Fifteen months into its effort to redefine the way companies are conceptualized, funded, and scaled, Santa Monica tech studio Science has added some more powder to its musket. As first reported last night by AllThingsD, the company has raised in the neighborhood of $30 million from Hearst Ventures.
The interesting and unusual thing about the Science model, as opposed to accelerators or venture capital firms, is that it views itself as an operating entity along the lines of a media company. The group thinks of each startup as a new division of the core business, even though it will eventually own a minority stake in most cases (although not as minority as a traditional accelerator or VC). That means that the latest capital does not represent the formation of a new fund, but rather goes directly onto its balance sheet. As a result, Hearst gets a stake in everything the company has created to date.
AllThingsD reported this stake as being greater than 20 percent, which Science CEO Mike Jones called “an interesting number” that was “directionally accurate” when we spoke earlier today. He had a similar reaction to the size of the financing, which he would not explicitly confirm.
Jones has longstanding relationships with Hearst’s George Kliavkoff and Scott Sassa. He reportedly approached the pair about investing in Science’s initial $10 million funding in 2011, but the opportunity was too early stage for the media giant at that point. With another year of launching promising companies under its belt, the timing made more sense this time around. Jones confirmed that the new round closed yesterday and that Hearst was the only investor.
Science created 15 businesses in 2012, 11 of which it launched publicly and which continue to operate (two of them in stealth). The nine non-stealth startups have raised $35 million over 13 seed and Series A rounds that have including several heavyweight VC firms such as Benchmark Capital, Andreessen Horowitz, Kleiner Perkins, First Round Capital, Venrock, and Shasta Ventures, among others. Much of the credit for this success goes to Science Chief Business Officer and former BillShrink founder Peter Pham who took 101 one way flights between LA and Silicon Valley last year, pitching on behalf of his portfolio companies.
The early standouts in Science’s portfolio are Dollar Shave Club and DogVacay, both of which raised prominent Series A rounds, with other lesser known names like HelloInsights, TrippleThread, and Uncovet growing rapidly and in some cases even operating profitably with little fanfare. In 2013, the group has already launched two new companies, activewear ecommerce brand, Ellie and social, mobile dating platform, Let’s Date. Science even made a few small outside investments, including in “Uber for private aviation” startup BlackJets, although this is not its focus.
Science only forms businesses which it believes can reach a minimum of a $100 million valuation and has been quick to shut down those which appear unlikely to do so. For example, it tried to launch a vitamin subscription company, but found the cost of customer acquisition to be too great in the face of competition from GNC, et al and never launched the business. And while several of its businesses are making progress toward that benchmark, the firm has thus far turned down four opportunities to sell at multiple times their original investment, Jones says.
Jones, who was formerly CEO of MySpace in its troubled latter years, is quick to point out that Science has yet to realize any returns. “We will be very celebratory when we see the market reward us for this effort,” he says. “But currently, we are still heads down focused on building and executing.”
In addition to building its portfolio of startups, Science has built an in-house platform of audience development and business analytics tools that it uses to manage and grow each business. Jones believes that these tools give his companies an advantage when competing against other startups, and give his team the ability to manage a growing portfolio of businesses.
Science doesn’t do follow-on investing, something that won’t change with the new infusion of capital, Jones says. The firm often puts in several hundred thousand dollars or more at the beginning and is typically the first money into a company. For this it gets anywhere from 20 to as much as 70 percent of a company, depending on the source of the idea, the amount invested, and the stage at which it brings in a management team.
Not much will change going forward for Science, other than its plans to expand into additional categories. The firm’s startups have been largely consumer-facing and heavily ecommerce focused to date. The company has invested in the apparel, food, health, beauty, travel, home, and social categories, as well as created social analytics and ecommerce platform tools for businesses. Jones wouldn’t specify future areas of interest, but his founding partner Peter Pham has indicated in the past that more business-facing products would be in the works.
Science’s initial investors include Eric Schmidt’s Tomorrow Ventures, Rustic Canyon Partners, White Star Capital, The Social+Capital Partnership, Jean-Marie Messier, Philippe Camus, Jonathan Miller, and Dennis Phelps. Hearst’s George Kliavkoff will join Science’s board of directors as part of the latest financing round. Kliavkoff joins Rustic Canyon’s Nate Redmond and White Star’s Eric Martineau on the board, with the latter transitioning to the role of a board observer.
In total, Jones believes that Science has created more than 200 jobs in Los Angeles, a market on which the CEO is particularly bullish. These jobs include everything from engineering and design, to customer service and manufacturing, and are growing in number daily.
The tech studio currently has 16 in-house employees and Jones regularly warns others interested in duplicating his model of the degree of difficulty. “We underestimated the amount of resources that would be needed to support this level of business,” Jones says, despite pointing out that several of its in-house portfolio services units are profitable and returning capital to the parent. “These aren’t junior people we have on the team. These are senior experts in their respective fields – asset managers, experts in operations, finance, and legal, brands builders.”