term sheet

By Dan Primack
April 1, 2016

Random Ramblings

Please don’t shoot the messenger, but… I’m beginning to question the value of some messages I’ve delivered to you, dear readers.

At the end of each month, I’ve written about monthly mutual fund reports published by Fidelity Investments, which include carrying values on the dozens of privately-held companies in which Fidelity holds stock. The idea is that Fidelity is giving us a peek into the opaque world of what “unicorn” companies like Dropbox and Snapchat are really worth. Not quite in real-time, but much more current than referring to the last round of venture capital financing.

Yesterday we discussed how Fidelity lowered the value of most of its private company holdings between Jan. 29 and Feb. 29, even though the NASDAQ composite rose modestly over that same period. Thus bad headlines for companies that were cut particularly deep, such as Dropbox, Cloudera, and Zenefits.

The trouble, however, is that we have almost no idea how Fidelity is actually valuing any of these companies. Yes, the Boston-based mutual fund giant does say that its marks are determined by a fair value committee that is not influenced by its mutual fund managers. After that, however, it’s a super secret recipe that is not to be shared with us reporters (let alone with mutual fund clients who actually, you know, have money tied up in these companies).

Is Fidelity relying on a bucket of public market comps to help value each privately-held company? Probably, although it’s not terribly appropriate to judge a high-growth (and immature) tech startup against a group of slower (but more proven) companies that it is seeking to disrupt. And in some cases, adequate public comps are pretty tough to find. After all, what is Fidelity marking SpaceX against? What about Uber?

More importantly, Fidelity is unlikely to be receiving monthly financial reports from these companies ― namely because VC-backed startups don’t typically share such info with their passive investors on more than a quarterly basis. Moreover, it’s even possible that Fidelity receives no detailed financial information from some of these companies, as that’s often a trade-off that comes from being a later-stage investor without board rights. I’m sure that in some cases Fidelity does have monthly access to board decks that contain P&L statements, but it’s hardly uniform nor comprehensive.

To be sure, certain companies have experienced material events that are publicly disclosed, such as a new round of financing, a management shakeup or regulatory successes/failures. But, more often than not, Fidelity’s judgment is inherently flawed. The fair value committee is likely doing the best it can, but that’s kind of like me trying to dunk a basketball. The best of intentions is irrelevant.

None of this would necessarily matter, except that the coverage of these valuations can have an impact beyond generating clicks for media companies. Imagine if you’re a Fortune 500 company thinking about signing a large enterprise software contract with a startup, and you read that the provider had its valuation cut 30% in a single month? At the very least, you’re going to be asking some tougher questions. Or if you’re an early-stage venture capital firm that actually does have access to regular financials and choose not to revalue a startup’s stock, only to be confronted with the Fidelity numbers by your own investors? And none of this accounts for employee morale, particularly at startups where stock options are a major part of compensation packages.

Because my job is to cover things like venture capital and private equity, I’ll continue to keep tabs on the Fidelity reports each month. To not do so would be negligent, particularly since they do sometimes disclose new investments. And every now and then there might be a valuation change so sizable that it merits further research. But I’m likely done with the monthly score-keeping. It’s one of those cases where less information is more.

• Sand Hill stuff: Some big news out of Kleiner Perkins yesterday, in that John Doerr is transitioning into a chairman role. This means he won’t be a general partner on the firm’s next funds, although he will continue to make new investments and serve on the firm’s investment committee. You can read more by going here, but my short takeaway after speaking with Doerr is threefold: (1) No, this is not any sort of quasi-retirement. (2) Doerr wants to signal that KPCB will be around for the long haul. (3) He feels that reallocating some of his time toward coaching younger KPCB folks is the best way of ensuring #2 is realized.

Doerr obviously wouldn’t discuss fundraising, but LPs say that the firm is about to begin raising a new digital growth fund (targeting same $750m as last time out) and a new early-stage fund (bit smaller than $450m current fund). Also of note, Kleiner Perkins will no longer charge a flat 30% carried interest, as it has done for well over a decade. Instead, it will begin with a base 25% carried interest that can rise to 30% based on strong performance. Both funds are expected to close by the end of June, with Doerr to be one of (if not the) largest limited partner.

• Have a great weekend…


THE BIG DEAL

• Anbang Insurance of China has withdrawn its $14 billion takeover offer for Starwood Hotels & Resorts (NYSE:HOT), paving the way for rival bidder Marriott International (Nasdaq: MAR). Anbang, which had been working with private equity firms J.C. Flowers and Primavera Capital, only cited “market considerations” for its decision.

I asked a source close to the situation if Anbang might come back to the table. They reply: “There is some chance. It’s low, but not zero.” Read more.


VENTURE CAPITAL DEALS

• Juicero, a San Francisco-based maker of a connected juicer, has raised $70 million in Series B funding. Artis Ventures led the round with a $25 million investment, and was joined by Google Ventures and Kleiner Perkins Caufield & Byers. Read more.

• Mashable, a New York-based digital media company, has raised $15 million in Series C funding led by Turner Broadcasting. Read more.

• TransLoc, a Durham, N.C.-based developer of transit technologies, has raised $8 million in Series A funding. SJF Ventures and Fontinalis Partners co-led the round, and were joined by Marc Benioff, Thomas McMurray and Patient Capital Collaborative. www.transloc.com

• Expway, a Sunnyvale, Calif.-based, has raised €3 million in new funding. NTT Docomo Ventures led the round, and was joined by return backers Innovation Capital, I-Source, TechFund and Isatis Capital. www.expway.com


PRIVATE EQUITY DEALS

• Ares Management is in “pole position” to acquire Dermatology Associates of Tyler, a Tyler, Texas-based provider of skin care services, from Candescent Partners, according to LBO Wire. www.dermatologytyler.com

• Brightstar Capital Partners has acquired a majority stake in Global Resale LLC, an Austin, Texas-based provider of aftermarket services and reverse logistics for the resale, buyback and disposition of tech devices. As part of the deal, Brightstar will invest $50 million in growth capital. www.globalresale.com

• EQT Partners has acquired Sitecore, a Sausalito, Calif.-based provider of customer experience management software, for approximately €1 billion from shareholders like Technology Crossover Ventures. www.sitecore.net

• J.F. Lehman & Co. has acquired American Scaffold, a San Diego-based provider of scaffolding systems and environmental containment solutions for the maintenance, repair and overhaul of U.S. government vessels. No financial terms were disclosed. www.americanscaffold.com

• Permira is the “leading bidder” for UK-based financial asset manager Towry Holdings Ltd., according to Bloomberg. The deal could be valued at upwards of £600 million, with Permira planning to merge Towry with existing portfolio company Tilney Bestinvest. Other suitors have included Bain Capital and CVC Capital Partners, while current Towry backers include Palamon Capial Partners, AlpInvest and Honeywell Capital Management. Read more.

• Raymundos Food Group, a refrigerated foods platform sponsored by AUA Private Equity Partners, has acquired Noga Dairies Inc., a Farmingdale, N.Y.-based maker of yogurts, drinkable yogurts and other dairy products. No financial terms were disclosed. www.raymundos.com

• TierPoint LLC has completed its previously-announced acquisition of Cosentry, an Omaha, Neb.-based provider of cloud, colocation and managed services. Prior Cosentry owner TA Associates has become a shareholder in TierPoint, which was acquired last year by an investor group that included Thompson Street Capital Partners, The Stephens Group, RedBird Capital Partners and Jordan/Zalaznick Advisers. No financial terms were disclosed. www.tierpoint.com


IPOs

There is no IPO news this morning.


EXITS

• Victory Park Capital Advisors has hired Jefferies to find a buyer for Giordano’s, a Chicago-based restaurant chain known for its deep dish pizzas, according to Reuters. The deal could be valued at more than $100 million. Read more.


OTHER DEALS

• Amplifon SpA (BIT: AMP) is bidding on Dutch hearing aid retailer AudioNova, according to Bloomberg. AudioNova currently is owned by HAL Trust, and could be valued at around 500 million. Other possible suitors include Sonova Holding, William Demant Holding and Sivantos AG (a portfolio company of EQT Partners). Read more.


FIRMS & FUNDS

• 500 Startups is raising $25 million for a seed-stage fund focused on the fintech sector, according to a regulatory filing. www.500.co

• Berkshire Partners, a Boston-based private equity firm, has closed its ninth fund with $5.5 billion in capital commitments. It had raised $4.5 billion for its eighth fund in 2011. www.berkshirepartners.com

• Element Pointe Advisors has been launched as a Miami-based wealth management firm by former JPMorgan private bankers David Savir and Carlos Dominguez. Read more.


MOVING IN, ON & UP

• Oliver Holbourn has been named CEO of UK Financial Investments, where he will oversee the British government’s sale of its stakes in Lloyds Banking Group and Royal Bank of Scotland. He has been with UK Financial Investments as head of capital markets since 2013, before which he led British equity capital markets for BofA Merrill Lynch. Read more.

• Lewis Katz has joined Franklin Square Capital Partners as chief business development officer. He previously was president of Blackboard Advisors. www.franklinsquare.com

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