric mean is 0% (the cubic root of the three percent multiplied together). The Kelly principle says not to invest, while a normal average would say the opposite.

Second, the Kelly criterion tells investors how much to invest. This is expressed as KC = W - (1-W)/R — the probability of winning (W) minus the probability of losing (1-W), divided by the win/loss ratio (R). Investors tend to overestimate their chance of success, meaning that they bet half or three-quarters of the criterion. As this runs the risk of bankruptcy, it is always better to remain conservative.

It’s Just Better If Your VCs All Trust Each Other

Jason Lemkin is the founder of the firm SaaStr

Since Lemkin started investing in 2013, he has noticed that one key rule for founders, if they want to win, is to avoid building a VC syndicate where at least two parties do not trust each other.

Breaking this rule can lead to the following:

• Alignment in future rounds will be impossible to build unless the startup is a rocketship that buries all antagonism. This will make closing the round more difficult.
• VCs that have differing opinions on burn rates will provide conflicting advice, making a founder’s job harder.
• Table games, such as firms secretly trying to buy out ex-employees or other investors out at love prices, will proliferate. While not fatal, this can lead to lawsuits.
• If the board and investors have no way of de-escalating, issues will simply not get resolved. When lines of communication are present, most issues can be easily talked through, as they tend to not be anything new anyway.

To improve trust:

• Founders should meet with the late-stage investors that early investors recommend, even if no deals are made.
• Founders need to make room for pro-rata and existing investors in future rounds, even if not 100% participate, and be aware of the trade-offs of bringing new investors on board. A ‘sharp elbow’ round, where existing investors are not consulted, will immediately result in broken trust.
• Investors who do not even reach out to current investors are to be avoided. Those who are looking to play on a team will make this courtesy call. 
• Board meetings should include invitations for all investors, not just one big investor.

Did you enjoy reading my summary of Tunguz's and Lemkin's pieces? Normally, VC Masterclasses are only available to premium subscribers. Upgrade to see all my Inside VC Premium features for either $10/month or $100 billed annually! Previous Masterclass features have included pieces by Elad Gil, Tomasz Tunguz, Daniel Li, Sree Kolli, Benjamin Beltzer, Steve Blank, Sammy Abdullah, Bill Gurley, and others. Click here to upgrade to premium!

Today's Funding 💸

Adtech/Martech

• Reprise (Boston, Mass.), software demo platform for enterprise sales and marketing teams: $17M A led by Bain Capital Ventures.
• Veylinx (Amsterdam, Netherlands), behavioral insights platform for consumer purchasing: $2M Pre-A from Dutch Founders Fund, Hidde Hoogcarspel, Laurens Groenendijk, Patrick Kerssemakers, Saeed Younesi, Robbert Flipsen, Mitch Barns, Anouar El Haji, Hein Willemse, Adil Naimi.

AR/VR

• YBVR (San Jose, Calif.), 360-degree streaming video platform: $1.5M Pre-A from Verizon Ventures, Telefonica’s Wayra, Tech Coast Angels.

Biotech/Health

• Evox Therapeutics (Oxford, U.K.), exosome therapeutics: $96.5M (£69M) C led by Redmile Group, participation from OrbiMed, Invus, Oxford Sciences Innovation, GV, Cowen Healthcare Investments.
• Eden Health (New York, N.Y.), national medical practice: $60M C led by Insight Partners, participation from Amigos Health, Aspect Ventures, Company Ventures, Flare Capital, Flexcap Ventures, Max Ventures, PJC.
• AcuSurgical (Montpellier, France), robotic microsurgery platform: $7M A from Mérieux Equity Partners, Supernova Invest, Sofimac Innovation, IRDI Capital Investissement.
• Rx Redefine (Oakland, Calif.), prescription ordering platform for physicians: $2M Seed led by Silverton Partners, participation from Saturn Five.

Cybersecurity

• Sphere (Hoboken, N.J.), cybersecurity platform to access governance across data, platforms, and applications: $10M A led by ForgePoint Capital, participation from Omkhar Arasaratnam, et al.

Data/Analytics

• Census (San Francisco, Calif.), customer data/data warehouse sync platform: $16M A led by Sequoia Capital, participation from Andreessen Horowitz, et al.

DevOps

• Sentry (San Francisco, Calif.), application monitoring platform: $60M D led by Accel, participation from New Enterprise Associates, BONND. The company was valued at $1B.

Edtech

• Descomplica (Brazil), online test-prep platform: $83M (450M reais) led by Softbank Group. 
• Photomath (Sam Mateo, Calif.), math learning app: $23M B led by Menlo Ventures, participation from GSV Ventures, Learn Capital, Cherubic Ventures, Goodwater Capital.
• Leverage Edu (Delhi, India), platform helping Indian students secure places at foreign universities: $6.5M A from Blume Ventures, DSG Consumer Partners.

Enterprise

• Abound (New York, N.Y.), wholesale B2B marketplace for up-and-coming brands: $22.9M led by Left Lane Capital, participation from RiverPark Ventures, All Iron Ventures, Red Antler.
• Grip (London, U.K.), market engagement platform: $13M A led by Kennet Partners.
• Torii (San Francisco, Calif.), SaaS bloat management platform: $10M A led by Wing Venture Capital, participation from Entree Capital, Global Founders Capital, Scopus Ventures, Uncork Capital.
• RocketRez (Manitoba, Canada), cloud-based management software for large tours and attractions: $8.4M from Blueprint Equity, et al.
• Pipe17 (Seattle, Wash.), connected infrastructure provider for e-commerce: $8M led by GLP Capital Partners.
• Magical (Tel Aviv, Israel), team collaboration tool to replace the calendar: $3.3M led by Resolute Ventures, participation from Ibex Investors, Aviv Growth Partners, ORR Partners, Homeward Ventures, Fusion LA.

Fintech

• Varo Bank (San Francisco, Calif.), all-digital nationally chartered bank: $63M led by Russell Westbrook.

Gaming

• eFuse (Columbus, Ohio), networking platform for gamers: $6M led by Ohio Innovation Fund.

Insurtech

• KindHealth (Austin, Texas), full health insurance marketplace: $4M from undisclosed sources.
• Insurely (Stockholm, Sweden), open insurance platform: $3M (€2.5M) led by Luminar Ventures.

Logistics

• Shiprocket (India), e-commerce shipping platform: $27M C led by Tribe Capital, participation from March Capital.

Proptech

• Knock (Seattle, Wash.), tool suite for property management companies: $20M led by Fifth Wall Ventures, participation from Madrona Venture Group, Lead Edge Capital, Second Avenue Partners, Seven Peaks Ventures.

Transportation

• Recogni (San Jose, Calif.), AI vision cognition system for autonomous vehicles: $48.9M B led by WRVI Capital, participation from Mayfield Fund, Continental, Robert Bosch Venture Capital, GreatPoint Ventures, Toyota AI Ventures, BMW i Ventures, Fluxunit – OSRAM Ventures, DNS Capital.
• VOGO (Bengaluru, India), two-wheeler rental service: $11.5M C from Lightrock, Kalaari, Matrix Partners, Stellaris Venture Partners.

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• Payment card service Marqeta filed for an IPO that could potentially value the company at $10B. It was most recently valued at $4.2B during a $150M funding round in May 2020. Marqeta also announced its intent to move into the credit card space.
• European startups raised a record $21.4B through rounds with corporate venture participation, a nearly 35% jump YoY. 34% of 2020's investment was funneled into IT and software startups, with healthcare companies accounting for another 23%.
• Adjuvant Capital closed its maiden fund for vaccines, therapeutics, diagnostics, and medical devices: $300M.
• Advent Life Sciences closed two funds totaling $215M that focus on life science companies in the U.S., U.K., and Europe: Flagship Fund III and Advent-Harrington Impact Fund.
• The Chinese government’s pressure on Ant Group has provided an opening for the lender’s rivals, reports FT. Six alternative lending platforms have seen upticks in activity since Ant’s scuppered IPO, but they tend to charge higher interest rates due to smaller economies of scale and less sophisticated risk-management algorithms.
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