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Thursday, February 28, 2019

Here come the 5G phones—with or without Apple

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February 28, 2019

Sure, the paella is tasty, the weather is gorgeous, and the wine is flowing here in Barcelona, the site of the huge Mobile World Congress show this week. But that's not why there are a lot of giddy telecom executives seemingly everywhere you look. At least I don't think so.

When I sat down with Qualcomm president Cristiano Amon on Wednesday night, the Brazilian engineer could barely contain his energy. The night before, Amon had raised a glass of champagne with execs from some 30 phone makers and wireless carriers to celebrate the arrival of super-fast 5G service this year. And 24 hours later, he was still riding the wave, despite a schedule of wall to wall to wall meetings that didn't even leave room for a bathroom break. "I'm using diapers," he jokes.

On a more serious note, however, Amon is taking a victory lap. Almost ten years ago, when U.S. carriers started to introduce 4G service, the first phone was the HTC Evo, dubbed "a good chunk of hardware" by CNET due to its thickness and weight. And that wasn't the worst problem: "With heavy usage, we were running for an outlet within about 4 to 4.5 hours."

Expectations were much the same for the first 5G phones. Then last week, Samsung showed off the Galaxy S10 5G. It looks just like the regular S10, sleek and thin, with a slightly larger 6.7-inch screen. When I got my hands on it here, it didn't feel particularly oversized and I don't think I would have been able to tell it apart from any other cutting edge 4G phone. Inside is one of Qualcomm's new 5G modems. But the reason Amon is so pleased is that the chip isn't just in the Samsung phone. It's in the new LG V50 ThinQ, the ZTE Axon 10 Pro 5G, the Alcatel 7 5G, and Motorola's 5G Moto Mod that straps on the back of its Z3 phone. Sony, Oppo, and OnePlus also had Qualcomm-powered 5G prototypes on display. Even low-cost maker Xiaomi was showing off a 5G version of its Mi Mix 3 priced at 599 euros (about $680). And I can report to you, they all look and feel pretty slick. I think the LG was my favorite, with both wide angle and zoom cameras and almost boombox quality speakers. Crows Amon: "This is the first transition of a generation of wireless where the hard part-the devices and the ecosystem-is ready ahead of the network. It's incredible."

Of course, that still leaves the networks. Amon and the phonemakers can build all the 5G devices they want, but if Verizon, AT&T, Sprint and T-Mobile don't put up enough 5G cell towers, no one's going to care. On that side, we're still in wait and see mode. Verizon wireless head Ronan Dunne, who was at Amon's champagne toast, says he'll have 5G in 30 cities at some point this year. Of the 38 phones listed for sale on Verizon's web site, you'll find mostly models from Apple , Samsung and a few others but it's a manufacturer not on the list that Dunne called out specifically to me. "Xiaomi, they made a 599 5G handset announcement, 599-that's mass market," he points out. 5G "will be much more mainstream than niche much quicker than 4G was."

And even that still leaves out one major player, a player that sells about half of all smartphones in the U.S. market. Apple CEO Tim Cook never comes to Barcelona and his company remains locked in a bitter legal war with Qualcomm and thus reliant on Intel's far-trailing 5G technology. The company offered a total no comment and Intel's announced 5G modem is due in time for 2020 phones. "Look, we have a great relationship with Tim and I'm his biggest customer in the U.S.," Dunne says. "I'm going to get people massively excited about how quickly they can get (their) device on the world's best network-I'm doing my bit." I guess iPhone fans will have to keep their 5G champagne on ice a bit longer.

Aaron Pressman

@ampressman

aaron.pressman@fortune.com

NEWSWORTHY

Cloud kings: Microsoft Azure is beginning to close the gap with AWS, according to a new State of the Cloud report from RightScale. Overall, the pie is growing for everyone, including Google and IBM, as businesses large and small carry out more tasks in the cloud, and become comfortable using multiple cloud vendors

Snubbing Seattle: Two weeks after leaving New York City in the lurch, Amazon has abruptly bailed on a plan to occupy a massive new office tower in its home town that would have housed up to 5000 employees. The company did not provide specific reasons for the pull-out but its tense relations with Seattle's political leaders may have been a factor.

Secondhand spyware: Units of Cellebrite, the popular iPhone cracking tool used by law enforcement, are turning up for sale on eBay. In many cases, the seller hadn't bothered to wipe the data.

Tik-Tok, please stop: The FTC fined the popular lip-syncing app a record $5.7 million under the child privacy statute known as COPPA. Tik-Tok, which had been collecting data on millions of kids under 13, will also have to put in an "age gate" that puts younger users in a different, more private version of the app.

Not hip to be Square: Payment processor Square beat analyst expectations on earnings and revenue, and had a breakout quarter for its peer-to-peer Cash app. But shares nonetheless fell 7% on a muted growth outlook.

FOOD FOR THOUGHT

Social networks can be regarded as a "Status as a Service" industry, writes tech thinker Eugene Wei in a detailed look at why some networks succeed and others fail. The essay is rambling and, frankly, much too long but has some good nuggets including this one:

Copying some network's feature often isn't sufficient if you can't also copy its graph, but if you can apply the feature to some unique graph that you earned some other way, it can be a defensible advantage.

Nothing illustrates this better than Facebook's attempts to win back the young from Snapchat by copying some of the network's ephemeral messaging features, or Facebook's attempt to copy TikTok with Lasso, or, well Facebook's attempt to duplicate just about every social app with any traction anywhere. The problem with copying Snapchat is that, well, the reason young people left Facebook for Snapchat was in large part because their parents had invaded Facebook. You don't leave a party with your classmates to go back to one your parents are throwing just because your dad brings in a keg and offer to play beer pong.

Term Sheet: Feb. 28, 2019

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ANON TIP

February 28, 2019

'INVESTING IS HARD'

Good morning, Term Sheet readers.

"If I had to create a T-shirt for Mithril, it would say 'Investing is hard' on the front, [and] it and would say 'Investing is really hard' on the back."

That's what Mithril Capital's Ajay Royan told Fortune in a recent interview about the venture capital firm he co-founded with Peter Thiel in 2012. You might remember reading about Mithril recently in a Recode story that described the firm as a "a slow-burning mess" that angered current and former employees, limited partners, and Peter Thiel himself.

My Fortune colleague Rey Mashayekhi conducted an in-person Q&A with Royan (who declined to comment for the Recode story). The story questions Thiel's supposedly diminishing influence at Mithril; claims discontent among limited partners about the firm's management fees; and describes Royan's decision to move his 17-person firm's headquarters from San Francisco to Austin, Texas, as unpopular among employees.

I found Royan's answers rather confusing as they seem to be in direct contradiction with Recode's investigation findings, but I'll let you draw conclusions for yourselves.

Below is an excerpt. You can read the full Q&A here.

It's been reported that Mithril has only deployed around $90 million of the $740 million raised through your second fund, which closed in January 2017. What are your reasons for the relatively deliberate deployment of capital?

People like to think [venture capital investing] is this, "20% a year for five years—that's what you're supposed to invest." My view is, it should be like a rifle. If you're walking around with a machine gun, you'll just feel like you have to shoot a lot of bullets, and we should not do that. We just need to be slow and steady; that's what we did with our first [$540 million] fund, and we're doing exactly the same with the second fund.

I expect that the 2019-20 period will be the equivalent of the 2014-15 period for the first fund. We invested in Auris in 2014. I want to find the next Auris, and it's going to be episodic and idiosyncratic, and that's exactly the way it should be.

But you can't say for sure when you expect to be fully deployed with the second fund?

That would be dangerous. I think any limitations on absolute returns is dangerous, because it creates a blind spot where there shouldn't be one. It's hard enough to do this. If I had to create a t-shirt for Mithril, it would say "Investing is hard" on the front, it and would say "Investing is really hard" on the back.

How involved is Peter Thiel in the day-to-day operations of the firm, given recent reports that he is "not operationally involved" in Mithril?

[Taps his cell phone] He's right here all the time. Mithril's been designed a little bit differently on everything, and one of the things that we designed differently was relatively centralized decision-making with a small investment committee. The investment committee has two members: it's just the two of us. By definition, every single decision has to involve him; otherwise you can't deploy the capital.

Peter is intrinsic to and has been a part of every single entry and exit discussion at Mithril. The way in which he and I have worked has functionally not changed in 15 years. The reason we have such a small committee is because we didn't want to make decisions by committee; you want high alignment among those who are making the decisions. Cohesion and context is what we're going for, and the ability to move fast—that's our edge. You have to have an investment committee that has a ton of experience through market cycles and with each other, so you know what each other's blind spots are. I wouldn't presume to know what Peter's blind spots are, but he certainly knows where mine are, and that's critical.

You never invest alone; my advice to anyone doing this is do not invest alone, it's a dangerous mistake. Someone as great as Warren Buffet has a Charlie Munger. I strongly believe that, Peter strongly believes that, and nothing has changed in how we operate.

What is the dynamic of your relationship with your limited partners at the moment? Have you heard any complaints about your management fees or your rate of deployment?

The single biggest point of feedback that I've had from our LPs is that they're happy we're very disciplined. We're in an environment where things are getting deployed faster and people are raising faster. The single largest year for venture investing in history was two years ago, and then again last year, and probably again this year. LPs are feeling both excited and under pressure; they're excited because the asset class has matured to a certain scale, and then they're feeling under pressure at some level because funds are coming back for a lot more capital faster than anyone expected. In that environment, we certainly stand out as saying, "Wait."

A feature of what we've done is that the largest single LP in both funds of our funds is Thiel. If you look at Mithril as a whole, the single largest investors are the founders [Royan and Thiel]—its like 20% of the capital. We have that much skin in the game, which is designed into our system. Every single decision we make, our limited partners understand that we are making these decisions as much for ourselves. It's a very elegant way to set things up, because you're doing nothing for your partners that you wouldn't do for yourself.

Every single thing that we have done is designed to create higher returns, and there's evidence that the body of work is maturing into that outcome for the investors—certainly, Auris is a somewhat spectacular exemplar of what we want to accomplish. We do all of this with what I would call an industry-standard structure. Our fees are 2% like anybody else; in fact, I would say many of the premium funds in the venture space would charge a little more, 2.5% on average. We kept it straightforward at 2% and calibrate it to performance. And we've actually had instances where we've even waived fees to our investors when we feel that we're gonna be spending less than we need. So we've had no issues with LPs about any of this at all, because it's standard and because the returns are well above standard, at least for now.

Read Rey's full Q&A here.

VENTURE DEALS

• Horizon Robotics, a China-based chip maker, raised $600 million in funding at a $3 billion valuation, according to Reuters. Investors include SK Hynix Inc, China Oceanwide Capital, Citic Securities' One-Belt-One-Road Fund, and Minsheng Capital. Read more.

• Mirakl, a Paris-based operator of a SaaS-based marketplace platform for retailers, raised $70 million in funding. Bain Capital led the round, and was joined by investors including 83North, Felix Capital and Elaia Partners.

• Figure, a San Francisco-based fintech company that uses blockchain technology to provide home equity loans online, raised $65 million in Series B funding. Investors include RPM Ventures, DST Global, DCG, Morgan Creek Digital, Nimble Ventures, Ribbit Capital and DCM.

• Contrast Security, a Los Altos, Calif.-based developer of security software, raised $65 million in Series D funding. Warburg Pincus led the round, and was joined by investors including Battery Ventures, General Catalyst, M12 (Microsoft's Venture Fund), AXA Venture Partners and Acero Capital.

• Ionic Security Inc, an Atlanta-based software company, raised $40 million in Series E funding. JPMorgan Chase & Co. led the round, and was joined by investors including Google LLC, Kleiner Perkins, GV, Icon Ventures, Meritech Capital, TechOperators and Ten Eleven Ventures.

• Zum, a provider of transportation and care for children, raised $40 million in Series C funding. BMW i Ventures led the round, and was joined by investors including NGP Capital, Volvo Cars Tech Fund, Clearvision, Draper Nexus, Sequoia Capital and Spark Capital.

• ClassDojo, a San Francisco-based consumer education brand, raised $35 million in Series C funding. GSV and SignalFire co-led the round, and were joined by investors including General Catalyst and Uncork Capital.

• Presto, an enterprise front-office software platform for the hospitality industry, raised $30 million in funding. Recruit Holdings and Romulus Capital led the round, and were joined by investors including I2BF Global Ventures, EG Capital and Brainchild Holdings.

• Cloud Elements, a provider of cloud-to-cloud application programming interface integration and aggregation services, raised $25 million in Series C funding. Mercato Partners led the round, and was joined by investors including Access Ventures, American Express Ventures, Grotech Ventures, Harbert Growth Partners, Rally Ventures, and Upslope Ventures.

• SpyCloud, an Austin, Texas-based provider of account takeover prevention solutions, raised $21 million in Series B funding. M12 led the round, and was joined by investors including Altos Ventures, Silverton Partners and March Capital Partners.

• Rockets of Awesome, a New York City-based children's apparel company, raised $12.5 million in funding from Foot Locker, Inc. (NYSE: FL).

• VNDLY, Inc., a cloud-based work management system to power the new gig economy, raised $11 million in Series A funding. Battery Ventures and Hyde Park Venture Partners co-led the round, and was joined by investors including EPIC Ventures, Bowery Capital and the Cintrifuse Syndicate Fund.

• Datical, a database release automation company, raised $10 million in Series C funding. River Cities Capital Funds led the round, and was joined by investors including S3 Ventures and Mercury Fund.

• Rightway Healthcare, a New York-based enterprise healthcare platform, raised $8 million in Series A funding. The investors were not named.

• Little Spoon, a direct-to-consumer baby food company, raised $7 million in funding. Investors include Vaultier7, Kairos, Interplay Ventures, and SoGal Ventures.

• TeamApt, a Nigeria-based fintech company that provides digital solutions and payment infrastructure for Africa, raised $5.5 million in Series A funding. Quantum Capital Partners led the round.

• Sapling, a San Francisco-based onboarding and HR platform for medium-sized companies, raised $4 million in seed funding. Gradient Ventures led the round, and was joined by investors including Tuesday Capital.

• ShiftOne, an Arlington, Va.-based restaurant employee retention app, raised $2.6 million in funding. The Entrepreneurs' Fund led the round, and was joined by investors including Bowery Capital and NRD Capital.

• Ikonopedia Inc, a Richardson, Texas-based provider of a breast reporting and tracking system, raised $2 million in Series C funding. Investors include Texas Women Ventures Capital.

• Coin Metrics Inc, a Cambridge, Mass.-based provider of cryptoasset market and network data, raised $1.9 million in seed funding. Castle Island Ventures led the round, and was joined by investors including Fidelity Investments, Highland Capital Partners and Dragonfly Capital.

• Attentive, a provider of software for sales teams, raised $1.2 million in seed funding. Mangrove Capital and Indico Capital Partners co-led the round.

• One Night, a same day hotel booking app, raised Series A funding of an undisclosed amount. SWaN & Legend led the round.

PRIVATE EQUITY DEALS

• WellSky, which is backed by TPG Capital, acquired Health Care Software Inc, a Wall Township, N.J.-based provider of integrated clinical and financial IT software for long-term and post-acute care providers. Financial terms weren't disclosed.

• Windjammer Capital Investors acquired Hermetic Solutions Group, a provider of advanced hermetic packaging and components. Financial terms weren't disclosed.

• Formstack, which is backed by Providence Strategic Growth, acquired Bedrock Data, a Boston-based provider of data collection products. Financial terms weren't disclosed.

• Spectrum Equity made an investment in Agilis Systems, a company focused on SaaS-based telematics and tracking solutions. Financial terms weren't disclosed.

EXITS

• Boyne Capital and Grindstone Partners sold Fulcrum IT Services LLC, a Centreville, Va.-based information technology and government consulting company, to Huntington Ingalls Industries for $193 million.

• Stryker (NYSE:SYK) acquired Arrinex, a Menlo Park, Calif.-based medical device developer. Financial terms weren't disclosed. Arrinex had raised approximately $2.5 million in funding from investors including 7 Gate Ventures.

• Compass acquired Contactually, a Washington D.C.-based cloud-based software company that has built a customer relationship management system. Financial terms weren't disclosed. Contactually had raised approximately $17.8 million in funding from investors including Blossom Street Ventures, Moderne Ventures, Bull City Venture Partners, Rally Ventures, Square 1 Bank, and Correlation Ventures.

FIRMS + FUNDS

• Translink Capital Partners, a Palo Alto, Calif.-based venture firm, raised $137.4 million for its fourth fund, according to an SEC filing. The fund's target was not listed.

PEOPLE

Genstar Capital promoted David Golde to managing director, and Ben Marshall and David Graham to director.

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