On deals and dealmakers.
INNOVATION HYPERBOLE COMPLEX
We’re on the cusp of a three-day weekend and Fortune is closing its latest magazine issue, which means I’m letting let you all write today’s column.
Here’s what you have to say…
Michael P writes: I think there is even more to cover, such as the flawed concept of strategy, and destructive focus on growth (fake or real), and unfair and destructive ignoring of valid regulatory requirements or rules that “normal” companies must deal with, that constitute an unfair subsidy versus achieving true competitive advantage. Yet we want innovation and entrepreneurship, so we need to shift this destructive model.
CZ writes: As someone who departed a startup over a dispute with the CEO’s cavalier application of “move fast and break things” (my response: “Except the law!”), this piece couldn’t have been more resonant.
Anonymous writes: Where is the condemnation of this behavior? How is Theranos still a company? Where is the management change at Hampton Creek? There is no incentive for anyone in the chain to call BS, and that is the most disturbing aspect of this as it can continue into perpetuity (theoretically). Other than your article, the appalling silence is also quite distressing.
Steve E writes: I’ve watched the tech and VC world go from an 80/20 world of good actors to an 80/20 culture of questionable characters. And there are dozens of other stories that you could have used on top of the ones you did.
The interesting/paradoxical/ironic thing is that when Silicon Valley looks in the mirror it expects to see Obama (ethical, moral, thoughtful) but instead it sees Trump (the end justifies the means, fake it till you make it, bend the rules even though you know better)!
Colin K writes: [Regarding Theranos CEO Elizabeth Holmes’ supervoting shares], even where supervoting is in place, investors have a number of available recourses—including bringing fraud or contractual claims that may entitle them to damages. The supervoting shares are used to enable the founder to maintain a board seat and veto rights on future M&A and IPO transactions. It can surely make their removal or altering the directional position of the company more difficult, but there’s usually a way.
Evelyn writes: Adding to the risk is that a lot of the techies are so young, they don’t remember the likes of Enron, so may be less alert to the signs of fraud. Not to mention the noblesse oblige attitude that blinds them.
Anonymous writes: George Collins, former CEO at T. Rowe Price once told me, “I’ve been in the finance business for over 30 years and I can count the number of people I can trust on one hand.” So is it just startups? How about Wells Fargo? Why did JP Morgan pay over $30 billion in fines? Now you see what George meant.
Anonymous writes: I appreciate your historical perspective, but you are particularly on point on one thing — it is much worse now than in the past. Right now there is no reward or incentive for proper governance, oversight or knowing when a risk is worth taking or when it is illegal and thus should be avoided. I’m not talking about “strategic neglect” – where regulations are unclear and an entrepreneur chooses to be aggressive in ambiguity. Outright fraud is seen as a viable option to become something “great that generates a 100x return.”
A GP actually manages the fund and pays attention to one’s investments? How quaint. Most current LPs in venture don’t care — they just want GPs to be in the “6-10 deals a year that matter.” What is written about in the press? Who are the heroes? Those who flip the bird to the status quo.
In the end, we control our own moral compass and nothing else. And right now controlling one’s compass gets zero respect or stature.
Robert Siegel of XSeed Capital writes: Eisenhower warned us of the dark side of the Military Industrial Complex. You have warned us of the dark side of the Innovation Hyperbole Complex.
…On whether 2016 was a good year for IPO performance:
Steve E writes: First day trading performance is the more relevant benchmark, since the average Joe can’t get IPO stock and would have to buy the stock after it opens (typically well above the IPO price). And while I might be able to get, say an 100 share allocation of an IPO if I was a really good retail customer, that 100 shares at say, $20-30, is a couple of thousand dollars vs. a portfolio that is many times that. So the ~40% returns talked about in the article likely wouldn’t move the needle on portfolio performance much if at all.
My initial conclusion here is that “truth typically lies somewhere in the middle”: 2016 was a pretty subpar year for IPOs – it wasn’t terrible, but it’s hard to spin it positively.
…On the drop-off in cybersecurity deals:
Mark L. says: Investment into cyber companies has fallen but there are numerous investments being made in small, off-the-radar cybersecurity companies that you and others are not privy to at this time because they want to stay under the radar!
…On TV vs. the Internet: On criticism of Fortune 500 companies for spending money on TV ads:
Jeremy S writes: The criticism has a lot more to do with the tone deafness and disconnection of the tech world from how the average American consumes media. TV is still easily the most consumed medium of media in the United States in terms of minutes, as well as having one of the broadest demographic appeals. Now there’s an argument that they aren’t being savvy with their buys as TV is generally overpriced compared to other forms of media, but I highly doubt that was the criticism being lodged at these CMOs.
…On the World Positive Term Sheet:
John G says: Standing “O” for James Joaquin! About time ethics entered the business world, and not just for start-ups.
+ One correction: Yesterday’s Term Sheet incorrectly calculated AppDynamic’s fully diluted value at the mid-point of its proposed IPO pricing range. The company would be worth $1.7 billion.
Have a great weekend!
THE LATEST FROM FORTUNE...
• Was Trump’s L.L. Bean endorsement legal?
• AI vs. poker players.
• Layoffs at Pandora.
• Tech companies want to help raise your kids.
• Arizona prepares to sue Theranos.
• Palantir’s bet on big pharma.
• Tiny violin: Davos is forcing big bank CEOs to choose earnings over skiing.
• Crowdfunded selfie drone company abruptly shuts down.
• Agriculture’s giant chicken dilemma.
• IRL Walter White now selling coffee to millennials.
• How Flipkart plans to fight back against Amazon.
Silicon Valley’s right turn. A new strategy to cover Trump. Amazon didn’t kill Macy’s – Macy’s did. Wilbur Ross’ complex business ties pose a divestment challenge. An existential moment for the Euro-American alliance. Boxed vodka just wants to be loved. Doris Truong’s troll witch hunt nightmare. Twitter employees reckon with Trump. Peso traders want Mexico to buy Twitter and shut it down. Fascinating description of Putin pressers from a Russian reporter. Netflix wants the world to binge.
• Linkem, a Rome-based provider of fixed wireless broadband services in Italy, raised €100 million ($106 million) million in funding from BlackRock (NYSE: BLK).
• Studio71, a Berlin-based multi-platform media company owned by ProSiebenSat.1, raised €53 million ($56.4 million) in funding from TF1 Group and Mediaset at a post-money valuation of approximately €400 million ($425.8 million).
• HouseCanary, a San Francisco-based real estate analytics company, raised $33 million in Series A funding. Investors include Hillspire, Alpha Edison, ECA Ventures, and Raven Ventures.
• Perfect Sense, a Reston, Va.-based company that builds and services websites, raised $22 million in funding from Carrick Capital Partners.
• Starship Technologies, a London-based company developing self-driving delivery robots, raised $17.2 million in seed funding. Daimler AG led the round, and was joined by Shasta Ventures, Matrix Partners, ZX Ventures, Morpheus Ventures, Grishin Robotics, and Playfair Capital.
• Clutch, a Philadelphia-based customer management and marketing analytics company, raised $5.25 million in funding.
• Lingo Live, a New York City-based an online platform for learning languages, raised $5.2 million in Series A funding, according to TechCrunch. Owl Ventures led the round, and was joined by Entrepreneurs Expansion Fund, Alpine Meridian Ventures, and Fresco Capital. Read more.
• Unacademy, a Bengaluru, India-based online learning platform, raised $4.5 million in a Series A funding, according to The Economic Times. Nexus Venture Partners led the round, and was joined by Blume Ventures. Read more.
• CannaKorp, a Melrose, Mass.-based maker of a single-use, pod-based cannabis vaporizing system, raised $4.1 million in Series A funding. Singularity Capital Management led the round.
• Cytora, a London cloud-based political risk analysis platform, raised £2.4 million ($2.9 million) in Series A funding, according to Tech City News. Parkwalk led the round, and was joined by Cambridge Enterprise, iLexIR, and angel investors. Read more.
• Yoshi, a Palo Alto, Calif.-based gas delivery service, raised $2.1 million in funding, according to TechCrunch. Zhen Fund led the round, and was joined by Liquid 2 Ventures and angel investors. Read more.
PRIVATE EQUITY DEALS
• DBi Services, a Hazleton, Pa.-based provider of infrastructure management services backed by Sterling Partners, has acquired the assets of TME Enterprises, Inc., a Chesapeake, Va.-based provider of transportation and facilities management services in Virginia and Florida.
• Help at Home, a Chicago-based home care agency operator backed by Wellspring Capital, has acquired Excel Companion Care , a provider of in-home care in Pennsylvania.
• Clearview Capital has acquired Wilson Orchard & Vineyard Supply, a Yakima, Wash. provider of irrigation, planting, development, and harvesting equipment to commercial orchards and vineyards.
• AVAD Energy Partners, a Dallas.-based oil and natural gas production company, raised $77.5 million in equity funding from Pearl Energy Investments and Natural Gas Partners.
• ClubCorp Holdings (NYSE:MYCC) is in the early stages of accepting bids from interested buyers, a list that includes private equity firms, according to a report by Reuters. KSL Capital took ClubCorp public in 2013, after acquiring it for $1.8 billion in 2006. Read more.
• Lily Robotics, an Atherton, Calif.-based drone startup, has shut down. The company says it failed to secure enough money to manufacture and ship its product. Lily raised $14 million in a Series A funding round led by Spark Capital in 2015. Read more at Fortune.
• Gores Holdings II, a Beverly Hills, Calif.-based blank check company owned by The Gores Group, raised $375 million by offering 37.5 million shares at $10. The company plans to trade on the Nasdaq under the symbol GSHTU. Deutsche Bank served as the underwriter on the deal.
• Clutch, a Philadelphia-based customer management and marketing analytics company, has acquired Persio, a Chicago-based online multi-channel platform for retail marketers. Persio raised $5.5 million in VC funding from investors including Origin Ventures, OCA Ventures, and Illinois Ventures.
• Kinderhook Industries has sold San Jamar, a Elkhorn, Wis.-based manufacturer of food safety products, to Carlisle Companies Incorporated (NYSE:CSL). Financial terms were not disclosed.
• Praesidian Capital has sold its $20.4 million stake in Etransmedia Technology, a Troy, N.Y.-based healthcare information technology company, to Formative Health, a provider of management services for physicians owned by Northwell Health and Pamplona Capital. Formative Health also acquired Kemper Corporation’s (NYSE: KMPR) stake in Etransmedia Technology.
FIRMS + FUNDS
• Prudential Capital Partners, Chicago-based Prudential Capital Group’s investment arm, raised $1.8 billion for its fifth fund, Prudential Capital Partners V.
• JMC Capital Partners, a Boston-based private equity firm, raised $206 million for its second fund.
• Northwestern Mutual Future Ventures, life insurance provider Northwestern Mutual’s investment arm, has launched with a $50 million initial fund. Investments, which range from $500,000 to $3 million, will fund financial security startups.
• Ben Gray and Simon Harle, both ex-TPG partners, are targeting A$2 billion ($1.5 billion) for their independent fund, which will invest exclusively in Australia and New Zealand, according to a report by Bloomberg. Read more.
• Kevin O. Hawkins has joined Alantra as a vice president. Previously, Hawkins was a vice president at Bowen Advisors.
• Phil Curatilo has joined Seacoast Capital as chief marketing officer.
• Greg Daniele has been promoted from associate to vice president at Maranon Capital.
• Jeffrey Wu has been promoted to partner at Behrman Capital.