On deals and dealmakers.
Gig Economy: On-demand startups—the ones bringing us grocery, housecleaning, parking, lawn mowing, and personal butlers with a tap on our smartphones—have been out of vogue with venture investors for most of this year. When Postmates raised $140 million at a flat valuation, the company made sure to telegraph what a “super, super difficult” time it had finding willing investors.
Part of that is over-saturation. We don’t need eight separate apps just to deliver pizza. (And as we now know, venture investors are all about the pizza restaurant chains these days, not the pizza delivery apps.)
But mostly, the struggle is because the business model is tougher than many initially thought. To use two startup clichés at once, there is no making it up on volume for companies handing out dollars for 85 cents. In March, I wrote that things are getting real for on-demand startups, comparing this class of companies to Wile E. Coyote, moments before he hurls himself off a cliff.
But the entire category hasn’t collapsed yet and there’s evidence of a sustainable future. Here’s one data point to consider: On-demand startups increased the number of hourly workers they hired by 100% between January and October, according to OnBoardIQ. (The company analyzed the hiring patterns at 22 companies.) Year-over-year hiring increased by 125%.
So the startups are growing their armies of personal butlers, housecleaners, and grocery deliverers. The problem is they may struggle to find more of them: A new study from JP Morgan Chase Institute shows that growth in worker participation in what it calls the “online platform economy” peaked in 2014. It’s still growing! Just not as fast. As the traditional labor market has gotten stronger, fewer people want (or need) to participate in the gig economy.
In-laws: Don’t you hate when your brother’s father-in-law becomes President and messes up your startup? That’s the awkward situation at Oscar Health, founded by Josh Kushner, brother of Ivanka’s husband Jared Kushner. Oscar is a health insurance startup built on the back of the Affordable Care Act. With Trump’s promise to kill the ACA, the startup’s business model is thrown into question.
The firm’s longer-term plans, such as selling health policies to workers employed by large employers (an Obamacare provision that wasn’t set to go into effect until next year), may be in danger if the next administration dismantles the law.
It could take years before we know the new rules and frameworks. Oscar has raised $727 million in funding (valuing it at $2.7 billion) to weather the upcoming uncertainty, though it is burning that cash pretty quickly. It lost more than $100 million in New York and New Jersey last year.
Yesterday Josh Kushner and his co-founder Mario Schlosser acknowledged the upcoming uncertainty with a nod to its investors in a new blog post: “We are fortunate enough to have strong investor support that will enable us to achieve our long-term expansion goals.”
Sweet Sweet Fantasy Baby: This morning DraftKings and FanDuel have confirmed what Term Sheet reported earlier this month: They are merging, it’s a 50-50 stock split, DraftKings CEO Jason Robins will lead the company, FanDuel CEO Nigel Eccles will become Chairman, and the board will be made up of an equal split from each company. This merger is apparently so equal the companies don’t even have a name for the parent company. So I guess we’ll just refer to them as FanKings DraftDuel.
In the official deal announcement, the companies noted that both brands will survive. After all, they have poured many millions into relentlessly promoting them. The companies touted efficiencies and a stronger path to profitability as a single unit. It will be a lot easier to become profitable when they’re no longer spending obscene sums of money to compete against each other.
Most importantly, the combination means the companies can “work more efficiently and economically with state government officials to develop a standard regulatory framework for the industry.” And maybe negotiate on that that $6 million settlement fee they each have to pay in the state of New York. The deal is expected to close next year.
THE LATEST FROM FORTUNE...
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• Katie Fehrenbacher: The Tesla-Solar City battery farm in paradise
• Safra Catz in the White House?
• How Trump can fight globalization
• Difficult conversations about race
• Where Trump and Yellen agree
• Americans have been too stressed to shop
• Open borders in the Age of Trump
• Table service at McDonald’s
• Unemployment claims hit 43-year low
• Twitter, the Fed, and Neel Kashkari
• Google under Trump
Larry Summers on political correctness. Trump takes credit for helping save a Ford plant that wasn’t closing. A serial con man in Silicon Valley. Lights, camera, redaction. Palantir’s friends in the White House. Goldman Sachs’ top 10 market themes for 2017.
• Sigfox, a French IoT company, raised €150 million ($160 million) in Series E funding. New investors include Salesforce, Total, Henri Seydoux, Alto Invest, Swen CP, and Tamer Group. Existing investors Bpifrance, Elliott, Intel Capital, Air Liquide, Idinvest Partners, and IXO also participated. Read more at Fortune.
• Prevalent, a Warren, N.J.-based cyber security company, raised $60 million in Series C funding. Insight Ventures led the round.
• Inspire Medical Systems, a Maple Grove, Minn. company that makes medical devices to treat sleep apnea, raised $37.5 million in funding, according to the St. Paul Business Journal. Amazak Health led the round, and was joined by OrbiMed Advisors and medical-device company Medtronic. Read more.
• Handshake, a San Francisco software company that helps students find jobs, raised $20 million in Series B funding. Spark Capital led the round, and was joined by Kleiner Perkins, True Ventures, and Lightspeed Venture Partners. Read more at Fortune.
• Sparkcentral, a San Francisco social media-focused customer service company, raised $20 million funding. LRM led the round, and was joined by Group MC, Split Rock Partners, and Jackson Square Ventures.
• PeerStreet, a Manhattan Beach, Calif. startup that provides individual investors with access to real estate-backed loans, raised $15 million in Series A funding. Andreessen Horowitz led the round, and was joined by The Kaiser Family Foundation, Rembrandt Venture Partners, and Montage Ventures. Read more at Fortune.
• Cogito, a Boston AI customer engagement company, raised $15 million in Series B funding. OpenView led the round, and was joined by existing investors Romulus Capital and Salesforce Ventures.
• Proficio, a Carlsbad, Calif. cyber security, raised $12 million in funding from private equity firm Kayne Anderson Capital Advisors and telecommunications provider M1.
• Domino Data Lab, a San Francisco data science company, raised $10.5 million in funding. Sequoia Capital led the round, and was joined by existing investors Zetta Venture Partners, and Bloomberg Beta, and In-Q-Tel.
• Seventh Sense Biosystems, a Medford, Mass. developer of medical products including a one-step, push-button blood collection device, raised $10 million in Series C funding. Investors include Novartis, Laboratory Corporation of America Holdings, Polaris Partners, and Flagship Ventures.
• Tray.io, a London platform for sharing SaaS integrations, raised $5 million in Series A funding, according to TechCrunch. Mosaic Ventures led the round, and was joined by Redpoint Ventures, Passion Capital, Angelpad and angel investors. Read more.
• Wearhaus, a Berkeley, Calif. wireless headphone startup, raised $4 million in Series A funding. Investors include Tellus International, Xiaoxiang Capital, and China Southern Media.
• Renew, a Venice, Calif. lifestyle brand for retired baby boomers, raised $3 million in Series A funding. Venrock led the round, and was joined by Expa, WTI, Madrona, Refactor Capital and angel investors.
• Bitmark, a Taiwan blockchain startup that helps users take ownership of their digital assets, raised $1.7 million in seed funding. Cherubic Ventures led the round, and was joined by WI Harper and Digital Currency Group.
PRIVATE EQUITY DEALS
• iM Square, a Paris-based asset management company, has acquired a minority stake in Chicago-based Dolan McEniry Capital Management.
• Summit Partners-owned Perforce Software, an Eden Prairie, Minn. version control and source code management company, has acquired Seapine Software, a Mason, Ohio application lifecycle management provider.
• Brookfield Asset Management offered to take a 50% to 60% percent stake in TerraForm Power, a unit of bankrupt solar company SunEdison, for $13 in cash per share of class A and B stock.
• Verizon has acquired SocialRadar, a Washington, D.C. mapping startup founded by Blackboard co-founder Michael Chasen, according to TechCrunch. Financial terms were not disclosed. SocialRadar raised $12.75 million from investors including New Enterprise Associates, NextGen Venture Partners, and angels such as Steve Case and Dave Morin. Read more.
• Boston-based private equity firm Advent International, has agreed to acquire Ansira Partners, a St. Louis marketing company, from KRG Capital Partners. Financial terms were not disclosed.
• Sprinklr, a New York City social media marketing company, has acquired Little Bird, a Portland, Ore. data analytics company founded by journalist Marshall Kirkpatrick. Little Bird raised $3.37 million in funding; investors include Oregon Angel Fund, Fresco Capital, and Mark Cuban’s Radical Investments.
• New York City-based investment firm Ardian has agreed to acquire Unither Pharmaceuticals, a French medical product manufacturer, from Equistone.
• H.I.G. Capital has acquired Empire Today, a Northlake, Ill. a carpet, floor, and window treatment retailer, from Mercury Capital. No financial terms were disclosed.
• Wholesale energy provider Energy Services Group, an Accel-KKR portfolio company, has acquired Latitude Technologies, a Plano, Texas tech services provider for the energy industry. No financial terms were disclosed.
• Ardagh Group, a London-based manufacturer of metal and glass containers for consumer packaged goods, filed to go public. It could raise as much as $1 billion, Renaissance Capital estimates. Ardagh Group plans to trade on the NYSE under the stock ticker ARD. Read more.
FIRMS + FUNDS
• Sodexo, a Paris-based food and facilities management company, has launched Sodexo Ventures, a €50 million ($53 million) fund that will invest in a variety of industries, including food tech, health and wellness, and smart buildings.
• Boldstart Ventures, a New York City-based VC firm focused on seed investments, closed its third fund at $47 million.
• Red Cedar Ventures, Michigan State University Foundation’s VC arm, raised $5 million to make pre-seed and follow-on investments in companies and technologies started in the university labs. Read more.
• Marcus Meyer has joined private equity firm Madison Capital Funding as a managing director. Previously, he was a managing director at NXT Capital.
• Highview Capital, a Los Angeles-based private equity firm, has hired Brice Baradel and Steve Russell as principals, P.J. Gilbert and Dan Picmann as vice presidents, and Tim Park and Kapish Haldia as associates.
• Palladium Equity Partners, a New York City middle market private equity firm, has made a series of promotions: Justin Green, Daniel Ilundain, and Adam Shebitz are now managing directors, Yue Bonnet, Leon Brujis, and Caleb Clark are now partners, Louisa Dalton is now a vice president and controller, Amanda Hanlon is now an assistant controller, Joe Chang is now a senior associate, and Dale Pescatore, Matthew Graziano, Anirudh Sathya, and Sam Zakay are now associates.
• Lone Star Funds has hired Felix Shabashevich as a director, and Justin Hess and Clayton Fox as senior analysts. Felix was previously a vice president at Oaktree Capital Management.