Term Sheet -- Tuesday, October 3

DIRTY DEALINGS

Good morning, Term Sheet readers.

A few weeks ago, I wrote about a startup called Rubicon Global, an Atlanta-based waste management startup that marketed itself as the “Uber for trash.” Armed with ~$200 million in total venture funding and a shiny new valuation of over a billion dollars, Rubicon claimed it was disrupting the $60 billion garbage industry with its proprietary tech.

But as I noted before, the numbers didn’t add up. Yesterday, Bloomberg published a story about how the company has overstated its growth and tech capabilities.

In the last two weeks, I’ve looked at pitch decks presented to potential investors, service proposals, and emails. I’ve also spoken with 14 people including former employees, former and current executives, potential investors who met the team and evaluated the company, and waste industry analysts. (Some of the people I spoke with requested anonymity due to confidentiality agreements or fear of retribution.)

Below is a breakdown of some key areas I found problematic in researching the company:

Inconsistent revenue numbers: I reviewed two Rubicon pitch decks, both from 2015. In the “financial overview portion,” the historical revenue numbers did not match up across presentations. In one version of the pitch deck, 2014 net revenue was listed as $3.4 million, up 54% from 2013. In the other, revenue from 2014 was $1.9 million, a 41% decline from the year before. Additionally, Rubicon now claims that its 2014 audited net revenue was $2.163 million, which does not reflect what was presented in either pitch deck.

Technology troubles: One investor who passed on the company several times said that Rubicon seemed like “a trash brokerage business masquerading as a tech company.” It is tough to nail down specifics about Rubicon’s technology. Rubicon execs have said the company is “on the cutting edge of leveraging emerging technologies, such as big data and IoT.” A 2016 pitch deck says the platform offers “a seamless experience.” In reality, the app’s feature include optimizing truck routes and confirming trash pickup. According to Bloomberg, Rubicon experienced software crashes, with some customers complaining they were unable to schedule trash pick ups. Rubicon declined to disclose the number of haulers using the technology, but said that 75% of Rubicon’s pickups are handled by a truck that uses some form of its software.

Lack of data to support key claims: One of Rubicon Global’s selling points is its “high diversion rate,” a figure that represents the amount of waste that is diverted from landfills and recycled. The company has repeatedly referred to its competitors as “landfill companies” that divert ~35% of waste and “are incentivized to send as much as possible to landfills.” Rubicon has told reporters and potential investors that its own diversion rate “is three times the rate of landfill companies,” yet refuses to disclose the rate (on or off the record), saying the figure is a competitive advantage.

High executive turnover: Three chief operating officers have left since 2014, according to Bloomberg. Sources told me the company has also cycled through multiple chief financial officers, including one that was only at Rubicon for only 5 months, according to LinkedIn.

High valuation: I spent a few days trying to get a straight answer on how much Rubicon was raising in funding for its latest round. (Update: the final funding is ~50M at a valuation of more than $1 billion.) Another detail that made me (and some of the VCs I spoke with) pause: While notable investors have participated, including Goldman Sachs, Leonardo DiCaprio, and Promecap, not a single top-tier VC firm chose to invest in a tech company valued at more than a billion dollars.

In response to these questions, as well as the discrepancies raised in the Bloomberg article, Rubicon again painted itself as an underdog taking on the trash industry’s giants.

“Given the threat Rubicon poses to their core business model, it’s not surprising to see their fingerprints all over this piece,” the company said in a statement. “At Rubicon we readily acknowledge that there remains work to be done to truly transform this industry into one that prioritizes recycling and sustainability in a way that’s cost-effective and driven by technology, but our success and our competition’s reaction to that success are evidence that we are on the right track.”

I’ve previously written about what happens to startups when their optics veer too far from their actual operations, but this one is different. Rubicon is not a small startup that will fizzle into obscurity when its tech falters or its employees get laid off. This is a unicorn startup that has raised hundreds of millions of dollars and talked seriously about an IPO. It is a reminder that big ambitions, positive press, and slick marketing are not enough to build a sustainable business.

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BOOTSTRAPPING IT: Here’s a company on the other end of the spectrum. MessageBird, a cloud communications company, just raised $60 million in Series A funding from Accel and Atomico after founder and CEO Robert Vis bootstrapped it for six years. The company is profitable and on track to reach a $100 million revenue run rate this year. “At the end of the day, building a business is about being profitable,” Vis says. “Watching costs is a business fundamental that I think any business person should have.” Read the full story here.

THE LATEST FROM FORTUNE...

• The CEOs and designers speaking at Brainstorm Design 2018 (by Debbie Young)

• Why Microsoft’s CTO spends his spare time photographing women in tech (by Kristen Bellstrom)

• The privacy case that could threaten Facebook’s European operations (by David Meyer)

• The Scaramucci Post launches (by Natasha Bach)

• Warren Buffett’s latest purchase? A truck stop chain (by Chris Morris)

…AND ELSEWHERE:

Goldman Sachs will experiment with trading bitcoin. The White House tax plan is hitting bumps. AWS fires back at Larry Ellison. Key document unsealed in Uber-Waymo case. NFL owners clashed in private over protests.

VENTURE DEALS

• Ola, an India-based ride-hailing company, raised $2 billion in funding, according to Reuters. Investors include SoftBank Group and Tencent Holdings Ltd. Read more.

• Truphone, a London-based mobile telecommunications company raised £255 million ($339 million) in funding, according to TechCrunch. Investors include Minden and Vollin Holdings. Read more.

• Nanotronics, a Brooklyn, N.Y.-based developer of an automated microscope, raised $30 million in Series D funding. Investment Corporation of Dubai led the round, and was joined by investors including Founders Fund.

• AtScale, a San Mateo, Calif.-based business intelligence platform, raised $25 million in Series C funding. Atlantic Bridge led the round.

• Envoy Global, a Chicago-based provider of immigration services, raised a $21 million in Series C funding. Catalyst Investors led the round, and was joined by existing investor General Catalyst.

• OpsRamp, a San Jose, Calif.-based enterprise IT management platform for hybrid environments, raised $20 million in funding. The investor was Sapphire Ventures.

• CathWorks Ltd, an Israel-based developer of digital healthcare products for the cardiovascular market, raised $15.8 million in Series B funding. Quark Venture and Triventures led the round.

• Level Ex, a Chicago-based virtual surgery mobile app developer, raised $11 million in Series A funding. 4490 Ventures led the round, and was joined by investors including JAZZ Venture Partners, and Pritzker Group Venture Capital.

• Angaza, a San Francisco-based pay-as-you-go platform provider, raised $10.5 million in Series B funding. Emerson Collective led the round and was joined by Rethink Impact, Salesforce Ventures, Social Capital, and the Stanford StartX fund

• HYPR Corp., a New York-based provider of enterprise-facing decentralized authentication solutions, raised $8 million in Series A funding. RRE Ventures led the round. Existing investors RTP Ventures, Boldstart Ventures, and Mesh Ventures participated.

• Beehive, a United Arab Emirates-based peer to peer lending platform, raised $5 million in funding. Riyad TAQNIA Fund led the round, and was joined by Mohammed Bin Rashid Fund.

HEALTH AND LIFE SCIENCES DEALS

• Cullinan Oncology, a developer of oncology therapeutics, raised $150 million in Series A funding. UBS Oncology Impact Fund and F2 Ventures led the round.

• KSQ Therapeutics, a Cambridge, Mass.-based provider of a genome-scale precision functional genomics platform, raised $76 million in funding. Investors include Flagship Pioneering, Polaris Partners, ARCH Venture Partners and Alexandria Equities.

• Recursion Pharmaceuticals, a Salt Lake City, Utah-based biotechnology company that combines biological science with artificial intelligence, raised $60 million in Series B funding. Data Collective led the round.

PRIVATE EQUITY DEALS

• PAI Partners made a buyout offer of 1.6 billion euro ($1.9 billion) to Refresco, a Netherlands-based juice bottling company, according to Reuters. Read more.

• The Riverside Company made an investment of an undisclosed amount in Parker Products, a Fort Worth, Texas-based maker of specialty ingredients for food and beverage companies.

• Sentinel Capital Partners made an investment of an undisclosed amount in MB2 Dental Solutions, a Carrollton, Texas-based dental service organization. Financial terms weren’t disclosed.

• Francisco Partners acquired a majority stake in Dynamo Software, a Watertown, Mass.-based provider of configurable, cloud-based investment management software for the alternative asset investment industry. Financial terms weren’t disclosed.

• Arlington Capital Partners acquired Xebec, a McLean, Virginia-based provider of human intelligence solutions and services to customers in the intelligence community. Financial terms weren’t disclosed.

• Fundamental Capital made an investment of an undisclosed amount in Voodoo Doughnut, a Portland-based doughnut company, according to the Portland Business Journal. Read more.

• Waud Capital Partners made an investment of an undisclosed amount in Adult & Pediatric Dermatology, a provider of dermatology services in the United States.

OTHER DEALS

• ServiceNow will acquire Telepathy, a San Diego, Calif.-based design firm. Financial terms will not be disclosed.

• PureCars acquired certain assets of Showroom Logic, a Miami-based automotive focused-digital advertising tech company. Financial terms weren’t disclosed.

IPOs

• Regalwood Global Energy, a SPAC based out of Washington D.C., filed for an IPO of $300 million. The company, which plans to acquire energy companies, was formed by Carlyle Investment Management. Citigorup and J.P. Morgan are underwriters in the deal. The company plans to list on the NYSE as “RWGE.U.”

• Ablynx, a Zwijnaarde, Belgium-based company developing nanobodies to treat diseases, filed for an $150 million IPO. The company posted revenue of 84.8 million euro and loss of 1.1 million euro in 2016. Van Herk Investment (10% pre-offering), Fidelity (9.15%), Perceptive Advisors 4.5%, Gam Holdings (3.92%), and Boehringer Ingelheim International (3.49%) back the company. BofA Merrill Lynch, J.P. Morgan and Jefferies are joint bookrunners in the deal. The company plans to list on the Nasdaq as “ABLX.”

• ForeScout Technologies, a San Jose, Calif.-based cybersecurity company, filed for an $100 million IPO. In 2016, the company posted revenue of $166.8 million and loss of $74.8 million. Accel(15.2% pre-IPO), Amadeus Capital(19.6%), Meritech Capital Partners(13.4%), Pitango(14%), and Wellington Management(7.7%) back the company. Morgan Stanley, J.P. Morgan, and Citigroup are joint bookrunners in the deal. ForeScout plans to list on the Nasdaq as “FSCT.”

• OrthoPediatrics, a Warsaw, In.-based company for pediatric orthopedic implants, set the terms of its $52 million IPO. The company plans to offer 4 million shares between $12 to $14 a piece. In 2016, the company posted $37.3 million in revenue and loss of $12.5 million. Piper Jaffray and Stifel and joint bookrunners in the deal. Squadron Capital (44.6% post-offering) backs the company. The company plans to list on the Nasdaq as “KIDS.”

EXITS

• Wal-Mart Stores Inc acquired Parcel Inc, a New York-based delivery startup. Financial terms weren’t disclosed, but the purchase price was less than $10 million, according to Recode. Parcel raised approximately $2 million in venture funding from investors including Galvanize Ventures, Great Oaks Venture Capital, Liberty City Ventures, and Interplay Ventures. Read more.

• Arsenal Capital Partners agreed to sell Accella Performance Materials, a Maryland Heights, Mo.-based specialty polyurethane platform, to Carlisle Companies Incorporated for $670 million.

• Carlyle Group LP agreed to sell Klenk Holz AG, a Germany-based wood products manufacturer, to Binderholz GmbH. Financial terms weren’t disclosed. Read more.

• Genstar Capital sold MW Industries, Inc., provider of springs, specialty fasteners and other precision components, to affiliates of American Securities LLC.

• High Road Capital Partners sold The Crown Group, a Warren, Mich.-based provider of component finishing services, to PPG. Financial terms weren’t disclosed.

• TowerBrook Capital Partners L.P acquired Rewards Network, a Chicago-based provider of marketing, loyalty services, dining rewards programs and financing to the restaurant industry, from Equity Group Investments. Financial terms weren’t disclosed.

• StackCommerce acquired Joyus, a San Francisco-based online first direct response video network for women. Financial terms were disclosed. Joyus raised approximately $67.4 million in funding from investors including Marker Capital, InterWest Partners, Accel Partners and Time Warner Investments.

FIRMS + FUNDS

• Salesforce raised $50 million for its Salesforce Impact Fund, the company's corporate investment group.

• NFX, a San Francisco-based venture capital firm, is seeking to raise $150 million for its debut venture fund, according to an SEC filing.

PEOPLE

• Amherst Partners hired Thomas McCabe as a managing director. Previously, he was at KPMG Corporate Finance.

• SK Capital Partners named Edward Donkor as a principal and Simon Dowker as director of business development.

• Brookline Capital Markets named Kumar Raja as a senior biotechnology analyst, Graham A. Powis as a senior capital markets adviser, Samuel P. Wertheimer as a senior scientific adviser, Michael D. Rhea as managing director of institutional sales, and Joseph A. LaSala as a senior associate of investment banking.