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Term Sheet — Friday, November 6

Nov 06, 2015

Random Ramblings

Square Inc. this morning filed amended IPO docs with the SEC, saying that it plans to price 27 million shares at between $11 and $13 per share. That would give the San Francisco-based payments company an initial market cap of around $4.2 billion at the high end of its range, which is much lower than its most recent private market valuation. It’s also a very small float, representing just over 8% of its outstanding shares at the time of IPO.

A bunch of related notes:

The share price math: Square most recently raised $180 million in private funding at $15.46 per share, in a multi-stage Series E round that spanned from September 2014 through just last month. Holders of Series E stock will receive extra shares if the IPO prices below where they purchased, via an anti-dilution provision (additional shares would represent 1.6% of total outstanding shares, were Square to price in the middle of its proposed range). It’s also worth noting that the lower end of Square’s anticipated IPO range is a penny south of its Series D stock ($11.01 per share), which was raised all the way back in September 2012. None of Square’s private investors are expected to sell stock in the IPO. We also don't know how the ratchets are (or aren't) priced into 409(a) valuations -- which is of major importance for Square employees.

Choose your own valuation: On a fully-diluted bases — meaning that all restricted stock units and other such instruments are exercised and converted — the company would have a valuation of around $6.2 billion at the high end of its proposed IPO range.

Decaf: Square recently agreed to terminate its exclusive partnership with Starbucks, which has proven to be a major drain on Square's finances. One provision in that deal was that Square would facilitate the sale to a third party of around 2.27 million Series D shares currently held by Starbucks at a minimum of $16.30 per share by the end of next October -- or, if it failed to secure that price, pay the difference. However, if Square completes its IPO, that obligation would be erased.

Takeaway: Square right now is serving as a proxy for other unicorns (fair or not, legit or not) -- and this is a public acknowledgment that it was probably overpriced for years by private market investors (albeit ones that built in some downside protections). And, despite the company's $175 million in cash through the end of September, it also likely reflects that private market prices have begun to contract (otherwise, why not just raise new private capital and wait for improved financials/macro?).

But perhaps even more than a proxy, Square is serving as a shield. It will be the big-name tech startup that goers public at a lower price than what it got in the private markets, thus making it more acceptable for others to follow (including those that really do need cash). Yes, Box also did something similar back in January -- but that came at a time when private funding was still plentiful at ever-rising valuations. This is a different market with different rules, and it is here where Square will serve as the unicorn class' IPO vanguard. Jack Dorsey might take a lot of arrows when his company prices in two weeks, but a lot of fellow CEOs might be adding him to their list on Thanksgiving.

• Coming attractions: Brentwood Associates has agreed to acquire the parent company of Brooklyn-based clothing retailer J. Mclaughlin Inc., according to an FTC filing. Current shareholders include Highland Consumer Partners, JH Partners and Palladin Consumer Retail Partners. No financial terms were disclosed for the deal (which is not closed), nor did either the buyside or sell-side respond to requests for comment.

• New firm alert: Kline Hill Partners has been launched to focus on the smaller side of the private equity secondarires market (mostly LP stakes, but also some direct secondaries). Its founder is Mike Bego, who previously spent nearly a decade with Willowridge Partners.

• Have a great weekend. Go Pats!

THE BIG DEAL

•  Hyperloop, a super high-speed transportation project, has raised $26 million in new VC funding. Khosla Ventures led the round, and was joined by Formation 8 and Sherpa Capital. Read more.

VENTURE CAPITAL DEALS

•  Netamo, a French maker of connected home products, has raised €30 million in new VC funding led by LeGrand (Paris: LR). www.netamo.com

•  Biological Dynamics, a San Diego-based molecular diagnostics company, has raised $26.8 million in Series C funding and convertible debt. The round was led by a “large institutional investor associated with a major university.” Other backers include Heritage Group, Alexandria Venture Investment and Qualcomm co-founder Irwin Jacobs. www.biologicaldynamics.com

•  Innit, a Redwood City, Calif.-based startup that manages and connects food information, has raised $25 million in new VC funding from unidentified “founders and strategic investors.” www.innit.com

•  TicketManager, a Calabasas, Calif.-based provider of ticket and invitation management apps for companies, has raised $20 million in Series B funding co-led by Kayne Partners and Point Judith Capital. www.ticketmanager.com

•  Relayr, a Berlin-based Internet-of-Things startup, has raised more than $11 million in Series A funding from Munich Venture Partners and Kleiner Perkins Caufield & Byers. www.relayr.io

•  Xometry Inc., a Gaithersburg, Md.-based developer of a “scalable manufacturing program,” has raised $8.8 million in new VC funding led by Highland Capital Partners. www.xometry.com

•  BuildingConnected, a San Francisco-based provider of bid management software, has raised $8.5 million in Series A funding. CrossLink Capital led the round, and was joined by Homebrew, Freestyle Capital, Bee Partners and Brick & Mortar Ventures. www.buildingconnected.com

PRIVATE EQUITY DEALS

•  All Web Leads, an Austin, Texas-based portfolio company of Genstar Capital, has agreed to acquire InsuranceQuotes.com, the insurance unit of Bankrate Inc. (NYSE: RATE). The deal is valued at $165 million, and expected to close by year-end. www.allwebleads.com

•  Apax Partners and Gávea Investimentos each have interest in acquiring Camargo Correa SA’s 44.1% stake in Brazilian apparel and footwear maker Alpargatas, according to Reuters. Goldman Sachs and Banco Bradesco are managing the process, which could generate nearly $500 million. Read more.

•  Astra Capital Management has agreed to acquire Logix Communications, a facilities-based provider of enterprise communications services in Texas and Oklahoma. No financial terms were disclosed. www.logix.com

•  Beecken Petty O’Keefe & Co. has acquired Examination Management Services Inc., a Scottsdale, Ariz.-based outsourced service provider of medical information, risk adjustment and investigative services to insurance companies, health insurers and employers. No financial terms were disclosed, except that Monroe Capital arranged a related $22.5 million senior credit facility. The seller was CM Equity Partners. www.emsinet.com

•  Litmus, a Cambridge, Mass.-based provider of email creation and analytics solutions, has raised $49 million in funding from Spectrum Equity. www.litmus.com

•  Warburg Pincus has agreed to acquire the Calgary-based energy research group of Investment Technology Group (NYSE: ITG) for US$120.5 million in cash. Read more.

IPOs

•  Mimecast Ltd., a London-based provider of cloud security and risk management services for corporate information and email, has set its IPO terms to 7.75 million shares being offered at between $10 and $12 per share. It would have an initial market cap of around $594 million, were it to price in the middle of its range. The company plans to trade on the Nasdaq under ticker symbol MIME, with Goldman Sachs serving as left lead underwriter. Mimecast reports $285k in net income on $116 million in revenue, for the fiscal year ending March 31, 2015. Shareholders include Insight Venture Partners (19.8% pre-IPO stake), Index Ventures (17%) and Dawn Capital (14.5%). www.mimecast.com

•  Turning Point Brands Inc., a Louisville, Ky.-based maker of “other tobacco products” like loose leaf chew and Zig Zag rolling paper, has filed for a $100 million IPO. It plans to trade on the NYSE under ticker symbol TPB, with FBR serving as sole underwriter. The company reports $6.8 million in net income on $150.5 million in revenue for the first nine months of 2015. www.zigzag.com

EXITS

•  Anoto, a listed Swedish digital writing company, has agreed to acquire Oakland, Calif.-based smart pen maker Livescribe for $15 million in cash. Livescribe had raised over $60 million in VC funding from firms like Lionhart Advisors Group, Scale Venture Partners and VantagePoint Capital Partners. Read more.

•  Financial Engines Inc. (Nasdaq: FNGN) has agreed to acquire The Mutual Fund Store LLC, an Overland Park, Calif.-based investment and consumer finance advisor, from Warburg Pincus. The deal is valued at around $560 million in cash and stock, and is expected to close in Q1 2016. Read more.

•  Leonard Green & Partners is prepping a sale process for Prospect Medical Holdings Inc., a Santa Ana, Calif.-based hospital operator, according to LBO Wire. A deal could be valued at upwards of $1 billion. www.prospectmedicalholdings.com

•  New Relic Inc. (NYSE: NEWR) has acquired Opsmatic, a San Francisco-based provider of live-state infrastructure monitoring for DevOps teams. No financial terms were disclosed. Opsmatic had raised around $3 million in seed funding from firms like AME Cloud Ventures, Columbus Nova Technology Partners, Detroit Venture Partners, General Catalyst, Freestyle Capital, Illuminate Ventures, Index Ventures, Morado Venture Partners and Slow Ventures. www.opsmatic.com

OTHER DEALS

•  Alibaba Group (NYSE: BABA) has formally agreed Chinese digital media company YoukuTudou Inc. (NYSE: YOKU) for around $3.5 billion in cash. Read more.

•  AstraZeneca (LSE: AZN) has agreed to acquire ZS Pharma (Nasdaq: ZSPH), a San Mateo, Calif.-based developer of treatments for kidney and liver disease. The deal is valued at around $2.7 billion in cash, or $90 per share (42.16% premium over yesterday’s closing price). Read more.

•  DJI, a Chinese drone-maker that recently raised $75 million from Accel, has agreed to acquire an undisclosed equity stake in Swedish camera maker Hasselblad. Read more.

•  Postmates, a San Francisco-based on-demand delivery company, has agreed to acquire Sosh, a San Francisco-based startup that helps users find and book activities to do in their city. Fortune first reported the deal yesterday. This is effectively an acqui-hire, with Sosh having raised around $16 million from firms like Khosla Ventures and Battery Ventures. Read more.

FIRMS & FUNDS

•  Macquarie Group has secured around $160 million in verbal commitments for a debut Brazil infrastructure fund that is nearing a first close, according to the NY Times. Separately, the Australian firm is targeting $500 million for a Latin America regional infrastructure fund. Read more.

•  Trinity Ventures has closed its twelfth fund with $400 million in capital commitments. www.trinityventures.com

MOVING IN, UP, ON & OUT

•  Michael Feinstein, a former partner with VC firms Atlas Venture and Venrock, has been named CEO of Jisto Inc., a Boston-based provider of private elastic compute clouds for the enterprise. He most recently was VP of sales and marketing with Digital Lumens. www.jisto.com

•  Ahn Hong-chul has stepped down as chairman of Korea Investment Corp., South Korea’s $85 billion sovereign wealth fund, amidst a reported auditing probe. Read more.

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