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Term Sheet — Wednesday, August 3

Aug 03, 2016

So You Want To Short the Startup Market?

This is Erin Griffith filling in for Dan while he’s on vacation. Send deal news and tips here. Feedback is welcome on Twitter.

Just about everyone working in tech has their own answer to the question, “How do you know we’re in a tech bubble?” Perhaps it’s the proliferation of startups buying up ads on billboards, subways and taxis. Maybe it’s the existence of congratulations cards for raising a round of funding, or maybe it’s the booming ping-pong table market. It could be when bankers quit their high-paying Wall Street jobs to work at startups. Maybe it was the time a startup literally gave away free cash, or the time a unicorn graced the cover of Fortune. For Fortune’s Adam Lashinsky, it was when a CEO tried to sell him pre-IPO shares.

For me, it was seeing Goldman Sachs analysts describe themselves as “angel investors” on Tinder. Wall Street dominates New York’s economy, but people working in finance know it sounds a lot cooler to say you work with startups, even if your definition of working with startups means having an AngelList profile.

So let’s say, hypothetically, you’ve come to the same conclusion – we’re in a tech bubble -- and you’re in the position to put your money where your mouth is. Can you actually short the tech bubble? The short (ha) answer is “no” because the companies and their investors are privately held. But that hasn’t stopped some investors from coming up with creative methods.

I asked the Twitter hive mind, as well as a few hedge fund investors. Here’s what they said.

Short publicly traded investment firms and funds with exposure to startups.

That includes Rocket Internet and GSV Capital.

Likewise, large companies like Facebook or Amazon have exposure to startups. Facebook lots of pricey app install ads to startups, and Amazon sells lots of cloud storage through Amazon Web Services. I don’t think the exposure of either company’s business is large enough that a startup meltdown would truly hurt either company’s overall business, but plenty of other investors have made that case.

Go long the companies supposedly being disrupted.

You could buy shares in the incumbents. In other words, assume that if Airbnb fails to disrupt Marriott and Starwood, their stock will go up. Think Uber will fail? Invest in Medallion Financial, the leading taxi medallion lender.

This is probably the worst and most indirect way to bet against startups. Airbnb and the hotel industry could both fail independent of each other. Making matters worse, if you subscribe to the notion that “software is eating the world,” that means startups will disrupt everything from transportation and hotels to agriculture and healthcare. Using this method to bet against the startup market would mean going long in literally everything but, I dunno, business consultants. (Wait nevermind, there’s an Uber for business consultants called HourlyNerd.)

Short Silicon Valley Bank.

It’s not well-known or well-understood by the public, but most startups with a little revenue take on a pile of debt alongside or after their equity fundraises. Silicon Valley Bank, Square 1, and Comerica are the most well-known players in that market. (As of the first quarter, around half of SVB’s 17.8 billion in loans were in the tech, life science and healthcare industry.) All three firms are publicly traded.

Invest with the only firm I could find that’s shorting the startup market. I’ll follow up with a profile of that firm tomorrow.

THE BIG DEAL

Didi Chuxing and SoftBank Group are leading a new round of funding in Grab, the “Uber of Southeast Asia.” The deal, which comes on the heels of Didi’s merger with Uber China, could exceed $600 million, according to Bloomberg. Grab is separately raising $400 million. Read more.

VENTURE CAPITAL DEALS

Time Warner has acquired a 10% stake in Hulu, a Santa Monica, Calif.-based video streaming service. Terms were not disclosed but prior reports indicate that Time Warner’s stake was carved out by existing shareholders Walt Disney, 21st Century Fox and Comcast reducing their stakes from 30% to 25% each. Founded in 2007, Hulu unsuccessfully tried to sell itself in 2013. www.hulu.com/

Velostrata, a San Mateo, Calif.-based cloud company, has raised has $17.5 million in funding in a round led by Intel Capital. Norwest Venture Partners and 83 North participated. Read more. 

• Birchbox, a New York-based beauty product e-commerce startup, has raised $15 million from existing investors. Read more.

Axial, an online marketplace for M&A, raised $14 million in Series C financing led by Edison Partners, with existing major investors Comcast Ventures, First Round, and Redpoint Ventures participating. www.axial.net/ 

Apptimize, a Menlo Park, Calif.-based company that helps businesses test and rapidly iterate their mobile apps, has just raised $12.4 million in Series B funding. U.S. Venture Partners led the round, with participation from Glynn Capital Management, Goldcrest Investments, Western Technology Investments, Ken Ross, and Twin Gables. www.apptimize.com

CyberX, a provider of cybersecurity solutions for industrial Internet networks based in Framingham, Mass., has raised $9 million in a round led by Flint Capital and including Glilot Capital Partners, Swarth Group, GlenRock, ff Venture Capital, and angel investors. www.cyberx-labs.com

Ceros, a New York City-based interactive content marketing platform, has raised $8 million in Series B funding, led by Grotech Ventures with participation from CNF Investments and Sigma Prime Ventures, StarVest Partners, Greycroft, and Silicon Valley Bank. www.ceros.com

Attic Labs, a San Francisco-based data storage and software startup, has raised an $8.1 million Series A round of funding led by Greylock and including Harrison Metal and angel investors. attic.io/

• Panoply.io, a Tel Aviv and San Francisco-based cloud infrastructure startup, raised a $7 million Series A round of funding led by Intel Capital, with participation from previous investor Blumberg Capital. panoply.io/

RiskSense, a New Mexico.-based cybersecurity company, has raised $7 million in funding led by Paladin Capital Group with participation from Sun Mountain Capital and EPIC Ventures. www.risksense.com/

Red Canary, a Denver-based cybersecurity managed detection and response company, raised $6.2m in Series A funding from Access Venture Partners, Noro Moseley Partners, and Kyruswww.redcanary.com

LookBookHQ, a Toronto-based content marketing automation platform, has raised $4 million in Series A funding. The round was led by Edison Partners, and included Hyde Park Venture Partners. www.lookbookhq.com

Shoppable, an e-commerce platform for publishers based in New York City, has raised $3.5 million in Series A funding from MI Ventures, Canary Ventures, On Grid Ventures, and Bodley Group, among others, according to TechCrunch. Read more.

MikMak, a Brooklyn-based mobile video shopping network, has raised $3.2 million in a seed round, led by VaynerMedia and with participation from SLOW Ventures, UTA Ventures, BRaVe Ventures and MX Investments, TechCrunch reports. Read more.

Pluot, a big-screen video conferencing provider based in San Francisco [I think – this is the only source I could find], has raised $2.5 million from TenOneTen Ventures, Root Ventures, Metamorphic Ventures, Haystack and Gokul Rajaram, according to TechCrunch. Read more.

Espresa, a Palo Alto, Calif.-based app that allows businesses to provide services to its employees, has raised $2 million in seed funding from Crosslink Capital, Clear Ventures, TEC Ventures, and angel investors. www.espresa.com

Zype, a cloud video distribution service based in New York, has raised $2 million in seed financing, led by Revel Partners and including Point Nine Capital, Alpine Meridian Ventures, Berlin Ventures, Entrepreneurs Investment Fund, and Terrapin Bale Ventures. www.zype.com 

iBeat, a San Francisco-based maker of a heart-monitoring smartwatch, has raised $1.5 million in seed funding co-led by Maveron, Subtraction Capital, and Correlation Ventures. www.ibeat.com

Quidnet Energy, a Sonoma County, Calif.-based energy storage startup, has raised $1 million in seed funding from Clean Energy Venture Group and Sorenson Impact Foundation. www.quidnetenergy.com/

City Pantry, a London-based catering platform, has raised $1.47 million in funding from the Angel Co FundThe London Co Investment fund, and existing investors. citypantry.com/

FixtHub, a New York-based fixed income technology startup, has raised an undisclosed amount in Series A financing from Cerium Technology. fixthub.com

PRIVATE EQUITY DEALS

Dominus Capital has invested an undisclosed amount in League Collegiate Outfitters, a manufacturer and supplier of branded collegiate-licensed apparel, based in Bridgeport, Pa. www.league91.com

Shape Technologies Group, a supplier of water jet technology and ultrahigh-pressure manufacturing process solutions in Kent, Wash., has acquired Aquarese Industries, a designer of water jet systems based in Billy-Berclau, France. Terms were not disclosed. Shape is a portfolio company of American Industrial Partners. www.aquarese.fr/

L Catterton has acquired Portland, Ore.-based children’s clothing label Hanna Andersson, for an undisclosed amount from Sun Capital Partners. hannaandersson.com

Liberty Hall Capital Partners has acquired Wichita, Kansas-based ZTM, a supplier of metallic parts and assemblies for the aerospace industry, for an undisclosed amount. www.ztm.com

Union Partners has bought Berg Steel Corp, a steel products provider based in Royal Oak, Michigan, for an undisclosed amount. www.bergsteel.com

Wind Point Partners and Ontario Teachers’ Pension Plan have bought Streetsboro, Ohio-based Aurora Plastics, a producer of customized rigid polyvinyl chloride compounds for extruding and injection molding customers. No terms were disclosed. www.auroraplastics.com

Conner Industries, a national lumber processor based in Fort Worth, Texas, has acquired Continental Timber Company, a regional lumber processor based in Valley Center, Kansas. No terms were disclosed. Conner Industries is owned by PE firm The Argentum Group. continentaltimber.com

All Integrated Solutions, a portfolio company of High Road Capital Partners, completed the acquisition of Great Lakes Fasteners Corporation, a Grand Rapids, Mich.-based distributor of fasteners and industrial components. Terms were not disclosed. www.glfasteners.com/

IPOs

No IPO news today.

EXITS

Sinclair Broadcast Group has emerged as a bidder for the TV operations of the Weather Channel from Bain Capital and Blackstone Group, according to the Wall Street Journal. IBM acquired the Weather Channel’s digital operations for more than $2 billion last year. Read more.

Medium has acquired Embedly, a Boston-based startup that makes links embeddable. The company had raised funds from Y Combinator, SV Angel, Lowercase Capital, Salesforce Ventures, Venture51 and Social Leverage. embed.ly/

OTHER DEALS

Baidu and Tencent Holdings have ended a $3 billion venture with Dalian Wanda Group to build an e-commerce platform, according to Bloomberg. Baidu and Tencent have been replaced as shareholders by a company backed by Dalian Wanda Group owner, billionaire Wang Jianlin. Read more.

Cinven will start exclusive talks to buy the Italian wealth arm of Old Mutual (LON: OML) for about $335 million, Reuters reports. Read more.

Neverfail, an Austin-based provider of cloud computing services formerly known as Artisan Infrastructure, has acquired acquired Vertiscale, an Auatin-based developer of technology for managed service providers. Terms were not disclosed. vertiscale.com/

Renovate America, a San Diego-based provider of residential clean energy financing, has acquired CakeSystems, a Portland, Ore.-based software provider for home energy modeling. Terms were not disclosed. www.cakesystems.com/

Cheetah Mobile (NYSE: CMCM), a mobile tools developer based in Beijing, China, has acquired News Republic, a news aggregating platform based in Bordeaux, France, for $57 million, according to TechCrunch. Read more.

PaidEasy, a New York-based payment app for restaurants, has acquired Happy, a Brooklyn-based app to find and create happy hours at participating bars and restaurants. Terms were undisclosed, TechCrunch reports. Read more.

FIRMS & FUNDS

Bow Ventures has raised $100 million for its inaugural fund, according to a regulatory filing. The target is $300 million.

Anthemis Group has held a first close on $60 million for its first venture fund. The vehicle has a $100 million target. http://www.anthemis.com

MOVING IN, ON & UP

John Gammage has been appointed global head of the financial-sponsor group at JPMorgan, according to Bloomberg. He replaces former head Karen Simon, who was named head of director advisory services in April. Read more.

Sunstone Partners has named Andy Cao, Ankur Rathi, and Gabriel Shaukat vice presidents, and Emanuel Pleitez, YueFeng (Mike) Du, and Sidhant Misra associates. www.sunstonepartners.com

Michael Mackiewicz and Casey Winters have joined the KPMG’s Deal Advisory Financial Due Diligence practice based in Los Angeles. Mackiewicz joins the firm as a partner and Winters joins as a managing director. Previously they were with Alvarez and Marsal’s Transaction Advisory Group.

Michael Libert and Lee Mooney have rejoined TA Associates as Vice Presidents in Boston. Sarah Wang has joined the firm as a Vice President in Menlo Park. www.ta.com/

Dino Beslic joined Grey Mountain Partners as an Associate in the firm's Boulder, Colorado office. Prior to joining the firm, Dino was an Associate with Citigroup's Global Industrials group in New York. www.greymountain.com/

Oaktree Capital Management has promoted Michael Cardito and Jason Lee to co-portfolio managers and co-heads of Oaktree's GFI Energy Group.  Cardito and Lee were previously Managing Directors. www.oaktreecapital.com

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