Term Sheet — Tuesday, July 28

• The problem with Airbnb (and the sharing economy)

I received a few emails yesterday regarding my not-so-subtle snide remark regarding Airbnb's valuation. Most wanted to know why I found it so hard to believe that the online lodging site was being privately valued at around $25.5 billion - roughly equal to that of hotelier, Hilton Worldwide.

Ok - here's my quick take on the matter -

I am not a fan of any business model where the person purchasing the service is expected to pay a  "fee" to a middleman, especially when that middleman (Airbnb), has no real competitive advantage whatsoever. Simply put, the barriers to entry online are way too low and Airbnb's sole revenue stream, the fees it charges its hosts AND guests, are very vulnerable to attack. I fear Airbnb will eventually be subject to vicious competition, forcing the company to lower those fees until its profit margins go to zero.

Indeed, I think this is already happening. When I went to book my vacation to Europe last month I considered using Airbnb, as it is normally a great value. But as I was searching the website, I noticed that many of the apartments on Airbnb were also being offered on other reputable travel websites, like booking.com and hotels.com. What's more, I found the total booking price for the same apartments on the same days were almost always more expensive on Airbnb compared with the other websites.

The killer here is the booking fee. It is not only psychologically off putting for the buyer, it is also really expensive and nonrefundable. So even if your host allows you to cancel your reservation for free, Airbnb will not give the fee back to you, which, for some bookings, can be hundreds of dollars. Since the other websites don't charge the guest a fee to book the reservation, this is not an issue.

Anyway, I bet that $25 billion valuation assumes Airbnb will be able to charge those ridiculously high, nonrefundable fees indefinitely - heck, it probably assumes it will be able to hike those fees as time goes on as it corners the unique "home lodging" space, similar to how eBay was able to corner the online auction space back in the early 2000s. But while Airbnb likes to pretend that it is in a category of its own, it is, in reality just another expensive middle man attempting to derive value off of something it neither owns nor controls. This is unsustainable.

To be sure, Airbnb isn't the only company with this issue - it is, in my view, the big problem with many of today's Silicon Valley darlings part of this new "sharing economy." Instead of providing a unique and viable service or product, most are just applications facilitating a transaction for a fee. Now, that doesn't mean they some of these sharing websites can't or won't succeed - it is hard to deny the explosive success of a company like Uber - it just means that their success is hardly guaranteed. And at a valuation of $25 billion, I fear that investors believe Airbnb's success is guaranteed, when in reality, nothing could be further from the truth.

What do you think? Tweet at me @BeyondBlunt or email me at csanati@gmail.com

Now, as my former boss, Eddy Chancellor, used to say - "Cyrus, enough faffing around!" We have a lot of news to cover so let's get on with it.

THE BIG DEAL

• Stripe is now worth $5 billion

Stripe, the online payment platform, will receive a big endorsement today with an investment from payment monolith Visa, according to Fortune's Leena Rao. The amount of investment, which will be used to expand internationally and for hiring, was not disclosed. The Visa investment now values the San Francisco-based startup at a whopping $5 billion, up from $3.5 billion just a few months ago. Stripe, which was founded in 2011, claims it now processes billions of dollars worth in online payments, rivaling Paypal.  Stripe's clients read like a who's who of Web 2.0;  including, Twitter, Kickstarter, Shopify, Salesforce and Lyft. Stripe's investors include Sequoia Capital, Andreessen Horowitz, and PayPal co-founders Peter Thiel, Max Levchin, and Elon Musk. Rao notes that both Sequoia and American Express added to their investments in this latest funding round while Kleiner Perkins put in money for the first time.

AND

• Your thermostat is a goldmine

Honeywell acquired Elster Group, a German-based provider of utility meters, from UK-based Melrose Industries for $5.1 billion in cash. Elster provides thermal gas solutions for commercial, industrial and residential heating systems as well as gas, water and electricity meters, including smart meters and software and data analytics solutions. This is the biggest deal of the day by far an while it seems sort of snoozy, it speaks to the growing importance of "smart" metering. The collection of data from these smart meters will give Honeywell a unique insight on energy and water usage across many large markets. The deal price seems sort of rich, though, translating to approximately 12.6 times Elster's estimated 2015 consensus EBITDA. The deal is expected to close in the first quarter of 2016.

VENTURE CAPITAL DEALS

•  Ecovent, a Boston-based maker of intelligent home products, closed on a $6.9 million Series A funding round led by Emerson Climate Technologies, a business segment of Emerson. The round includes participation from Tamarisc and Blue Fog Capital. For a laugh, check out Ecovent's "Dollar Shave Club"-esque commercial here

• UpCounsel, a SanFrancisco-based company that offers on-demand legal counsel to businesses, raised $10 million in Series A funding round led by Menlo Ventures and with participation from previous investors, Homebrew and Metamorphic Ventures.  The company has raised $13.9 million to date. upcounsel.com

•  MacroFab, a Houston-based electronics manufacturer, raised $2 million in a seed funding round led Techstars Ventures. Jason Seats, the managing director of Techstars in Austin will join MacroFab’s board of directors. macrofab.net

• Secret escapes, a London-based luxury travel deals site, just closed on a $60 million funding round led by Google Ventures and supported by Octopus, Index and Atlas. The company plans on using the cash to enter the the US and Asian markets. secretescapes.com

•  MOBI, an Indianapolis-based software company, received a $35 million investment from New York-based growth equity firm Bregal Sagemount. MOBI provides software and services to help companies manage mobility. As part of the investment, Daniel Kim, Bregal Sagemount’s founding partner,  will join the MOBI's board of directors. mobiwm.com

• Deliveroo, the UK-based on-demand delivery service, raised $70m in a Series C investment round led by Greenoaks Capital and Index Ventures, with participation from existing investors Accel and Hoxton Ventures. Deliveroo.co.uk

PRIVATE EQUITY DEALS

• North Castle Partners says it has made an investment in Barry’s Bootcamp, a boutique fitness chain with 17 locations across the US and oversees. The amount of the investment was not disclosed. The company will open two new studios in late 2015 in Hollywood, CA and on Manhattan's Upper East Side. barrysbootcamp.com

• Liberty Hall Capital Partners acquired LaCroix Industries, a Tier II supplier of complex metallic formed and machined parts and assemblies for the global aerospace industry based in Kent, Washington. Terms of the transaction were not disclosed. Liberty Hall is a private equity firm focused exclusively on investments in businesses serving the global aerospace and defense industry.

•  Greenleaf Power, A Sacramento-based owner and operator of clean energy power plants and a portfolio company of Denham Capital, acquired the Plainfield Renewable Energy Plant located in Plainfield, Connecticut for $101 million. The acquisition marks Greenleaf Power’s sixth acquisition in North America. greenleafpower.com

IPOs

NantKwest, a clinical-stage cancer immunotherapy company, priced well above range on Monday night at $25 a share. This makes the Nasdaq listed company the biggest biotech IPO ever with a $2.6 billion market cap. The Cardiff-by-the-Sea, CA-based company ended up raising $207 million by offering 8.3 million shares. Bank of America Merrill Lynch, Citi, Jefferies and Piper Jaffray are the joint bookrunners on the IPO. NantKwest.com

EXITS

• CIC Partners, a Dallas-based food and consumer focused private equity firm, has sold L&L Foods, a high volume niche food packaging company that specializes in portion control packaging solutions, to Peacock Engineering, a portfolio company of Charlesbank Capital Partners. No financial terms were disclosed.  www.llfoodsinc.com

• MidOcean Partners, a New York-based mid-market private equity firm, announced today that it has reached a definitive agreement to sell Noranco to Precision Castparts Corp. for $560 million. Noranco is a leading supplier of complex machined components and assemblies for mission-critical landing gear, aerostructures, and aero engine applications to the aerospace industry.

OTHER DEALS

•  Simba Information, a division of Rockville, MD-based MarketResearch.com, acquired Education Market Research (EMR), for an undisclosed sum. Simba specializes in market intelligence and forecasts in the media and publishing industry, while EMR specializes on information and intelligence about the US education system. The merger of these two publishers will form one of the nation's top providers of business intelligence on the PreK-12 and college market for instructional materials. www.simbainformation.com

• Gree, the Japanese social and mobile gaming giant, acquired Twiitch, a Melbourne, Australia-based maker of mobile games, for an undisclosed amount. Twiitch makes the popular game, Heroes of War. READ MORE

FIRMS & FUNDS

MOVING IN, UP, ON & OUT

No big moves today

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