CPG, IPO, IRL
Yesterday my colleague Beth Kowitt published asked a question that’s been on my mind all year: Should CPG companies be funded like tech startups?
She compared The Honest Company, which has raised $228 million in venture funding in five years to Seventh Generation, which has taken in around $100 million in funding over 30 years. The Honest Company has about three times as many employees as Seventh Generation, despite having roughly the same level of sales. Given The Honest Company isn’t profitable, it is under pressure to find a buyer or raise more money. As Kowitt notes: “staffing and funding wouldn’t matter quite so much if the home care category wasn’t such a low-margin one.”
She concludes that it’s ironic that Seventh Generation, the non-tech company that didn’t need to exit, found its exit first, selling to Unilever for a reported $600 million to $700 million, after reports that The Honest Company had held deal talks with the acquirer.
ON THE OTHER HAND: Fortune published its first ever list of “Breakthrough Brands” this morning. These are brands that have “attained the emotional resonance with consumers typically reserved for big blue-chip companies, but in a fraction of the time.” (It’s based on a survey of 4,000 customers.)
No surprise, they are almost all tech darlings. Snapchat, Uber, Airbnb, Slack, Spotify are all venture-backed. The rest – Instagram, Waze, Venmo, Tesla, Square --were venture-backed till they exited.
One quick observation here: When Facebook spent $1 billion on Instagram, it seemed insane. That deal now looks brilliant, as Instagram has continued to grow and is Facebook's greatest defense against Snapchat. Now analysts estimate Instagram is worth as much as $50 billion.
I'd argue Braintree's acquisition of Venmo belongs in the same category. Braintree, now part of PayPal, acquired Venmo for around $26 million in 2012. Venmo had around 23 employees at the time. Venmo is on track to process $20 billion in transactions this year. The presence of Venmo on this list is a reminder of how rarely we see a tiny brand from a tiny acquisition completely take off after the company sells out.
IMPACT: My colleague Kirsten Korosec spoke with John Doerr about Breakthrough Energy Ventures Fund, the $1 billion clean energy venture fund he joined alongside Bill Gates, Jack Ma, Vinod Khosla, and others. He shared a few more details on the structure of the fund:
This is an investor-led fund rather than having passive institutional investors. This is a fund where I believe every limited partner is an executive who has built a substantial new business or disrupted a major new market. The investors are not going to operate the fund, but Bill Gates who is chairman of the board, and the board members, and investors are going to be very involved in the strategies and the activities of the fund itself. And that's unusual and good.
Regarding the president-elect’s stated environmental views, he said:
The president-elect has generally stacked out a position that the EPA is harmful to growth in the U.S. and I expect there will be a lot of changes in that agency. But I don't know what they'll be. I'm keeping an open mind and being very watchful. It's a great question, I just don't know the answer.
TREND WATCH: Tech consulting is a new hotspot for M&A, with giants like Accenture, Cognizant and Wipro snapping up numerous smaller firms.
IPO: The biggest trend in late stage venture funding last year was the retreat of hedge funds and mutual funds. A recent CB Insights tech IPO pipeline report shows that clearly. Only eight hedge funds made first-time tech investments in the U.S. this year, down from 28 in 2015 and 37 in 2014. And mutual fund deals in tech startups have been falling since the second quarter of 2015, when they peaked at 16 per quarter. There were just six such deals in the third quarter of 2016.
Rather, 2016 was the year of the “non-tech incumbents,” doing big tech startup acquisitions. (Think Walmart-Jet, GM-Cruise.) This year six corporate buyers from outside of the tech world spent $1 billion or more to snap up VC-backed companies, up from zero in the prior two years.
Meanwhile everyone that’s ever invested in tech is praying 2017 will be the year of IPOs.
NOTE: Per yesterday’s Term Sheet, Leonardo Dicaprio and Tobey Maguire are advisors to 8VC, but they were were not involved with Formation 8.
IRL: Yes, I’m going to CES. Where do the dealmakers, i.e, Term Sheet readers, hang out at this crazy thing?
THE LATEST FROM FORTUNE...
• Donald’s done draining swamp.
• Yes, a CEO can defy Donald Trump.
• Goldman Sachs pays $120 million to settle benchmark manipulation case.
• Could technology stop another truck massacre?
• State Street testing blockchain system for securities lending.
Private equity firms make holiday videos, too. A $250 million tech hub in NYC. Many big tech companies have said they won’t help build a registry of Muslims, but not Palantir. Snapchat Spectacles will definitely make banking seem cool. Buying candles at Anthropologie before Christmas.
• Backtrace, a New York City-based provider of software bug tracking tools, raised $5 million in Series A funding, according to TechCrunch. Amplify Partners led the round, with participation from Work-Bench and previous investors Rally Ventures and Tribeca Venture Partners. As part of the deal, Amplify partner Sunil Dhaliwal is joining Backtrace’s board of directors. Read more.
• Min Doktor, a Swedish platform that allows patients to communicate with doctors, raised €4.7 million ($4.9 million) in funding, according to Tech.eu. Investors include EQT Ventures and Christian W. Jansson. Read more.
• Cardlay, a Dannish fintech startup, raised $4 million in funding from unnamed investors.
• Explain Everything Inc., a New York City-based interactive whiteboard for tablets and smartphones, raised $3.7 million in funding. EBRD Venture Capital Investment Programme led the round, and was joined by Credo Ventures, New Europe Ventures and RTAventures.
• Appili Therapeutics, a Halifax, Canada-based anti-infective drug development company, raised $2.2 million in funding from new and existing investors, including Innovacorp.
• Neurable, a Cambridge, Mass.-based developer of brain-controlled software for VR/AR devices, raised $2 million in new funding. Brian Shin of BOSS Syndicate led the round, with participation from PJC, Loup Ventures, and NXT Ventures, among other investors.
PRIVATE EQUITY DEALS
• Berkshire Partners, a Boston-based private equity firm, has invested in Kendra Scott Design, an Austin, Texas-based jewelry designer and manufacturer, at a reported $1 billion valuation, according to Reuters. Read more.
• Highlands Ventures, a Chicago-based private equity firm, has acquired Sonoma Consulting, a Naperville, Ill.-based information technology consulting and executive search company. Financial terms were not disclosed.
• Warburg Pincus, a New York City-based private equity firm, has agreed to acquire Gabriel Brothers, a Morgantown, W.Va.-based operator of discount fashion retail stores. Terms were not disclosed.
• United Flexible, Inc., backed by Arlington Capital Partners, has acquired Scotia Technology, a Laconia, N.H.-based maker of tubular components for the aerospace and defense industries. Financial terms were not disclosed.
• Maroon Group LLC, an Avon, Ohio-based chemical and packaging products supplier owned by CI Capital Partners, has acquired Cadence Chemical, a Stamford, Conn.-based specialty chemicals provider. Financial terms were not disclosed.
• Berkshire Partners has acquired Masergy Communications, a Plano, Texas-based provider of hybrid networking, managed security and cloud communications. Financial terms were not disclosed.
• Coalfire, a Westminster, Colo.-based provider of cybersecurity risk management and compliance services, has acquired Veris Group, a Vienna, Va.-based provider of cyber risk advisory, compliance assessment, technical testing, and engineering services. Coalfire is backed by The Chertoff Group and The Carlyle Group. Financial terms were not disclosed.
• Jared Kushner, President-elect Donald Trump's son-in-law, is reportedly looking to sell The New York Observer. Kushner purchased the paper for $10 million in 2006. Read more at Fortune.
• Baidu (NasdaqGS:BIDU) is planning an initial public offering of iQiyi.com, its video-streaming site, which is expected to raise about $1 billion and could value the unit at up to $5 billion. Read more at Fortune.
• Spearhead Integrated Marketing Communication Group has completed its acquisition of Smaato Inc. and Smaato Holding AG, a San Francisco-based provider of real-time advertising services for mobile publishers and app developers, for $148 million. Smaato raised $43.1 million from investors including Aeris Capital and Singapore Press Holdings.
• Xplenty has acquired Driven, Inc., a San Francisco-based cloud-monitoring startup. Terms of the deal were not disclosed. Driven, Inc. raised $14.9 million from investors including Bain Capital Ventures and True Ventures.
• Charoen Pokphand Foods, which is owned by Thai billionaire Dhanin Chearavanont, has completed its previously announced purchase of Bellisio Parent, a Minneapolis-based frozen-food producer, for $1.075 billion from Centre Partners Management.
• KRG Capital Partners has sold Ansira Partners, a St. Louis, Miss.-based marketing company, to Advent International. Financial terms were not disclosed.
• Kinderhook Industries has recapitalized NitroFill, a Pompano Beach, Fla.-based maker of nitrogen generation and inflation systems for passenger and truck tires. Financial terms were not disclosed.
FIRMS + FUNDS
• GoAhead Ventures, an early-stage investment firm, raised $55 million for its first fund.
• General Motors (NYSE:GM) has partnered with 500 Startups, a Mountain View, Calif.-based incubator and venture capital firm, to identify and invest in startups focusing on mobility services, machine learning, virtual reality, robotics, and additive manufacturing. The investments will be made through GM Ventures.
• Cem Koray is now a partner at Perella Weinberg Partners. Koray first joined the firm in 2013 as a managing director, and was previously an executive director at J.P. Morgan.
• Edward Chan has joined 1315 Capital, a Philadelphia-based growth equity firm, as a principal. Chan was previously a vice president at NaviMed Capital.