VergeSense, a U.S. startup that sells a “sensor as a system” platform targeted at offices — supporting features such as real-time occupant counts and foot-traffic-triggered cleaning notifications — has closed a $9 million strategic investment led by Allegion Ventures, a corporate VC fund of security giant Allegion.
JLL Spark, Metaprop, Y Combinator, Pathbreaker Ventures and West Ventures also participated in the round, which brings the total funding raised by the 2017-founded startup to $10.6 million, including an earlier seed round.
VergeSense tells TechCrunch it’s seen accelerated demand in recent weeks as office owners and managers try to figure out how to make workspaces safe in the age of COVID-19 — claiming bookings are “on track” to be up 500% quarter over quarter. (Though it admits business did also take a hit earlier in the year, saying there was “aftershock” once the coronavirus hit.)
So while, prior to the pandemic, VergeSense customers likely wanted to encourage so called “workplace collisions” — i.e. close encounters between office staff in the hopes of encouraging idea sharing and collaboration — right now the opposite is the case, with social distancing and looming limits on room occupancy rates looking like a must-have for any reopening offices.
Luckily for VergeSense, its machine learning platform and sensor-packed hardware can derive useful measurements just the same.
It has worked with customers to come up with relevant features, such as a new Social Distancing Score and daily occupancy reports. It already had a Smart Cleaning Planner feature, which it reckons will now be in high demand. It also envisages customers being able to plug into its open API to power features in their own office apps that could help to reassure staff it’s okay to come back in to work, such as indicating quiet zones or times where there are fewer office occupants on site.
Of course plenty of offices may remain closed for some considerable time or even for good — Twitter, for example, has told staff they can work remotely forever — with home working a viable job for much office work. But VergeSense and its investors believe the office will prevail in some form, but with smart sensor tech that can (for example) detect the distance between people becoming a basic requirement.
“I think it’s going to be less overall office space,” says VergeSense co-founder Dan Ryan, discussing how he sees the office being changed by COVID-19. “A lot of customers are rethinking the need to have tonnes of smaller, regional offices. They’re thinking about still maintaining their big hubs, but maybe what those hubs actually look like is different.
“Maybe post-COVID, instead of people coming into the office five days a week… for people that don’t necessarily need to be in the office to do their work everyday maybe three days a week or two days a week. And that probably means a different type of office, right. Different layout, different type of desks etc.”
“That trend was already in motion, but a lot of companies were reluctant to experiment with remote work because they weren’t sure about the impact on productivity and that sort of thing, there was a lot of cultural friction associated with that. But now we all got thrust into that simultaneously and it’s happening all at once — and we think that’s going to stick,” he adds. “We’ve heard that feedback consistently from basically all of our customers.”
“A lot of our existing customers are pulling forward adoption of the product. Usually the way we roll out is customers will do a couple of buildings to get started and it’ll be phased rollout plan from there. But now that the use-case for this data is more connected to safety and compliance, with COVID-19, around occupancy management — there’s CDC guidelines [related to building occupancy levels] — now to have a tool that can measure and report against that is viewed as more of a mission-critical type thing.”
VergeSense is processing some 6 million sensor reports per day at this point for nearly 70 customers, including 40 FORTUNE 1000 companies. In total it says it provides its sensor hardware plus SaaS across 20 million square feet in 250 office buildings in 15 countries.
“There’s an extreme bear case here — that the office is going to disappear,” Ryan adds. “That’s something that we don’t see happening because the office does have a purpose, rooted in — primarily — human social interaction and physical collaboration.
“As much as we love Zoom and the efficiency of that, there is a lot that gets lost without that physical collaboration, connection, all the social elements that are built around work.”
VergeSense’s new funding will go on scaling up to meet the increased demand it’s seeing due to COVID and for scaling its software analytics platform.
It’s also going to be spending on product development, per Ryan, with alternative sensor hardware form factors in the works — including “smaller, better, faster” sensor hardware and “some additional data feeds.”
“Right now it’s primarily people counting, but there’s a lot of interest in other data about the built environment beyond that — more environmental types of stuff,” he says of the additional data feeds it’s looking to add. “We’re more interested in other types of ambient data about the environment. What’s the air quality on this floor? Temperature, humidity. General environmental data that’s getting even more interest frankly from customers now.
“There is a fair amount of interest in wellness of buildings. Historically that’s been more of a nice to have thing. But now there’s huge interest in what is the air quality of this space — are the environmental conditions appropriate? I think the expectations from employees are going to be much higher. When you walk into an office building you want the air to be good, you want it to look nicer — and that’s why I think the acceleration [of smart spaces], that’s a trend that was already in motion but people are going to double down and want it to accelerate even faster.”
Commenting on the funding in a statement, Rob Martens, president of Allegion Ventures, added: “In the midst of a world crisis, [the VergeSense team] have quickly positioned themselves to help senior business leaders ensure safer workspaces through social distancing, while at the same time still driving productivity, engagement and cost efficiency. VergeSense is on the leading edge of creating data-driven workspaces when it matters most to the global business community and their employees.”
Earlier today, we talked with the firm’s general partners — Eric Paley, David Frankel, Micah Rosenbloom — to learn more about it. Among our first questions: whether the three are themselves the largest investors in the new vehicle, as was the case with the firm’s third fund, which closed with $75 million in capital commitments four years ago. (The three have long prided themselves on their ability to tell founders who they take the firm’s capital that they truly are taking the investors’ money.)
We also talked exits, geography, and investing through the coronavirus, a time when a lot of personal investors are being more cautious with their dollars.
TC: Eric, you wrote a seed check to Uber and I spied you on the Midas list this year. Still, it’s a scary time to be investing one’s capital aggressively. Are you and David and Micah again the biggest investors in this new fund?
EP: The three of us were the largest investors in [our third fund] and we’re significantly bigger investors in Fund IV. While we’re fortunate to have some of the best LPs in the world, we believe that being our own largest investor allows us to make decisions that better align with our founders. We also hope it sends a signal to founders that we’re honest brokers. When we were running our startups, it frustrated us when VCs would add a punitive clause to a term sheet citing “fiduciary responsibilities” to their LPs as the justification. We’re principals and stewards of our capital, not agents of LPs.
TC: How many investors are now involved in the day-to-day of the firm and how has this changed at all in the past years?
DF: We have ten people full-time with offices in Soho in New York and Harvard Square in Cambridge. There are three partners and a principal on the investment team. We also have a Founder Partner program with some of the best entrepreneurs covering a variety of geographies and domains. [Editor’s note: some of these include Raj DeDatta of Bloomreach, Jack Groetzinger of SeatGeek, Andy Palmer of Tamr, Zach Klein of DIY, James Tamplin of Firebase, Nadia Boujarwah of Dia&Co, Elliot Cohen of PillPack and Noah Glass of Olo.
Caterina [Fake], who was a Founder Partner with us for 10 years, recently founded Yes.vc, and our first principal, Gaurav Jain, started Afore, a pre-seed VC.
TC: What are some of the most recent exits for the firm?
DF: Over the last couple of years, we’ve been fortunate to see Uber go public and PillPack join Amazon. CoverWallet and Hotel Tonight were another pair of outstanding outcomes. We were fortune to have backed ten companies that have either exited or been valued at more than $1 billion in our first two funds, but we’re also proud of $100 million M&A events. They often go unreported, but because of our fund size, they make a material impact to us – and, more importantly, the founders.
Have seed-stage check sizes changed? I imagine they were getting bigger and now I’d guess they might get smaller again?
EP: From the beginning of Founder Collective, we’ve done two kinds of investing, $1 million to $2 million checks, where we lead and take a board seat, and around $400,000 investments, where we participate. We’ve seen the average valuations rise over the last five years, but we’ve tried to stay disciplined.
MR: So far in the COVID era, check sizes aren’t that different. It’s been more of a binary situation where startups that are deemed as “on-trend” can still command healthy valuations. The companies that are pre-market, or in an out-of-favor category that might have gotten funded in February are having a hard time getting funded. But we try not to be influenced by thematic trends.
DF: One pleasant surprise has been how quickly most of our companies have responded to the “new normal.” Some have reopened rounds to put a little more capital on the balance sheet, while others have found strategic investors to help tide them over. By and large, they’re acting responsibly.
TC: Remind me of where Founder Collective invests — does it have a focus mostly on the Northeast?
MR: We invest primarily in four geographies: New York, Boston, the Bay Area, and Southern California. That said, we’ve invested in startups as far afield as Nigeria, South Korea, and Israel, and genuinely unusual and fun places like Wisconsin, Winnipeg, and Boise.
EP: The reality is that startup geography is changing. For example, the most valuable software startup in the Western world to launch after Facebook is Shopify, which currently has a $90 billion market cap and is based in Ottawa. It would be foolhardy for investors not to broaden their view on where great startups can be built.
That said, there are powerful network effects around startup centers. It’s absolutely possible to build a multi-billion dollar tech business anywhere; it’s orders of magnitude easier when there’s a deep talent pool to hire from, local mentors who have seen scale before, and a broad ecosystem of knowledgeable service providers that can provide guidance.
DF: Also, while we invest globally, we feel the East Coast is an undervalued startup hub. Over the past 20 years, Boston has had more billion-dollar exits than any Western city aside from San Francisco, and New York has produced multiple $10 billion-plus startups in spaces as diverse as consumer hardware, SaaS, dev tools, and craft marketplaces.
TC: How has the pandemic changed your outlook for the next year?
EP: Over the years, we’ve written a lot about capital efficiency for entrepreneurs and even made warning labels that we send to founders alerting them to the dangers of too much money, too soon. Historically, we’ve pushed this message because capital was overabundant, and it damaged startups. The principles of capital efficiency are even more critical in a tight capital market. We’ll be increasingly focused on helping founders understand efficient entrepreneurship and how to build models that are tuned to scale without burning capital.
We’ll also put a premium on founders who have demonstrated the flexibility to operate amid unprecedented levels of uncertainty. In this environment, companies need to focus on their customers’ needs as they are now and not fixate on their pre-existing strategy. For instance, our portfolio company Formlabs sells 3D printers mostly to engineers and designers. After they started printing a novel nasal swab design for COVID tests, hospitals became an important new customer category. The world is changing rapidly, and founders need to keep pace.
TC: What are a few of the firm’s most recent bets and what do they say about Founder Collective’s investing style?
MR: A few recent examples are TrueWork [which sells HR-focused software-as-a-service), Trusted Health [a nursing marketplace], Lovevery [which makes learning toys] and ULesson [which makes consumer education software for African students].
On the surface, it’s a diverse group of companies, but the common thread is a founding team that is all over it. The founders were obsessed with the problems they were solving, had spent meaningful time in these industries, and proved out a lot before seeking funding. There’s no way we can be experts in all those fields, but we do think we know how to spot the founders who are.
TC: Presumably, you’ve already sorted your startups into these red, yellow, and green groups that VCs like to talk about. What are happening to the startups in the red group? Are you helping them to unwind their businesses?
MR: It’s still so early, it’s hard to say what the ultimate impact will be, and the longer it goes, the worse it will likely get. So far, COVID was the nail in the coffin for a few of our startups, and we’ve tried to help the founders find soft landings for the teams and assets. Some of our distance-learning companies and our health-oriented companies have benefited due to the growing need for their products.
Most of our startups are somewhere in the middle. We try to help entrepreneurs on a case-by-case basis, sometimes that means organizing peer discussion groups about cash management in a time of crisis. Other times, it takes the form of making introductions to potential acquirers. When possible, we help to catalyze new rounds of funding.
TC: What’s one new area of interest for founder collective and why?
DF: One of our core beliefs is that the best startups are built by founders approaching weird and wonderful spaces.We’ve backed ad tech for the flooring industry, IoT-based offshore oyster farming robots, crypto, cologne, doggy DNA tests, data management tools. We’re proudly anti-thematic, and historically, that’s led to good outcomes.