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Term Sheet — Tuesday, November 29

Nov 29, 2016

Today in Fallen Unicorns

Two shareholders have filed a class action lawsuit against Theranos, accusing the company of fraud and negligence. I believe it’s not terribly common to see private companies involved in class action shareholder lawsuits, as they’re normally so closely-held and shareholders, especially venture investors, have little desire to air their drama so publicly.

The attorney representing the shareholders in this lawsuit claims that “thousands” of Theranos shareholders were misled. That number seemed high to me, until I noticed one of the plaintiffs, Hilary Taubman-Dye, bought her Theranos shares on private market SharesPost. In other words, this is the kind of situation everyone panicked about when equity crowdfunding was first introduced.

No matter that Taubman-Dye is a so-called “sophisticated investor.” From the lawsuit:

“Even non-public companies are bound by this principle of frankness no matter how sophisticated their potential investors might be. Specifically, those who solicit investments for a company should not make statements that are designed to reach potential investors that are materially false, misleading or incomplete."

The lawsuit is essentially a collection of Theranos’ press coverage, presented as evidence that CEO Elizabeth Holmes deceived shareholders. Cover stories, awards, conference appearances and hype is all presented as evidence of fraudulent shareholder solicitation. (As I understand, the JOBS Act has not changed the fact that the burden of proof for proving statements were not misleading remains with the issuer.)

Setting aside Theranos’ specific instances of fraud, this has ramifications for the rest of the startup world. Startups have long had a “fake it till you make it” culture, in part, out of necessity. When you are inventing the future—something new that didn’t exist before—you have to sell people on your vision, over and over. And you don’t know if it’s going to work. If it doesn’t, those cover stories could come back to haunt you.

Theranos is a stark reminder that “fake it till you make it” can lead to outright fraud, and that has major consequences in industries where peoples’ livelihoods are at stake. But this lawsuit could create a desire in Silicon Valley to turn down the hype machine.

Not involved in the lawsuit: Rupert Murdoch, who invested $100 million in Theranos sometime between 2014 and 2015. Murdoch-owned Wall Street Journal has led the way reporting on Theranos, including this fact.

Today in Fallen Unicorns That May Ride Again: Health insurance startup Zenefits has agreed to pay $7.2 million to settle accusations from California regulators over its licensing issues. As my colleague Kia Kokalitcheva notes, Zenefits has now settled with regulators in South Carolina, DelawareArizona, New Jersey, Minnesota, and Tennessee.

Unlike Theranos, Zenefits removed its CEO when fraud accusations surfaced. Since then the company has been attempting a comeback, sending CEO David Sacks on a press tour and holding a splashy (for the insurance industry, at least) product conference. The question remains whether Zenefits founder Parker Conrad will be able to raise money for his new startup, which was, as of this summer, meant to compete with Zenefits.

Correction: The deal listings of yesterday’s Term Sheet accidentally mixed up “million” and “billion” on the funding of Stripe. The company raised $150 million.

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...AND ELSEWHERE

Killing the Volcker Rule. Solving the mystery of the Molasses Tsunami of 1919. Anger rooms are a booming business. The spyware that controls the iPhone. The accoutrements of tycoonery. The Cigna-Anthem merger testimony has some unusual disagreements. Fake news almost destroyed Abraham Lincoln.

VENTURE DEALS

Innovent Biologics, a Suzhou, China-based biopharmaceutical company that develops monoclonal antibody products, raised $260 million in Series D funding. SDIC Fund Management, led the round, and was joined by China Life Private Equity Limited, Milestone, Ping An and Taikang Insurance Group.

Devialet, a Paris-based developer of sound amplification technology for audio devices, raised €100 million ($106 million) in Series C funding. Ginko Ventures led the round, and was joined by Renault, Jay Z’s Roc Nation, Playground Global, Foxconn, and Sharp.

Fluidic Energy, a Scottsdale, Ariz. rechargeable zinc-air battery and energy storage cells manufacturer, raised $20 million in funding from Hong Kong-based investment firm Asia Climate Partners.

AvidXchange, a Charlotte, N.C.-based payment automation services provider for midsize companies, raised $18 million in funding. Fifth Third Capital led the round, and was joined by Pivot Investment Partners.

Galera Therapeutics, a Malvern, Penn.-based biotech company that develops cancer treatments, raised an additional $15 million in Series B funding from Sofinnova Ventures, which brings the round to $57 million. Existing investors include New Enterprise Associates and Novartis Venture Fund.

Hyphenate Inc., a San Francisco mobile instant messaging platform that enables developers to integrate their apps, raised $13.5 million in funding. Matrix Partners China led the round.

Ixigo, a Gurgaon, India online travel booking company, raised $10 million in funding from Sequoia Capital India, according to a report in The Economic Times. Read more.

Silexica, an Aachen, Germany-based software developer for programming embedded multicore applications, raised $8 million in Series A funding. Merus Capital led the round, and was joined by Paua Ventures, Seed Fonds Aachen, and DSA Invest.

ShareRocket, a Carrollton, Texas company that analyzes brands’ social media performance, raised $5 million in equity funding, according to an SEC filing.

Orb Health, a Phoenix provider of software for patient health care management, raised $3.2 million in Series A funding. Mt. Vernon Investments led the round, and was joined by Green Park & Golf along with other existing investors.

Parasut, an Istanbul, Turkey-based developer of software solutions for invoice and expense management, raised $2 million in Series A funding, according to Tech.eu. Investors include Diffusion Capital Partners, 500 Startups, Revo Capital, and Ribbit Capital. Read more.

PRIVATE EQUITY DEALS

MBK Partners, a Seoul-based private equity firm, said it will buy Accordia Golf Co., a Japanese golf course operator, for about $760 million, according to Reuters. Per the offer, MBK will purchase all shares in Accordia at ¥1,210 ($10.78), a 16.9% premium on the company’s Tuesday closing price. Major Accordia backers Reno, Aya Nomura, and Office Support Corporation have agreed to sell their stakes in the company. Read more.

Susquehanna Growth Equity, the private equity and venture capital arm of Susquehanna International Group, has invested $44 million in MacroPoint, a Cleveland, Ohio developer of automated location tracking services such as real-time load tracing and mapping for freight brokers.

ACON Investments and Triton Pacific Capital Partners have agreed to acquire BioMatrix Specialty Pharmacy, a Weston, Fla.-based specialty pharmacy company. Tracy Finn and Patrick Keefe, two ex-senior executives at Omnicare, also participated in the transaction. Terms of the deal were not disclosed.

Gen Cap America has backed the management of Pyramyd Air, a Solon, Ohio-based online retailer of air guns and air gun accessories, in its acquisition of the company. Terms of the transaction were not disclosed.

Antenna79, an Encinitas, Calif.-based consumer electronics company that develops smartphone cases with built-in antennas, raised $94.9 million in a combination of equity, debt, and other securities, according to an SEC filing. Antenna79's prior investors include L Catterton, Velos Partners, and Hercules Technology Growth Capital.

The Carlyle Group has agreed to buy Novolex, a Hartsville, S.C.-based packaging company, from Wind Point Partners and TPG Growth. Terms of the deal were not disclosed.

NBK Capital Partners has invested in Kaumeya Language School, a private K-12 school that provides Egyptian, British (IGCSE) and American Diploma curricula in Alexandria, Egypt. Terms of the deal were not disclosed.

Arrowhead Electrical Products has agreed to acquire Stens, a Jasper, Ind.-based provider of aftermarket replacement parts various industries, including outdoor power equipment, from Ariens Company. Terms of the deal were not disclosed.

VSS, a New York City-based private equity firm, has invested in Coretelligent, a Needham, Mass. provider of private cloud and IT managed services and support to small and mid-sized businesses.

OTHER DEALS

• Yesterday, Samsung Electronics’ board was expected to respond to a restructuring plan, proposed by activist investor Elliott Management, which would split the group into a holding company and an operating company. Instead of reaching a decision, Samsung instead announced it would review the proposal, a process that would take at least six months. Read more at Fortune.

Indra, an Alcobendas, Spain-based technology and defense company, has made a bid to acquire Tecnocom, a Madrid-based information technology services company, for €4.25 euros per share, according to Reuters. Excluding treasury stock, the offer values the company at about €305 million ($324 million), an 11.5% premium on Tecnocom’s closing price Monday. Read more.

Actelion shares have dropped significantly following a report the company is planning to reject Johnson & Johnson’s takeover offer. Instead, according to Reuters, Actelion is said to be considering a proposal in which it takes a major investment from Johnson & Johnson, but remains independent. Read more.

IPOs

Athene Holding, a Bermuda-based provider of life insurance and fixed annuities, plans to raise $950 million by offering 23.8 million shares at a price range between $38 to $42 a share. It would have an initial market cap of about $7.7 billion, were it to price in the middle of its range. It plans to trade on the NYSE under the symbol ATH. Goldman Sachs, Barclays, Citi, Wells Fargo Securities, BofA Merrill Lynch, BMO Capital Markets, Credit Suisse, Deutsche Bank, J.P. Morgan, Morgan Stanley, RBC Capital Markets, BNP Paribas, BTIG, Evercore ISI, SunTrust Robinson Humphrey and UBS Investment Bank are the joint bookrunners on the deal. The company is backed by PE firm Apollo Global Management.

EXITS

DataMentors, a Tampa, Fla.-based provider of data-based marketing software, has acquired V12 Group, a Red Bank, N.J. provider of digital marketing cloud services. V12 Group is backed by ABRY Partners, Atrium Capital Corporation, NewSpring Capital, and Triton Pacific Capital Partners, among other investors. The new company will be named V12 Data. Terms of the deal were not disclosed.

Spring Mountain Capital has sold its stake in Warren, N.J.-based Prevalent, a provider of third-party risk management and cyber threat intelligence, to Insight Venture Partners, a New York City-based private equity and venture firm that lead the company’s $60 million Series C round. Terms of the deal were not disclosed.

The Allstate Corporation has agreed to acquire SquareTrade, a San Francisco-based insurance provider that offers warranty plans for personal electronics, for approximately $1.4 billion. SquareTrade is backed by Bain Capital, Chase Capital Partners, Weston Presidio Capital, and Draper Richards. Read more at Fortune.

Dick’s Sporting Goods, a Pittsburgh-based sporting goods retailer, has acquired GameChanger Media, a New York City developer of software that enables amateur teams to manage and share information. Terms of the deal were not disclosed. GameChanger Media raised $10.63 million from investors including Trilogy Equity Partners, BoxGroup, and Tenfore Holdings.

KKR has agreed to buy Arle Capital Partners’ majority stake in Hilding Anders, a Malmo, Sweden-based bed and mattress manufacturer. KKR previously invested in the company in 2013. Financial terms were not disclosed.

FIRMS + FUNDS

WI Harper Group, Luxin Venture Capital Group and Shandong Leader Equity Investment Fund plan to launch a fund focused on startups based in the U.S. and China. A fundraising target has yet to be specified.

NEW JOBS

Pritzker Group Venture Capital is expanding its Los Angeles office. Partner Gabe Greenbaum will move from Chicago to lead the office, with support from vice president Peter Liu. In addition, Nico Gimenez has joined the firm as an associate.

Lisa Suennen is joining GE Ventures as a managing director, starting Dec. 1. Previously she was a partner at Psilos Group.

• Teresa Teague and Jonathan Bond have co-founded TTB, an investment advisory firm connecting Chinese investors with foreign deals, according to Bloomberg. Previously, Teague was a Hong Kong-based partner at Goldman Sachs. Read more.

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