Photograph by Steve Pope/Bloomberg

Dwolla plans to keep its headquarters in Iowa, a state known more for its pork than for tech startups.

In 2010, Ben Milne made a journey across the Silicon Prairie for his first taste from the big tech trough. Then a twenty-something founder of a two-person startup in Iowa, Milne arrived in San Francisco with no business connections but a burning desire to pitch his mobile-payments company Dwolla to anyone who would listen. I was one of them.

Joining Milne on the trip was Jordan Lampe, a public-relations consultant who Milne soon hired as the company’s director of communications. With time on their hands, they rented a car to do some sightseeing in Palo Alto, California, then home to Facebook, Hewlett-Packard and lots of suburban families. ”It was like our college visit,” Milne said.

Milne, now 30, doesn’t have to beg for meetings anymore. Dwolla has 40 employees, and is on track to process $1 billion a year in payments. The company said today that it raised $16.5 million from Menlo Park, California-based Andreessen Horowitz, along with Dwolla’s past investors including Union Square Ventures, Thrive Capital and Village Ventures. Bloomberg LP, the parent of Bloomberg News, is an investor in Andreessen Horowitz.

Despite attracting the attention of a prominent Silicon Valley venture-capital firm, the online-payments industry will be difficult for Dwolla to crack. It’s a crowded, low-margin, often-regulated market that the big banks are not eager to concede. PayPal and Square are the rare success stories of the last decade or so.

Dwolla aims to replace the middle men — in this case credit-card companies — in the payment process. By using the company’s homegrown network, it avoids fees from Visa or MasterCard that drive up the costs of transmitting money. Dwolla transactions under $10 are free, and anything above that costs the recipient 25 cents, unless the sender chooses to pay. Compare that to PayPal, which can cost 2.9 percent plus 30 cents per transaction. (Person-to-person exchanges using bank accounts connected to PayPal are free.)

“It’s amazing, when you don’t have other people in the process, how profitable a payments company can be,” said Scott Weiss, a partner at Andreessen Horowitz who is joining Dwolla’s board of directors. “The whole paradigm is completely turned on its head. Now it’s just a question of execution.”

To help execute, Dwolla is appealing to companies to use the service as a way to pay employees and business partners. Customers include Getaround, a San Francisco-based startup that uses Dwolla to remit payments to car owners who rent out their vehicles, and Flashnotes, which runs a marketplace for digital-learning tools. In January, Milne’s home state of Iowa said that some departments will start using Dwolla for electronic payments such as collecting property tax, issuing refunds and processing vehicle-registration payments.

Soon, Dwolla expects to plant a more permanent flag near Silicon Valley. Some of the new funding will go toward opening an office in San Francisco. The company will keep its headquarters in Des Moines, Iowa. The company plans to almost double in size in the next year, while bolstering its sales team to go after bigger brands, Milne said.

“It really allows us to serve the business-development pipeline, and build products that consumers want and need,” he said. “We never really had the resources to do that before.”

For a guy who three years ago had never been to Sand Hill Road, he’s really picking up the lingo.

Original post is Silicon Prairie’s Dwolla Strikes Out West to Find $16.5 Million by Tech Deals.

Photograph by David Paul Morris/Bloomberg

Leap Motion’s computer accessory allows users to control a computer by waving their fingers and hands.

Personal-computer sales have fallen through the floor as people spend more time on mobile devices. The world’s largest PC maker is trying to lure some buyers back with an unusual new way to control their machines.

Hewlett-Packard is partnering with Leap Motion, the San Francisco-based startup that has developed a gadget allowing people to navigate their computers using gestures such as the turn of the hand or flick of a finger. After flip-flopping over whether to sell off its PC division in 2011, HP hopes finger wags will help breathe new life into a stalling product category.

This summer, HP will start bundling Leap Motion’s product, a cigarette-lighter sized device that sits on a computer desk and uses small cameras to detect subtle movements, together with some PC models. HP is also developing new computers that will have Leap’s technology embedded directly, without the need for a separate peripheral, the startup said today.

HP has turned to other companies in the past as it looked for ways to differentiate itself in the crowded PC market. In 2009, it struck a deal with Dr. Dre’s Beats Electronics, which makes designer headphones, that included an extensive marketing campaign.

Right now, the PC industry needs to turn up the volume more than ever. In the first three months of 2013, global PC sales fell 14 percent, the worst decline on record, according to industry researcher IDC. Microsoft’s Windows 8 doesn’t appear to be helping.

Leap Motion pitches itself as a white knight ready to ride in and save the day. The startup already has a similar deal in place with Asustek Computer.

“The PC market isn’t going anywhere,” Andy Miller, Leap Motion’s chief operating officer, said in an interview. “It’s massive.”

Leap Motion will begin selling its gadget separately next month. The company has raised $44.1 million since 2011 from investors including Andreessen Horowitz and Founders Fund. (Bloomberg LP, the parent of Bloomberg.com, is an investor in Andreessen Horowitz.)

While Leap Motion is starting with computers, it’s not getting hitched. The technology is expected to be tailored to other gadgets in the future, Miller said. “You’ll see this product in tablets, smartphones, TVs, remote controls and who knows what else.”

It could find its way into more PCs, too — if anyone is still buying them.

Original post is HP Hopes Leap Motion’s Hand-Gesture Controls Help Revive the PC by Tech Deals.

Photograph by Andrew Harrer/Bloomberg

Barry Diller’s Aereo is perceived as a challenger to cable companies, but it may end up helping their bottom line.

If you’re thinking about canceling cable in favor of something cheaper, Aereo is a pretty attractive alternative at $8 to $12 a month. The online service, which is currently available in New York, plans to expand to 22 other U.S. cities this year and add cable channels to its full roster of high-definition broadcast networks.

Aereo, backed by media mogul Barry Diller, manages to undercut the cable companies’ prices so severely in part because it doesn’t pay retransmission fees. Comcast, DirecTV, Time Warner Cable and other pay-TV providers compensate broadcasters, such as ABC, CBS, Fox and NBC, and their local affiliate stations for their content. (Bloomberg LP, which owns Bloomberg.com, is an Aereo partner and offers its cable channel on the service.)

Pay-TV companies could look at Aereo’s budget-television offering as a threat. But the shrewd ones could use it as leverage.

The next time, say, Dish tries to renegotiate its contracts, the company can threaten broadcasters with the prospect of paying them nothing by partnering with Aereo. Dish has held talks with Aereo, according to the Wall Street Journal. Dish will need its own Internet service to make this happen, something that may not be far off. Many pay-TV operators are likely to roll out such services over the next few years, Rich Greenfield, an analyst at research firm BTIG, said in a note to clients.

Dish Chairman Charlie Ergen isn’t afraid to stick it to the broadcasters. (His company is already being targeted in court for the commercial-skipping AutoHop feature and for the integration with Sling Media in new set-top boxes.) But Comcast is a slightly different animal now that it owns NBC Universal, which is on the receiving end of the lucrative retrans checks.

Retransmission fees, which were almost nonexistent during the 1990s, have grown astronomically in recent years. According to data from research firm SNL Kagan, broadcasters collected $2.36 billion in retrans fees in 2012, and that revenue could double to more than $6 billion by 2018. People who install antennas in their homes to tune into over-the-air TV do not pay the fees.

Aereo has avoided this expense by claiming it’s not illegally retransmitting because its customers are actually renting their own tiny antennas. We found out yesterday that the courts, so far, agree. Broadcasters say Aereo has found a loophole, and the result will devalue programming.

If Aereo ultimately prevails in the courts, expect the major pay-TV providers to use it as leverage to lower retransmission fees industry-wide — perhaps dramatically — or threaten to partner with Aereo and pay nothing.

Original post is Aereo’s Web TV Service May Be Cable Companies’ Ace in the Hole by Tech Deals.

Photograph by Ronda Churchill/Bloomberg

VMware CEO Pat Gelsinger, right, employs an acquisition policy that involves not meddling with startup culture.

VMware Chief Executive Officer Pat Gelsinger is not interested in taking away startups’ Friday beer parties.

Preserving small companies’ cultures is a key to successful acquisitions, the former EMC executive said today on a panel at the Economist magazine’s Ideas Economy conference in Berkeley, California.

“Between EMC and VMware, we’ve acquired 80 companies over the past decade or so,” he said. “Most acquisitions fail because you’re trying to grind it into the corporate culture.”

VMware, which makes corporate software including computer-server virtualization tools, has had several opportunities to test Gelsinger’s strategy recently. Palo Alto, California-based VMware, which is majority owned by EMC, has agreed to buy at least seven businesses since the beginning of last year, including Nicira Networks for $1.26 billion.

“Rule No. 1 in acquisitions for us is, ‘Do no harm,’” Gelsinger said. “This is an area where we’ve had great success in acquisitions.”

Gelsinger, who became CEO last September, said beer Friday and bring-your-dog-to-work policies are allowed for newly acquired businesses that want them.

“One company asked if I’d defend their Friday beer policy,” Gelsinger said. “Who cares if they have Friday beer, and the rest of the corporate culture doesn’t support Friday beer? Get over it.”

After EMC acquired Data Domain in 2009, the group was allowed to continue to use its preferred enterprise software, including Salesforce.com, which isn’t widely used at EMC, Gelsinger said in an interview after the panel.

Presumably, the engineers are also free to crack open a Pabst while inputting their customer-relationship-management data, if they so choose.

Original post is Beer Friday Is Key to VMware’s Acquisition Strategy by Tech Deals.

Courtesy Jemstep

Jemstep provides algorithm-driven advice on how to save for retirement.

Simon Roy prefers computers to professional money managers because machines don’t work on commission.

The dark truth about the financial services industry is that brokers such as those found at a big bank branch or a strip mall often receive a cut from mutual fund managers when they make a sale. Brokers tend to lean toward the funds offering higher commissions, regardless of their performance. And that bias can result in a bad buy for the average Joe investor.

Jemstep aims to remove the bias with its money-management website, which lets retail investors import their retirement-account data and get automated advice, said Roy, the startup’s president. Jemstep offers free advice on asset allocation and will charge a flat monthly fee, starting at $18 per month, based on the size of the user’s retirement portfolio in exchange for suggestions about specific funds to buy and sell. Because Jemstep doesn’t play the fund-commission game, the Los Altos, California-based startup typically recommends inexpensive index funds, instead of the pricier mutual funds that brokers seem to love.

“The incentive structure under which brokers operate is designed to serve the interests of institutions, not the interest of investors,” said Roy, 51, in an interview. “Our advice is objective and untainted by any third-party influence.”

Jemstep began offering its automated portfolio manager to the public in January as a free service and has built up its membership to about 2,000 users, including employees at Google and EBay. For those managing less than $25,000 in retirement assets, the service will remain free. The price to manage larger portfolios can be as high as $70 per month, including portfolio analysis, tracking and rebalancing advice.

Backed by $10.5 million in private funding, Jemstep is among a growing class of startups aiming to tear down the traditional brokerage world by providing cheaper advice and more transparency. SigFig offers weekly suggestions for saving money and improving investment performance. FutureAdvisor, backed by Sequoia Capital, says it can help consumers save as much as 80 percent on fees by optimizing their portfolios.

Jemstep was founded in 2008 by Michael Blumenthal, a former stockbroker who is now the company’s co-chief executive officer. Jemstep has 20 employees split between the U.S. and Johannesburg, where Blumenthal is based.

The startup developed its recommendations by working with Windham Capital Management, a Boston-based firm with about $1 billion invested in stocks. The portfolio manager makes general suggestions, such as how much to allocate to international equities or when to lower exposure to U.S. stocks. The next step involves telling customers exactly which funds to dump and which to purchase.

“We’re trying to help people take action,” said Roy, referring to consumers’ tendencies to do nothing rather than seek out costly advice.

Considering Wall Street’s reputation lately, trusting a startup with our financial futures doesn’t sound so crazy.

Original post is Why You Should Consider Taking Financial Advice From a Computer by Tech Deals.

Photograph by Tom Hawkins

Matt Mickiewicz left 99designs to start DeveloperAuction, an online marketplace that matches engineers and employers.

As co-founder of web startup 99designs, Matt Mickiewicz relied on 30 recruiters to find engineering talent for his company in the hyper-competitive market of San Francisco. Results were so poor that when one finally got a prospect hired, the recruiter sent 99designs a box of Krispy Kreme donuts as a way to say thanks.

It came with a bill for tens of thousands of dollars.

Frustrated by the inefficiency of the hiring process, Mickiewicz left 99designs a year ago to start Developer Auction, an online marketplace that matches engineers and employers. Since starting the service in August, the company has signed on 400 companies and helped facilitate $225 million in job offers.

To keep growing the 13-person startup, Developer Auction announced today that it raised $2.7 million in a venture financing led by New Enterprise Associates and Sierra Ventures. Crosslink Capital, Google Ventures, SoftTech VC and Step Partners also contributed.

“We’re disintermediating recruiters and agencies and allowing companies to compete for talent on equal footing,” said Mickiewicz, 29, who co-founded the company in San Francisco with web entrepreneurs Douglas Feirstein and Allan Grant.

Developer Auction picks 150 candidates every month — out of  thousands of job seekers signing up on its site — to engage in a two-week auction process with employers. Companies get to look at the profiles and submit interview requests to those they like along with compensation information. Engineers can choose to accept the interview and, if there’s a match, an offer is extended.

For successful placements, employers pay Developer Auction 15 percent of the new hire’s first year of salary, and the service then gives 20 percent of that fee to the employee as a signing bonus. In its first year, the company is on track to record millions of dollars in revenue, Mickiewicz said.

In addition to competing with traditional recruiters, Developer Auction is  taking on LinkedIn, which has more than 200 million members. According to Mickiewicz, demand for programming talent is so great in the Bay Area that any engineer with a Stanford degree in computer science and some experience at Google or Facebook is inundated on a daily basis with LinkedIn messages from recruiters. He equated that approach to hiring as spamming, and Mickiewicz avoided using the professional-networking site when he tried to fill positions at 99designs.

He’s now hiring through his own site, competing for talent with his customers. Of the five engineers at Developer Auction, three were hired using the service, Mickiewicz said.

Other companies turning to Developer Auction include Groupon, Lookout, RichRelevance and AdRoll. And, somewhat ironically, news-reading service Pulse is also a client. That’s the startup LinkedIn is reportedly buying for up to $100 million, according to AllThingsD, citing people familiar with the matter.

Hani Durzy, a spokesman for LinkedIn, declined to comment.

Original post is How Donuts Gave Rise to Site Where Employers Can Bid on Engineers by Tech Deals.

Photograph by David Paul Morris/Bloomberg

At SXSW, Brian Chesky, co-founder and CEO of Airbnb, reminisced about the difficulties of building a business.

Airbnb Chief Executive Officer Brian Chesky still crashes on couches. The difference is that now, Chesky, the co-founder of the service that lets people rent out rooms and homes online, doesn’t have to.

Before the 6-year-old company took off, Chesky was so desperate for money that he was offering a 10 percent stake in Airbnb for $100,000. Everybody passed. One investor walked out of a pitch meeting at a restaurant, leaving behind a half-finished smoothie on the table, Chesky recalled on stage at the South by Southwest Interactive conference today in Austin, Texas.

Today, that investment would be worth about $250 million.

During those dark days, Chesky kept a binder full of credit cards to manage the growing debt he had accumulated to build the company. But eventually, investors came calling. Peter Thiel, one of Facebook’s earliest backers, led a round of financing of about $150 million in Airbnb, valuing the San Francisco-based company at about $2.5 billion, Bloomberg News reported in October.

The site is now being used by about 50,000 to 60,000 people a night, Chesky said. Last June, Airbnb was booking 38,000 a night. For the SXSW festival, which began on March 8, about 8,000 people booked accommodations in Austin through the site, out of 28,000 people expected to attend the tech convention, according to Adweek.

Airbnb also has helped spawn the so-called sharing economy, where people offer services directly to one another through online hubs. With TaskRabbit, for instance, people will perform chores for a fee. Other services, like Getaround, allow people to rent out their cars by the hour. “The sharing economy could replace a huge part of the existing economy,” Chesky said.

One challenge that Airbnb and its sharing buddies face is from local regulators. Tax and safety rules are less clear when it comes to the new breed of Internet startups. While Airbnb facilitates room rental transactions through its website and takes a commission, the company says it should not be responsible for collecting hotel tax.

Even though his fortunes have changed, Chesky said he doesn’t have a home and instead stays in apartments booked through Airbnb. He said he doesn’t want the company to become like a musician who grows popular and can no longer relate to the audience.

“That is the point that they become irrelevant,” he said. “I still live on the site. It’s a big statement to say the CEO doesn’t have a home and lives off the website.”

Original post is The Missed Airbnb Investment, Now Worth $250 Million by Tech Deals.

Photograph by Jin Lee/Bloomberg

Venture capital firms are swiping executives away from Square, the hot mobile-payments startup.

For the second time in nine days, a high-ranking executive at the payments startup Square has landed in venture capital.

This time, it’s Jared Fliesler, who served as a vice president of user acquisition and business operations at Square, the San Francisco-based company that makes a credit-card reader for phones and tablets. Fliesler is joining Matrix Partners in Palo Alto, California, where he’ll be looking to invest in early-stage Web and mobile companies.

The announcement follows the high-profile departure of Keith Rabois, who resigned as chief operating officer of Square in January after allegations of an improper relationship with another employee. “I did not do the horrendous things I am told I may be accused of,” Rabois wrote on his blog. Last week, Rabois joined Khosla Ventures as a partner, and tweeted, “Any bold, ambitious entrepreneurs around?”

At 28, Fliesler is younger than many of the entrepreneurs he likely will end up advising, but he boasts an impressive list of accomplishments. Prior to joining Square, Fliesler was an exec at Slide, and helped negotiate the company’s $200 million sale to Google in 2010. He stayed at Google for a year before taking a job at Square when the startup had about 150 employees. Now, it’s over 500.

Fliesler said he wasn’t looking to leave Square, but jumped at the opportunity to work with very young companies seeking his expertise. Matrix has a reputation of being an active investor, he said, unlike some other firms that just cut the check and get out of the way.

“I had no desire to get into something that was hands off and passive,” Fliesler said. “In this role, I can work with a bunch of companies in that phase that I absolutely love.”

Matrix’s well-known investments in recent years include online retailers Gilt Groupe and JustFab, question-and-answer site Quora, and customer-service-software maker Zendesk.

The venture firm missed out on investing in Fliesler’s former employer, but Matrix is hoping he can help find the next Square.

Original post is Square Loses Another Exec to Venture Capital by Tech Deals.

Original post is Draper University Gets Aspiring Entrepreneurs Out of the Classroom by Tech Deals.

And by “internationally,” they mostly mean Asia. SoftBank Capital is the venture arm of Softbank Corp., the Japanese company that agreed last year to buy  a controlling stake in Sprint Nextel Corp. The fund is also backed by Alibaba Group, the largest online business-to-business company in China, and Yahoo! Japan.

Often when U.S. startups go international for the first time, they expand somewhere in Europe because the culture and business practices most resemble those of the U.S., said Matt Krna, a principal at SoftBank Capital. But the European market has slowed down as U.S. startups face increasing competition from Asia.

“A lot more companies are looking to Asia first as their international expansion plan,” Krna said in an interview. “We have the connections to make that happen.”

Global expansion is becoming a bigger priority for startups, Krna said.

“Companies are looking at that a lot more early on in their maturation than they did 10 years ago,” he said.

SoftBank Capital’s new fund is its largest for growth-stage companies, Krna said. He expects the fund will end up supporting about 13 portfolio companies.

Original post is SoftBank Capital Raises $250M Fund to Help Startups Expand to Asia by Tech Deals.