There has been a bunch of Twitter conversation this week about venture capital economics and performance, stemming from an HBR post titled “Venture Capitalists Get Paid Well to Lose Money.” It was penned by Diane Mulcahy, a senior fellow at the Ewing Marion Kauffman Foundation (where she evaluates VC fund investments). She makes three basic points:
1. The VC market has performed terribly for more than a decade, but individual VCs still get paid exceedingly well (thanks to long-term management fees).
2. VCs should have more skin in the game via larger GP fund commitments.
3. There has been too little innovation on the VC model.
Of these, it’s the first one that interests me most. Mulcahy cites Cambridge Associates data, although she has previously written about performance issues by using returns from Kauffman’s own venture portfolio. The problem for me is that neither data sample is terribly reliable.
To be clear, I’m not casting aspirations on Mulcahy’s work. This isn’t her fault. It’s the industry’s fault.
Cambridge Associates, for example, only includes a total of 93 U.S. VC funds in its samples between 2009 and 2011 – or less than 18% of the 525 U.S. VC funds that were raised in those years. That figure may be considered statistically significant in the abstract, but is that 18% representative of VC fund sizes? What if it includes a majority of the multi-billion dollar funds? Or almost none of them? Is there reporting bias – either via the ‘best’ firms holding their data close (since they don’t really need Cambridge’s recommendation) or via the ‘worst’ firms not wanting to air their dirty laundry? Cambridge, of course, won’t disclose the names of included funds – even though releasing a list of GPs would not actually help anyone figure out fund-by-fund performance data.
In short, we just don’t have any idea how venture capital performs as an asset class. What we’re left with is vague data suggesting that it underperforms, and VC tweets that they overperform.
There is a case to be made that none of this matters — Brad Feld’s “I don’t care if VC survives as an asset class” argument. But, in the end, allocations are a real thing and the loss of VC allocation can have ripple effects through the startup ecosystem and, ultimately, the U.S. economy.
So we need better data, which begins with GPs being willing to share (perhaps right after fundraising, so as to put lawyers at ease). And please don’t argue that such disclosures will harm your competitive position, unless you also want to argue that firms like Union Square Ventures and Spark Capital (which both have publicly-reporting LPs) are grasping to overcome the disadvantage of me knowing their fund IRRs.
If VC truly is underperforming, then Mulcahy is correct that the industry’s economic model needs an overhaul. If it’s overperforming (as it’s supposed to), then we’re all good. But right now there is no way any of us can make such determinations….
• Follow the leader: Last Tuesday’s big deal was that cancer immunotherapy startup Juno Therapeutics had raised $134 million in Series B funding from “ten public mutual funds and healthcare-focused funds.” This came less than one year after the Seattle-based company had raised $176 million from a group of venture capital funds, Jeff Bezos and strategic partners like The Fred Hutchinson Cancer Research Center, Memorial Sloan-Kettering Cancer Center and the Seattle Children’s Research Institute.
Now we’ve learned that Fidelity Investments led the new round, making it one of the mutual fund manager’s earliest-stage private deals to date (it notably led Uber’s recent round). No word yet on the other nine participants.
• New VC fund alert: Los Angeles-area serial entrepreneurs Gil Elbaz (Factual, Applied Semantics) and David Waxman (Spot Runner, PeoplePC, Firefly Network) are raising upwards of $25 million for an early-stage VC fund called TenOneTen Ventures, according to a regulatory filing. Waxman is the firm’s managing partner, while Elbaz is listed as founding partner.
• Sharing is caring (part 2): Yesterday I mentioned that you now can share Term Sheet via various social networking sites by using the icons at the end of each day’s newsletter. Some of you also asked about permalinks, so I’ve added that too (just above the icons).
THE BIG DEAL
• Lookout, a San Francisco-based provider of mobile security solutions, has raised $150 million in new VC funding. T. Rowe Price Associates led the round, and was joined by Morgan Stanley Investment Management, Wellington Management Company, Goldman Sachs and Bezos Expeditions. Return backers include Mithril Capital Management, Khosla Ventures, Accel Partners, Index Ventures and Andreessen Horowitz. Allen & Co. served as placement agent. The company previously raised around $130 million. Read more.
VENTURE CAPITAL DEALS
• GetTaxi, an Israeli on-demand car service, has secured $25 million of what it says will soon be a $150 million funding round. The money came from Vostok Nafta Investments. www.gettaxi.com
• Seventh Sense Biosystems Inc., a Cambridge, Mass.-based developer of “virtually painless” blood collection and diagnostic platforms, has raised $16 million in Series B funding. Siemens Financial Services, Novartis and LabCorp were joined by return backers Flagship Ventures and Polaris Partners. www.7sbio.com
• Castle Biosciences Inc., a Friendswood, Texas-based molecular diagnostics company focused on cancer, has raised $11.8 million in new VC funding. HealthQuest Capital led the round, and was joined by return backers like Mountain Group Capital and Longfellow Venture Partners. www.castlebiosciences.com
• Atonarp Inc., a Tokyo-based developer of a “smart spectrometer” platform initially targeted at the energy and healthcare markets, has raised $8 million in Series A funding led by Walden Riverwood Ventures. www.atonarp.com
• Vyome Biosciences, an India-based developer of treatments for “hard to treat and refractory skin conditions” like persistent dandruff and skin fungal infections, has raised $8 million in Series B funding. Sabre Partners led the round, and was joined by return backers Kalaari Capital and Aarin Capital. www.vyome.in
• Traitify, a Baltimore-based provider of app and services personalization, has raised $4 million in Series A funding led by Heritage Capital and individual angel investors. www.traitify.com
• Adello, a Swiss mobile advertising startup, has raised $2 million in Series A funding from Swisscom Ventures and company management. www.adello.com
• RadPad, a Los Angeles-based mobile rental marketplace, has raised $2 million in new VC funding. SG VC led the round, and was joined by Queensbridge Venture Partners, Happy Walters and return backers Social Leverage and Michael Huffington. www.onradpad.com
• SmartKem, a UK-based maker of organic semiconductor materials for flexible displays and electronics, has raised an undisclosed amount of Series A funding from comprising BASF Venture Capital, Octopus Investments, Entrepreneurs Fund and return backer Finance Wales. www.smartkem.com
PRIVATE EQUITY DEALS
• Canadian Non-Operated Resources LP, a Calgary-based oil and gas platform, has been formed via a C$675 million equity commitment that includes up to C$300 million from Riverstone Holdings. The remainder is from company management, Grafton Asset Management and an undisclosed Middle Eastern sovereign wealth fund.
• ClearResult, an Austin, Texas-based portfolio company of General Atlantic, has acquired Applied Proactive Technologies Inc., a Springfield, Mass.-based provider of energy efficiency program implementation services. No financial terms were disclosed. D.A. Davidson & Co. advised APT on the deal. www.appliedproactive.com
• CVC Capital Partners and GIC are in talks about a possible joint bid for the for €5 billion in assets being sold by European cement makers Lafarge (Paris: LG) and Holcim (Swiss: HOLN), according to Sky News. Read more.
• Francisco Partners is in talks to acquire a control stake in Sapiens (Nasdaq: SPNS), an Israeli provider of insurance industry software, for more than $450 million, according to The Marker. www.sapiens.com
• Pine Tree Equity has re-acquired Celtic Capital Corp., a Santa Monica, Calif.-based provider of asset-based financing to small businesses in the Western U.S. Pine Tree originally acquired Celtic Capital in late 2008, before selling it in April 2012 to Pacific Western Bank. No financial terms were disclosed. www.celticcapital.com
• Planview, an Austin, Texas–based provider of portfolio and resource management software, has acquired Projectplace, a Swedish provider of cloud-based project collaboration software, from InnovationsKapital and Via Venture Partners. No financial terms were disclosed, except that the combined company is expected to have annual revenue north of $125 million. Planview last year raised an undisclosed amount of funding from Insight Venture Partners. www.projectplace.com
• Ridgemont Equity Partners has agreed to acquire a majority stake in Cross River Fiber, an Iselin, N.J.–based provider of dark fiber and communications infrastructure-based services. No financial terms were disclosed for the deal, which is expected to close in Q4. www.crossriverfiber.com
• SailPoint, an Austin, Texas –based provider of identity and access management solutions, has raised an undisclosed amount of private equity funding from Thoma Bravo. http://www.sailpoint.com
• VTB Bank is in talks to acquire a 60% stake in Italian fashion brand Roberto Cavalli, according to Reuters. The deal could be valued at more than €500 million. Read more.
• Warburg Pincus has agreed to acquire TriMark USA, a South Attleboro, Mass.-based provider of equipment and related services to the foodservice market, from Audax Group, according to an FTC filing. www.trimarkusa.com
• Otonomy Inc., a San Diego-based developer of therapeutics for diseases and disorders of the inner and middle ear, raised $100 million in its IPO. The company priced 6.3 million shares at $16 per share, compared to plans to offer 5.33 million shares at between $14 and $16 per share. The company will trade on the Nasdaq under ticker symbol OTIC, while J.P. Morgan and BofA Merrill Lynch served as lead underwriters. Its initial market cap is around $311 million, and it reports a $10.9 million net loss on $9 million in Q1 2014 revenue. The company has raised over $140 million in VC funding from firms like Avalon Ventures (16.8% pre-IPO stake), OrbiMed Advisors (15.2%), Novo AS (14.4%), TPG Biotech (14.4%), Domain Associates (11.8%) and Rivervest Venture Partners (7.5%). www.otonomy.com
• GeNo LLC, a Waltham, Mass.-based developer of drugs to treat pulmonary and cardiac diseases, has withdrawn a $50 million IPO registration that it first filed last November. No explanation was provided. The company had planned to trade on the Nasdaq, with Jefferies and Stifel serving as lead underwriters. The Medicines Co. (Nasdaq: MDCO) holds a 13.9% ownership stake. www.genollc.com
• Vitae Pharmaceuticals, a Fort Washington, Penn.-based drug company whose lead product is focused on Type 2 diabetes, has filed for a $55 million IPO. It plans to trade on the Nasdaq under ticker symbol VTAE, with Stifel and BMO Capital Markets serving as lead underwriters. Shareholders include Prospect Venture Partners (23.3% pre-IPO stake), New Enterprise Associates (17.8%), Venrock Associates (15.6%), Atlas Venture (11.2%), Boehringer Ingelheim International (10.8%) and Allergan Inc. (5.6%). www.vitaepharma.com
The Abraaj Group has sold Iasacorp International SA, a Peruvian retailer of women’s accessories, to Peru’s MCKPITAL, the family office of the Marsano family. No financial terms were disclosed. www.abraaj.com
GTCR has hired Goldman Sachs and Jefferies to find a buyer for Curo Health Services, a Mooresville, N.C.-based provider of home healthcare and hospice services, according to Reuters. The deal could be valued at upwards of $750 million. Read more.
Oncothyreon Inc. (Nasdaq: ONTY) has acquired Alpine Biosciences Inc., a Seattle-based developer of “nanoparticle platform technology designed to enable the targeted delivery of multiple therapeutic agents,” for an undisclosed amount. www.oncothyreon.com
Parthenon Capital has agreed to sell golf club owner and operator Sequoia Golf for $265 million to ClubCorp (NYSE: MYCC). www.canongategolf.com
• FleetCor Technologies Inc. (NYSE: FLT) has agreed to acquire Comdata Inc., a Brentwood, Tenn.–based provider of B2B electronic payment solutions, for $3.45 billion. The seller is Ceridian LLC, a portfolio company of Thomas H. Lee Partners and Fidelity National Financial Inc. (NYSE: FNF). Read more.
FIRMS & FUNDS
• Equistone Partners Europe is targeting €1.7 billion for its second buyout fund since spinning out of Barclays, according to Bloomberg. Lazard is serving as placement agent. Read more.
• The Los Angeles City Employees’ Retirement System (LACERS) is considering an increase to its private equity commitments, according to board meeting agenda materials. The pension currently invests between $10 million and $40 million per fund, but may increase that upper limit. Read more.
• Paine & Partners has secured $476 million for its fourth private equity fund, which is targeting upwards of $850 million, according to a regulatory filing. www.painepartners.com
MOVING IN, UP, ON & OUT
• John Forbes Anderson has joined London-based Park Square Capital as general counsel. He previously was with Debevoise & Plimpton LLP. www.parksquarecapital.com
• Joseph Coote and Mike Darland have joined Alvarez & Marsal as a managing director and senior director, respectively, within the firm’s private equity performance improvement practice. Both men will be based in Boston. www.alvarezandmarsal.com
• Roy Kelvin has joined GI Partners as chief financial officer. He previously was CFO at Vector Capital. www.gipartners.com
• Rodney Reid has agreed to joined Evercore as a managing director in its private capital advisory business. He’ll initially be based in London, and previously was with UBS as an executive director and head of its Europe and MENA secondary advisory group. www.evercore.com
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