On deals and dealmakers.
“A FUN YEAR”
M&A: Paddy Power Betfair has acquired Draft, a daily fantasy sports startups for $48 million including incentives. This deal, while small, is significant for two reasons: One, it’s validation for a market full of question marks: Here is an established online gambling company buying a daily fantasy sports startup.
And two, it’s notable for who didn’t buy it: Term Sheet has learned Electronic Arts was in the running to buy the company, but lost out with a bid of $40 million. (Update: EA denies the rumor; Paddy Power Betfair declines to comment.)
That’s encouraging news for the soon-to-be combined daily fantasy players DraftKings and FanDuel. It means there’s big-company interest in the category. And by some investors’ optimistic calculations, if you apply Draft’s “per bet” valuation multiple to the combined DraftKings and FanDuel, it would value the company at around $5 billion.
Pay to play: It happens in distressed situations for startups, and we’re going to be seeing a lot more of it. If early investors don’t throw in more money to help a struggling portfolio company, their shares get downgraded from preferred stock to common stock. The most public example of this is Gilt Groupe, where General Atlantic led a Hail Mary $50 million Series F round in 2015 that converted early shareholders who did not participate in the round to common stock.
Increasingly, I’m hearing early stage investors complain about pay to play deals. They rarely become public because companies don’t tend to disclose the terms of their fundraising beyond the amount and valuation. But they are happening. As we’ve noted before, there are 294 startups that raised $50 million or more between 2014 and 2015. Those companies are now facing some tough decisions: get profitable, go public, or raise more money. When the first two aren’t an option and the third is a long shot, “pay to play” situations happen.
Snap earnings: Not pretty! The company missed expectations on just about every metric, without showing the kind of stellar growth investors were hoping for. On the call, CEO Evan Spiegel touted Snap’s creativity. “The way we try to help people understand how we think about daily active user growth is through the lens of creativity,” he said. “We built our entire business on creation.” It’s the same story we heard in the company’s S-1: Invest in Snap because its CEO is the next Walt Disney.
And one thing Walt Disney (probably?) didn’t concern himself with was pesky quarterly earnings calls. Snap didn’t provide any commentary with its numbers, and couldn’t be bothered giving guidance to analysts. (On the other end of the spectrum, there are companies in Snap’s peer group, like Airbnb, that have planned out precisely how much Ebitda they will have by 2020.) Regarding its product, Spiegel said, “At this point we’re famous for not giving guidance on our product roadmap. We love surprising our community and it should be a fun year.”
That creative genius strategy is also why Snap isn’t worried about copycats. When asked bluntly whether Facebook scares him, Spiegel laughed aloud, and zinged, “Just because Yahoo has a search box, it doesn’t mean they’re Google.” (My colleague Jen Wieczner has the full details of that exchange here.)
We also learned that Snap sold around $8.3 million worth of Spectacles, its video-taking sunglasses, last quarter. (That figure comes from its “other” revenue category, which the company said is comprised mostly of Spectacles.)
Here’s what my colleagues will be watching for today:
• If Snap stock drops below its IPO price of $17.
• If the Wall Street consensus lowers their price targets. (None had as of last night.)
• If any analysts downgrade the stock. (None had as of last night.)
Crowdsourcing my job: I find the constant question of whether Snap “is Facebook or Twitter” to be tiresome and pointless, but I’d love to hear whether Term Sheet readers agree or disagree. If you have an opinion, let me know by replying to this email…
For fun: A story I did on startup-flavored corporate schmooze-fests. The language of business today is not power or money or competition, but pie-in-the-sky Silicon Valley-speak, co-opted and stylized for corporate branding purposes. The surest way to sell something to businesses today is to drench it in innovation and entrepreneurialism. Read more.
THE LATEST FROM FORTUNE...
• Fox News has spent $45 million on sexual harassment settlements since mid-2016.
• Traveling to Europe with a laptop? It’s looking like you’ll have to check your bag.
• Eddie Lampert blames Sears’ problems on the media.
• Satya Nadella warns of technology’s dark side.
• Chinese tech companies struggling to sell deals in the U.S. find a warmer welcome in Israel.
• China’s new Silk Road investments are surprisingly weak.
How abnormal was Comey’s firing? Which tech giant would you drop? Amazon invested millions in a startup, only to clone its product. Your sea salt is almost certainly contaminated with plastic. Diversion of the day: A podcast about animals. Reporter arrested for asking a question. Hackers came, but the French were prepared. StitchFix’s growth story. Magic Leap settles sex discrimination lawsuit.
• Lighthouse, a Palo Alto, Calif.-based interactive home assistant maker, raised $17 million in funding. Eclipse Ventures led the round, and was joined by Playground Global, SignalFire, and Start.
• Twiggle, a Tel Aviv, Israel-based AI-powered e-commerce search company, raised $15 million in funding. MizMaa Ventures and Korea Investment Partners co-led the round.
• OnTruck, a Madrid-based on-demand logistics platform, raised $10 million in Series A funding, according to Tech.eu. Atomico and Idinvest co-led the round. Existing investors Point Nine Capital, La Famiglia, and Samaipata Ventures participated. Read more.
• Sun Basket, a San Francisco-based healthy meal kit startup raised $9.2 million in Series C-2 funding. Unilever Ventures led the round. Existing investors Baseline Ventures and Founders Circle Capital, participated. Read more at Fortune.
• Bunker, a San Francisco-based digital business insurance platform, raised $6 million in Series A funding. Omidyar Network led the round. Investors Comcast Ventures and Route 66 Ventures participated.
• Takumi, a London-based marketing platform for “micro-influencers,” raised $4 million in Series A funding from undisclosed investors.
• Vivid Vision, a San Francisco-based virtual reality tool developer focused on individuals with amblyopia and strabismus, raised $2.2 million in a seed round, according to VentureBeat. Investors include SoftTech VC’s Jeff Clavier, The Venture Reality Fund, CRCM Ventures, SOS Ventures, Anorak Ventures, and Liquid 2 Ventures. Read more.
• Ntechlab, a Moscow-based facial recognition startup, raised $1.5 million in funding. Impulse VC led the round.
HEALTH AND LIFE SCIENCES DEALS
• Guardant Health, a Redwood City, Calif.-based rare-cell diagnostics service provider, raised $360 million in funding, according to VentureBeat. SoftBank led the round, and was joined by Sequoia Capital, Khosla Ventures, Lightspeed Venture Partners, OrbiMed, 8VC, “certain funds and accounts” managed by T. Rowe Price, and Temasek. Read more.
• Intrinsic Therapeutics, a Boston, Mass.-based medical device company, raised a $28 million equity round. The round was co-led by New Enterprise and Delos Capital, along with a $21 million debt facility with CRG. Other investors include Greenspring Associates and Quadrille Capital.
PRIVATE EQUITY DEALS
• Eurazeo and West Street Capital Partners VII acquired Dominion Web Solutions, a Norfolk, Va.-based online classifieds marketplace, for $680 million.
• Tikehau Capital invested £80 million pounds ($103 million) for a minority stake in Claranet, a London-based managed services provider.
• IZI Medical Products, a portfolio company of Shore Capital Partners, acquired a portfolio of products from Cook Medical, a Bloomington, Indi.-based medical device manufacturer.
• Neology, a subsidiary of SMARTRAC which is a portfolio company of One Private Equtiy, agreed to acquire the tolling and automated license & number plate recognition business of 3M’s (NYSE:MMM) traffic safety and security division. Financial terms weren’t disclosed.
• North Castle Partners made an investment of an undisclosed amount in Full Swing Golf, a San Diego, Calif.-based golf simulation technology provider. Topgolf Entertainment Group also made a strategic investment as part of the transaction. Financial terms weren’t disclosed.
• Hermitage Equity Partners acquired Bentec Medical, a Woodland, Calif.-based medical device manufacturer. Greyrock Capital Group also invested. Financial terms weren’t disclosed.
• Bison Capital Partners made a minority investment in Miva, a San Diego, Calif.-based e-commerce software company. Financial terms weren’t disclosed.
• Harvest Partners and Audax Private Equity completed the merger of AP Emissions Technologies and Centric Parts to form APC Automotive Technologies, an automotive replacement parts supplier. Financial terms weren’t disclosed.
• FivePoint, an Aliso Viejo, Calif.-based property developer, popped on its first day of trading on the NYSE Wednesday by roughly 7%. The company raised some $294 million in an initial public offering of 21 million shares priced at $14 a piece.
• US LBM Holdings, a building products distributor, filed for an IPO Wednesday. For now, the company says it plans to raise $100 million, with Barclays, RBC Capital Markets, and Credit Suisse acting as lead underwriters. In 2016, the company reported sales of $2.7 billion, on net loss of $47.7 million
• The Australian state of New South Wales sold Endeavour Energy, an Australian electricity distributor, to a consortium led by Macquarie Group (ASX:MQG) for A$7.62 billion ($5.61 billion), according to Reuters. Read more.
• KPS Capital Partners has agreed to acquire TaylorMade Golf, a Carlsbad, Calif.-based golf products manufacturer, for $425 million. The seller is adidas AG (DB:ADS).
• Cisco (NASDAQ: CSCO) has agreed to acquire MindMeld, a San Francisco-based AI company, for $125 million. MindMeld had raised more than $15 million from investors including IDG Ventures, Greylock Partners, KPG Ventures, Bessemer Ventures Partners, GV, Intel Capital, In-Q-Tel, and others.
• Craftsy, a Denver, Colo.-based crafts-focused video tutorial site, agreed to be acquired by Comcast NBCUniversal. Financial terms weren’t disclosed. Craftsy raised more than $100 million in venture funding from investors including Access Venture Partners, Adams Street Partners, Foundry Group, Harrison Metal, Silicon Valley Bank, Stripes Group, and Tiger Global Management.
• Paddy Power Betfair (ISE:PPB) acquired Draft, a New York-based daily fantasy sports company, for a total of $48 million. Paddy Power Betfair paid $19 million upfront, with the remaining $29 to be paid over a stipulated period of time. Draft raised more than $5 million in venture funding from investors including Upfront Ventures, SV Angel, BoxGroup, and Full Tilt Capital. Read more.
• Sportdecals, a Spring Grove, Ill.-based helmet decal supplier, has been reacquired by its founders, Don and Paul Metivier and former CEO Chris Gagnon. The seller was Prospect Partners. Financial terms weren’t disclosed.
• Google (Nasdaq:GOOGL) acquired Owlchemy Labs, an Austin, Texas-based virtual reality game developer. Owlchemy Labs raised about $5 million in venture funding from investors including Capital Factory, Colopl VR Fund, HTC Corp, Qualcomm Ventures, and The Venture Reality Fund. Financial terms weren’t disclosed.
• First Atlantic Capital sold its majority stake in TestEquity, a Moorpark, Calif.-based electronic test and measurement solutions company, to LKCM Headwater Investments. Financial terms weren’t disclosed.
• Design Inc., a Laguna Niguel, Calif-based marketplace for on-demand design work, is shutting down operations, citing slow growth and a flawed business model. Design Inc. raised more than $2 million in venture capital from investors including Harrison Metal, BoxGroup, Collaborative Fund, O’Reilly AlphaTech Ventures, Okapi Venture Capital, and 500 Startups.
FIRMS + FUNDS
• Pentech, a U.K.-based venture capital firm, raised £88 million ($113.8) for its third fund.
• GoldPoint Partners, a New York-based private equity firm, raised $1.3 billion for its fourth mezzanine fund.