On deals and dealmakers.
Good morning! I hope you were all enjoying a lovely Sunday while Uber’s board held a seven-hour meeting to go over the results of Eric Holder’s independent investigation on Uber’s work environment, and reporters on the beat raced to outdo one another with scoop after damning scoop. Yesterday was a gripping day for the world’s most valuable venture-backed company.
First we learned about the 10 a.m. Los Angeles board meeting. Recode reported that the Holders investigation’s findings are “ugly.”
Then Reuters reported CEO Travis Kalanick may go on a leave of absence.
Then WSJ reported that Emil Michael, Uber’s chief business officer who is generally regarded as Kalanick’s No. 2, is expected to resign. (Reminder: He’s the one that suggested Uber spend millions to investigate critical journalists two years ago.) NYT reported that Uber’s investors and general counsel had advised Kalanick to ask Michael to take leave from his job earlier this year, advice Kalanick ignored.
Then Bloomberg reported that the company could be run by a committee of people, including Rachel Holt (regional general manager of U.S. and Canada), Andrew Macdonald (GM of Asia Pacific and Latin America), Pierre-Dimitri Gore-Coty (head of operations for EMEA), Daniel Graf (head of product), and Liane Hornsey (head of HR).
This does not seem like an ideal plan, but Uber is thin on top executives.
This year’s string of scandals has already cost Uber its president, its head of communications, its head of finance, its head of self-driving, its SVP of engineering, its head of AI labs, its VP of maps, its VP of global vehicle programs, its president of business in Asia, and its VP of product and growth. That’s ten top executives, for those counting…
Back to the scoop train: NYT reported that the two institutional investors on Uber board – Benchmark’s Bill Gurley and TPG’s David Bonderman – were “worried” about Uber’s management, while the insiders – Graves and Chairman Garrett Camp, along with Arianna Huffington — were supportive of Kalanick.
Late last night, Uber’s board representative told reporters the board had agreed to adopt all of Holder’s recommendations. Fire Michael? Kalanick leave of absence? Other executives gone? Unclear. Employees will find out on Tuesday. If you don’t have time to check Twitter every hour for the latest scoops, someone made a handy website: IsTravisStillCEO.com.
If Kalanick is out, my questions are:
• Who can run this thing? (Who is willing to run this thing?)
• What does this mean for Lyft? (A chance to pounce, but you can’t go public with the message of, “Our more successful competitor is melting down.”)
• What does this mean for Uber’s valuation? (Possibly nothing, if it doesn’t need to raise again, and clearly an IPO is not immanent…)
• What does this mean for investors? (Will Uber let any of them sell? Is the company vulnerable to shareholder lawsuits?)
• What does this mean for Silicon Valley’s favorite founder-friendly governance strategy? (If Uber’s board can push Kalanick out, did his supervoting alliance really matter?)
I’ve had a lot of conversations with Uber investors this year, and most of them go something like this:
Investor: Nothing can stop Uber, even this.
Me: What if Travis is out?
Investor: Impossible. Travis IS Uber, and practically speaking, he’s got board control.
Me: But really, can Uber succeed without Travis?
Investor: Ummmm. Good question.
But suddenly investors are talking about “preserving shareholder value,” which a dramatic shift. This is a moment that I believe will have a wide-ranging impact. Theranos was a disaster, but it wasn’t the largest, most valuable, most global, most disruptive, most quintessential Silicon Valley success story of this era. There weren’t oodles of “Theranos for X” companies hoping to copy its success.
What happens this week is likely to affect the way local regulators view disruptive startups that operate in legal gray areas, the way labor regulators look at Silicon Valley workplaces, and the way securities regulators view low-information startup stock sales. (Before, Uber was “controversial.” Now, its justification for tighter regulation.)
This moment could also have an effect on startup valuations and risk assessment for companies with founder-controlled boards. It could affect on the kinds of executives that want to leave cushy jobs in mainstream sectors and become “the adult” at Silicon Valley startups. It could deter many would-be entrepreneurs that decide, eh, maybe they’ll get that MBA instead.
As I wrote in an essay on Silicon Valley ethics in December:
The near-daily revelations of silliness demand greater skepticism toward the truth benders. If America stops trusting the Valley, startups will lose the freedom to innovate. They’ll have a harder time persuading customers, investors, and potential employees to work with them. Their businesses could even be regulated out of existence.
I see this week as the final moment in a six-month-long wake-up call for Silicon Valley. Uber was not the only company with a reportedly toxic culture, an obsession with disruption over following the rules, and a win-at-any-cost strategy. It was merely the most successful. After those attributes worked so well for the company, more entrepreneurs emulated that formula. But now, Uber’s story is no longer a playbook. It’s a cautionary tale.
THE LATEST FROM FORTUNE...
• Fortune Feature: Inside Wells Fargo’s plan to fix its culture post-scandal
• Jeff Immelt is out as CEO of GE.
• Adobe CEO hints at artificial intelligence on Photoshop
• The king of mall kiosks aims to bounce back
• Turning waste into gold
Silicon Valley isn’t the only out-of-touch tech bubble.
The former monk who started his own asset management firm. How bad must a CEO behave before pay is clawed back? The story behind Elon Musk’s acquisition of SolarCity. WrkRiot CEO indicted. The bounty hunter of Wall Street. Treating isolation at work as a problem that affects business. The activist investors trying to give Silicon Valley a conscience. Josh Harder of Bessemer Venture Partners on his run for Congress.
• Lyft, a San Francisco-based on-demand ride company, raised $25 million in funding from InMotion Ventures, a venture capital fund backed by Jaguar Land Rover. The investment was part of Lyft’s previously reported $600 million Series G round in April. Read more at Fortune.
• HelloSign, a San Francisco-based e-signature platform, raised $16 million in funding. Foundry Group and Zach Coelius led the round, and were joined by Greylock Partners, U.S. Venture Partners and Tien Zhuo.
• Stratumn, a Paris-based blockchain application developer, raised €7 million ($7.85 million) in Series A funding. Investors include Open CNP, Otium Venture, Nasdaq and Digital Currency Group.
• Citrine Informatics, a Redwood City, Calif.-based chemicals and materials artificial intelligence platform, raised $7.6 million in Series A funding. Innovation Endeavors, Data Collective and Prelude Ventures led the round, and were joined by AME Cloud Ventures and XSeed Capital.
• Nomadic, a San Rafael, Calif.-based immersive entertainment company, raised $6 million in seed funding. Horizons Ventures led the round, and was joined by Maveron, Presence Capital, Vulcan Capital, and Verus International.
• YEAY, a Germany-based video-powered shopping platform, raised $4.9 million in seed funding. Grazia Equity led the round.
• SoftWear Automation, an Atlanta-based robotic sewing firm, raised $4.5 million in funding from CTW Venture Partners.
• Compliance.ai, a San Francisco-based regulatory and compliance management platform, raised $4 million in funding from Cota Capital.
• Timeular, an Austria-based time tracking device developer, raised €1 million ($1.1 million) in funding to develop new productivity coaching tools to help you work smarter, according to TechCrunch. Read more.
HEALTH AND LIFE SCIENCES DEALS
• Vertos Medical, an Aliso Viejo, Calif.-based medical device company, raised $28 million in funding. MVM Life Science Partners led the round. Existing investors Leerink Revelation Partners, Pitango Venture Capital, ONSET Ventures, and Aweida Venture Partners participated.
• Eloxx Pharmaceuticals, an Israel-based biopharmaceutical company, raised $5 million in Series C funding. Investors include Quark Venture and GF Securities Co.
PRIVATE EQUITY DEALS
• Invision Capital made an investment of an undisclosed amount in ShoreMaster, a Fergus Falls, Minn.-based waterfront equipment manufacturer.
• ControlScan, an Alpharetta, Ga.-based compliance and security company, and EchoSat,a Lexington, Ky.-based payment provider, have merged. The two are portfolio companies of Thompson Street Capital Partners. Financial terms weren’t disclosed.
• The Carlyle Group agreed to acquire Ardian’s majority stake in IRCA Group, an Italy-based baking and ice cream business. Financial terms weren’t disclosed.
• Siromed, a recently formed platform company of J.W. Childs Associates, acquired Ascent Medical Group, a Florida-based physician group practice. Financial terms weren’t disclosed.
• Emaar Properties, the Dubai-based company that built the world’s tallest tower, has hired Goldman Sachs to manage its IPO, according to Emaar chairman Mohamed Alabbar as reported by Bloomberg. Emaar said earlier this month that it would offer about 30% of that business. The IPO will be the largest on the Dubai markets in two and a half years, when Emaar Properties listed its shopping mall and retail subsidiary, Emaar Malls. That business was valued at $10.27 billion, or 37.7 billion dirhams, according to Reuters.
• PQ Group Holding, a Malvern, Penn.-based chemicals maker, filed for an IPO Friday. For the time being, the company says it plans to raise $100 million in an offering led by Morgan Stanley and Goldman Sachs. PQ Group Holdings posted loss of $79.7 million on sales of $1.1 billion in 2016. The company is largely backed by CCMP Capital Advisors and INEOS Investment Partnership. PQ plans to list on the NYSE as “PQG.” Exact terms of the deal have yet to be disclosed.
• Co-Diagnostics, a microcap DNA and RNA diagnostic test maker based out of Salt Lake City, says it plans to price its IPO at a range of $6.35 to $6.75 per share, offering 1.3 million shares in total. At the range’s midpoint, Co-Diagnostic is seeking to raise $9 million. In 2016, the biotech posted a loss of $1.9 million and has yet to generate significant sales. WallachBeth Capital and Network 1 Financial Securities are co-bookrunners in the deal. Legends Capital Group (13.1% pre-offering) and Reagents(19.8%) back the company. The company plans to list on the Nasdaq under “CODX.”
• Postmates acqui-hired Bold’s founders David Byttow and Ben South Lee. Bold, a San Francisco-based enterprise publishing startup, will shut down operations. The company raised $1 million in venture funding from investors including Index Ventures.
• Carlyle Group is ceding control of HCR ManorCare, a Toledo, Ohio-based nursing home chain, which has defaulted on $380 million in senior loans, according to the New York Post. HCR’s creditors are in advanced talks with Quality Care Properties about repossessing the chain. Read more.
FIRMS + FUNDS
• Oak Hill Capital Partners, a Stamford, Conn.-based private equity firm, raised $2.11 billion for its fourth fund, Oak Hill Capital Partners IV LP, according to Dow Jones.
• Longford Capital, a Chicago-based private investment company, raised more than $407 million for its sophomore fund, Longford Capital Fund II, LP.
• River Associates Investments, a Chattanooga, Tenn.-based private equity firm, raised $285 million for its seventh fund, River VII LP.