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Term Sheet — Monday, July 10

Jul 10, 2017

OPEN MIC

Good morning. Lots of feedback over the last few weeks of newsletters, so this will be a two-parter. Today we’re starting with reader comments on the past few weeks of news about sexual harassment in Silicon Valley…

On sexual harassment in venture capital:

A writes: Have you noticed how many women came out to accuse names NOT mentioned in the press? It creates the impression that those guys were the only jerks, that this issue is not symptomatic because it is limited to those guys. Is this entire mess fixing anything at all because most women out there stay silent like they were before? I wonder if it's media's job to make this issue reach wider: that effort would add momentum to the fix that's deeply needed.

Chris writes: Great to see some of the ugly truth about Silicon Valley coming out. I believe sexual harassment, not just against women by the way, is rampant. From my point of view, all of this starts with arrogance.

[The men accused of sexual harassment] are very different guys, but what they all share is arrogance. Arrogance makes people think harassment and even assault is ok. It makes people think fraud is ok. Anything is ok if you think you are so awesome and rules don't apply to you.

Hopefully, with this scandal, the root cause, which is arrogance based on privilege and often undeserved success and power, will finally get some attention. But I doubt it. What's likely to happen is some heads will roll, tokens will be offered, and the arrogance will continue under a slightly more diverse, more civilized branding.

Call me cynical. But a culture of arrogance doesn't end with scandal. It ends with collapse, like what we saw with Lehman Brothers and Bear Stearns on Wall Street 10 years ago. Only when they lose their power do people ever learn anything.

David writes: Don’t apologize for being stuck on the Caldbeck situation. This story, like the organizational implosion at Uber, is hugely consequential. These are the first cracks in the sanctimonious system that marginalizes women and people of color and a cascading list of gender, ethnic, age, social, and geographic groups. Don't apologize; keep reporting. It is important.

Parker writes: Caldbeck is clearly a pig. So are others who act in a manner similar to him. No disagreement with you whatsoever. But do we expect these people not to emerge with new jobs later? I mean, they've got to eat, right? Do you have some alternative for what they're supposed to do? (And no, "rot in hell" probably isn't a viable option for solving the biological problem of having to feed oneself, though I'm not disagreeing with the sentiment!)

My response: That’s a great question. I don’t think they should never be allowed to get jobs. But I don’t think they should not be allowed to get jobs where they are in positions of prominence and power in an industry, and able to use that power to sexually harass and get away with it, as a GP at a venture firm is. Many people are qualified to be venture investors but very few are so lucky to become GPs. It is not fair that someone like Caldbeck could do what he did at Lightspeed and then get to keep his position in the industry at Binary. I think he should have to change careers or at least industries.

Further, if Caldbeck’s behavior at Lightspeed had been made public, instead of him raising his own fund and harassing more women, he might have had to retreat for awhile, say, in a low profile job, doing boring work, making far less money, going to counseling, and in the best case, rehabbing his image, learning, becoming a better person, and if he’s lucky, raising a fund later. I’m not saying there is no redemption for these people. It’s just that too often it’s the other way around — there’s no justice.

On Lightspeed’s role in this:

Frank writes: While the libel/defamation laws today really prevent you from saying almost anything bad about a former employee (unless they are convicted of a crime), a simple "no comment", sends a strong message to any would-be limited partner. This is a small community, everybody knows somebody and there are other ways to send the message to stop these guys in their tracks. The real problem is he will just continue this kind of behavior until he is (hopefully) unemployable.

Jon writes: Lightspeed has some legal vulnerability under the concept of negligent referral. This is a legal approach which is used relatively rarely, but it's well-recognized. When applied to reference checking, the essence of it is that if you withhold material evidence of unacceptable behavior when giving a reference (such as a history of workplace violence, or sexual harassment), and the person repeats that behavior at the new workplace, you may be sued either by the new employer or by the damaged individual, or both.

This is a really tricky problem in reference checking. If the provider of a reference divulges such information, they likely will prevent that person from getting a job, and may be sued by him or her for doing so (usually for defamation, to which truth is a complete shield). This is why people giving references often omit such things and hope that the behavior won't be repeated.

On Binary Capital portfolio companies returning capital:

Colin clarifies: To return money, generally the company and a majority of the investors (by capital amount) will have to agree. Occasionally investors will negotiate class-by-class vetoes, requiring a majority of Series Seed, majority of Series A, etc. So long as you have that threshold, you can return the capital and redeem the shares. Not all investors have to accept, but you can force out smaller holdouts by converting to common stock, a squeeze-out merger, and other corporate methods.

***

THE LATEST development at Binary Capital is an unapologetic email from Justin Caldbeck’s partners Jonathan Teo to his portfolio companies and limited partners, obtained by Axios. It is angry and, in parts, barely coherent. In it, he blames the “corrupted” media for his resignation offer. He notes that Binary’s limited partners have not yet accepted his resignation.

Teo also says that only one Binary portfolio company has asked to return capital to the firm (that would be Assist, as previously reported in Term Sheet). He calls that CEO (Shane Mac)’s request that a female be put in charge of managing the portfolio “moronic.” Two other portfolio companies have asked for conversations about returning capital, he notes.

A sample passage from the email to portfolio companies:

For now, trust that I want to do what's right. … My job is not to make you all feel good … So forgive me if I have not prioritized pandering to the people that feel entitled to be coddled. From the entrepreneurs to the LPs to the public to the reporters.

👍

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…AND ELSEWHERE

Uber’s struggle to build a FedEx rival. When the planet will be too hot for humans. Amazon’s own Geek Squad. AT&T-Time Warner in limbo. “Mindless buying” of tech stocks. An ICO that bucks the money-grabbing trend.

VENTURE DEALS

Dashu Finance, a China-based small and micro-loan startup, raised $118 million in Series C funding. PAG and Primavera Capital led the round, and were joined by Sequoia Capital China and China Everbright Limited.

Stiletto Manufacturing, a Columbia, N.C.-based boat maker, raised $12.5 million in Series A funding. Capital Nexus LLC led the round.

Josh.ai, a Denver-based maker of a voice activated home automation system, raised $11 million in funding, according to TechCrunch. The investors were not named. Read more.

Choice Pet, a Stamford, Conn.-based pet retailer, raised $2.7 million in funding from Petros Partners.

Cargo Systems Inc., a New York City-based rideshare retail service, raised $1.75 million in funding from Techstars Ventures, Rosecliff Ventures, Fontinalis Partners, and Detroit Venture Partners.

Matcherino, a Seattle-based eSports crowdfunding platform, raised $1.5 million in funding. Investors include Madrona Venture Group, Vulcan Capital, and Seven Peaks Ventures.

Vidcode, a Brooklyn, N.Y.-based video coding platform, raised $1.5 million in seed funding, according to TechCrunch. Investors include ZhenFund, Rethink Education, NYU Ventures, CoVenture, Evan Korth Syndicate, Stephano Kim, Cherry Ventures, and BrainPOP. Read more.

Locum’s Nest, a U.K.-based platform that connects NHS hospitals with temporary healthcare professionals, raised 1.1 million pounds ($1.4 million) in funding. Albion Capital led the round.

Stellapps Technologies Pvt, an India-based dairy IoT company, raised Series A funding of an undisclosed amount. Investors include Blume Ventures, Venture Highway, and Binny Bansal.

PRIVATE EQUITY DEALS

Apollo Global Management agreed to acquire ClubCorp Holdings (NYSE:MYCC), a Dallas, Texas-based owner and operator of private golf and country clubs, for $1.1 billion. Read more.

Ardian invested 50 million pounds ($64 million) in Bellrock, a U.K.-based facilities management and property services provider. Bellrock is backed by Lyceum Capital.

American Fast Freight acquired Grand Worldwide Logistics, a Chicago-based warehouse and third-party logistics company. Financial terms weren’t disclosed.

Pamlico Capital invested in Becker’s Healthcare, a Chicago-based information and media platform in the healthcare industry. Financial terms weren’t disclosed.

Providence Strategic Growth, the growth equity affiliate of Providence Equity Partners, made an investment of an undisclosed amount in SignUpGenius, a Charlotte, N.C.-based online signup site services provider.

Wealth Partners Capital Group, a financial services holding company with offices in San Francisco and Palm Beach, made minority investments in Forbes Family Trust, MAI Capital Management, and EP Wealth Advisors.

Process Sensing Technologies, a portfolio company of Battery Ventures, agreed to acquire Rotronic AG, a Switzerland-based developer and manufacturer of humidity- and temperature-measurement solutions.

BC Partners agreed to acquire a majority stake in Pronovias, a Spain-based bridal wear company. Financial terms weren’t disclosed.

Waud Capital Partners made an investment of an undisclosed amount in ChiroTouch, a San Diego, Calif.-based chiropractic software technology developer.

OTHER DEALS

Elliott Management Corp, is exploring putting together a bid for Oncor Electric Delivery Company, a Dallas, Texas-based regulated electricity transmission and distribution company. It would top Warren Buffett's $9 billion all-cash deal, according to Reuters. Read more.

Terra Firma Capital Partners is among the companies considering a bid for Arqiva Group Ltd, a U.K.-based communications infrastructure firm, according to Bloomberg. A consortium led by buyout firm Arcus Infrastructure Partners, Brookfield Asset Management, Cellnex Telecom SA and CVC Capital Partners have also weighed offers. Arqiva may fetch more than 5 billion pounds ($6.4 billion) in a sale. Read more.

Norsk Hydro will take full ownership of Sapa, a Netherlands-based aluminum products maker, by buying a 50% stake from conglomerate Orkla, according to Reuters. The transaction values Sapa at 27 billion Norwegian crowns ($3.24 billion). Read more.

Kind LLC, a New York-based snack bar maker, has hired investment banks to advise on a minority stake sale it hopes will value the company at more than $3 billion, including debt, according to Reuters. Read more.

Atlantic Broadband, a subsidiary of Cogeco Communications, will buy the assets of MetroCast, a Frazer, Penn.-based digital cable and communication networks operator, for about $1.4 billion, according to Reuters. Read more.

Cambuhy Investimentos Ltda and Itaúsa Investimentos SA could pay between 3.3 billion reais and 3.5 billion reais ($1 billion and $1.1 billion) for a majority stake in Alpargatas SA (BOVESPA:ALPA4), according to Reuters. Read more.

Cincinnati Bell Inc. (NYSE:CBB) agreed to merge with Hawaiian Telcom, Inc. (NASDAQ:HCOM) for a total consideration of approximately $650 million. Cincinnati Bell has also agreed to to acquire OnX Enterprise Solutions, a Canada-based technology services and solutions provider, for $201 million.

Altrad Investment Authority agreed to buy Cape Plc (LSE:CIU) for about 332.2 million pounds ($430.3 million) in cash, according to Reuters. Read more.

Abercrombie & Fitch Co (NYSE:ANF) has terminated talks about a potential sale following a review. Read more at Fortune.

IPOs

Calyxt, the New Brighton, Minn.-based company that gene-edits agriculture, said it would offer 6.1 million shares at a range of $15 to $18 a piece. The company would raise over $100 million at the offering’s midpoint. Calyxt plans to go public on the Nasdaq as “CLXT.” The company is being underwritten by Citi, Credit Suisse, and Jefferies. The company lost $12.1 million on revenue of $339 million in 2016. Calyxt is backed by French biotech, Cellectis.

Kala Pharmaceuticals, a Waltham, Mass.-based biotech focused on treating eye diseases with nanoparticles, set a price range for its IPO of $14 to $16 a share for 6 million shares. The company would raise $90 million at the midpoint of that range. J.P. Morgan, Wells Fargo, Bank of America Merrill Lynch, and Wedbush have been named underwriters for the company, which plans to go public on the Nasdaq as “KALA.” In 2016, the company booked losses of $33 million, and has yet to show revenues. The company is backed by Longitude Capital (11.9% pre-IPO), OrbiMed (11.9%), Polaris Partners (10.9%), Wellington Management (10%), Third Rock Ventures (9.6%), and RA Capital Management (9.1%).

YogaWorks, the Culver City, Calif-based yoga studio chain, said it would offer 5 million shares at a range of between $12 to $14 a piece. At its midpoint, YogaWorks would raise $65 million. In 2016, the company booked losses of $9.5 million on revenue of $55.1 million. The company, which filed confidentially mid-April, has 50 studios, and about 3 million student visits in 2016. Cowen, Stephens, and Guggenheim are lead underwriters in the deal. Great Hill Partners backs the company, which plans to list as “YOGA” on the Nasdaq.

Eastside Distilling, a Portland-based distillery which makes Burnside Bourbon, has filed for an IPO on the Nasdaq. The company said it hopes to offer 1.5 million shares. The company is listed on the OTC Markets under “ESDI,” closing at $6 a share in recent trading. In 2016, the company reported loss of $5.3 million on sales of $3 million. Eastside is backed (17% pre-offering) by Glenbrook Capital.

EXITS

MetLife agreed to acquire Logan Circle Partners, a Philadelphia-based investment manager, for about $250 million in cash. The seller is Fortress Investment Group.

H.I.G. Capital acquired BIC Graphic North America, a Clearwater, Fla.-based specializing in writing instruments, hard goods, and calendars, from Société BIC SA. Financial terms weren’t disclosed.

FIRMS + FUNDS

Hillhouse Capital Group, a China-based investment manager, plans to raise a new yuan-denominated fund, according to Reuters. Hillhouse is targeting to raise about 8 billion yuan ($1.2 billion) in the fund. Read more.

Partech Ventures, a Paris-based private equity and venture capital firm, raised $450 million for its new fund, Partech International Ventures VII. [This item has been updated with the correct headquarters city.]

UBS raised $325 million from its clients for The Rise Fund a private equity impact investment fund co-founded by Bono and led by TPG Growth.

Mobeus Equity Partners, a U.K.-based private equity firm, raised more than $69 million for is fourth fund, Mobeus Equity Partners IV, according to an SEC filing. The fund’s target is approximately $86 million.

Oakhouse Partners, a San Francisco-based venture capital firm, filed to raise $50 million in new commitments, according to the SEC.

PEOPLE

Ron Croen joined You & Mr Jones as a partner to lead You & Mr Jones Brandtech Ventures. Previously, Croen was the founder and CEO of Nuance Communications.

Alexander Apponyi joined Z Capital Group as a managing director and European head of investor development. Previously, Apponyi was at Jefferies International.

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Polina Marinova produces Term Sheet, and Lucinda Shen compiles the IPO news. Send deal announcements to Polina here and IPO news to Lucinda here.

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