By Polina Marinova
October 9, 2017

HITTING THE BRAKES

Good morning, Term Sheet readers.

SHINY CARS (AND VALUATIONS): Over the weekend, the Wall Street Journal published an article detailing the reason behind Tesla’s production delays. The company blamed “production bottlenecks” for making only a fraction of the promised 1,500 Model 3s.

The reason? Some large parts of the Model 3 were still being built by hand. This is a pretty big deal as it was not something communicated with analysts, investors and thousands of customers who signed up to purchase a Model 3.

Rather than respond to the points made in the article, Tesla focused on the Journal’s reporting instead. “For over a decade, the WSJ has relentlessly attacked Tesla with misleading articles that, with few exceptions, push or exceed the boundaries of journalistic integrity. While it is possible that this article could be an exception, that is extremely unlikely,” the statement read.

In a follow up story called, “The Truth Is Catching up to Tesla,” the writer presents a sobering view of the company. It’s not just about missing deadlines and not delivering on promises made to investors. The story notes:

“There is far more at stake here than just semantics. Investors have bid Tesla to a nearly $60 billion equity valuation on expectations the company will dominate the automobile market. That will be a fantasy if Tesla can’t produce enough cars profitably.”

This left me with more questions than answers: At what point do investors stop being patient? As the article notes, Tesla burned through more than $1 billion in cash in Q2 and has approximately $20 billion in liabilities. These are not negligible numbers. So when do investors look past the audacious vision, the CEO’s promises, and the massive valuation? When do the numbers become a problem?

MINING BITCOIN: Term Sheet ran a list of what Wall Street CEOs were saying about Bitcoin a few weeks ago. JPMorgan CEO Jamie Dimon who called the cryptocurrency a fraud stood in sharp contrast to Fidelity CEO Abigail Johnson who has a mining rig in her office. Everyone focused on Dimon’s comments, whereas Johnson’s team has been mining digital assets for three years and there’s been surprisingly little press around it.

My colleague Jeff John Roberts spoke to Hadley Stern of Fidelity Labs to get a better sense of Fidelity’s U.S.-based mining operation. Here are three key things to note:

It’s not really about the profits: Even though Johnson has previously said that the mining “is actually making a lot of money,” that’s not exactly the point. The real purpose of the mining is to learn about the burgeoning cryptocurrency market.

Fidelity wants to be at the forefront: The financial services company wants to continue aggressively experimenting at a time when others on Wall Street are skeptical about the space. This summer, Fidelity struck a partnership with Coinbase, the San Francisco-based exchange, to let customers see the value of their digital currency alongside stocks and other assets on their Fidelity page.

It’s collecting data about crypto in the early days: Through its Coinbase partnership, Fidelity can get a better sense of just how many investors are interested in cryptocurrency. Additionally, the company has included Bitcoin in a program that allows people to donate specialized assets (like fine art) to charity. Through this initiative, Fidelity is interviewing people who donate Bitcoin to assess market demand.

Read the full story here.


THE LATEST FROM FORTUNE...

• Uber’s unlicensed service is dead across Scandinavia (by David Meyer)

• Scientists are getting closer to making ‘edible robots’ (by Aric Jenkins)

• Michael Jordan to Jeff Bezos: Come to Charlotte (by Barb Darrow)

• A bitcoin crash could punish these stocks (by David Meyer)

…AND ELSEWHERE

Apple & Qualcomm’s billion-dollar war over an $18 part. Small investors support the boards, but few of them vote. The economist who realized how crazy we are. Cash is already pretty much dead in China.


VENTURE DEALS

Wheels Up, a New York-based private aviation company, raised $117.5 million in funding. Fidelity Management & Research Company and T. Rowe Price Associates, Inc led the round, and were joined by investors including NEA. The company claimed to have an enterprise value of $1 billion.

GitLab, a San Francisco-based web-based open source Git repository manager, raised $20 million in Series C funding. GV led the round.

Sourcegraph, a San Francisco-based coding startup, raised $20 million in Series A funding. Investors include Redpoint Ventures and Goldcrest Capital.

Ascendify, a San Francisco-based social recruitment for talent management platform, raised $11 million in Series A funding. Canaan Partners led the round, and was joined by investors including GE Ventures and Cisco Investment.

BMLL, a London-based machine learning and Big Data company, raised £7 million ($9.2 million) in funding. Investors include Oceanwood Capital Management, IQ Capital Fund and Angel CoFund.


OTHER DEALS

Mantra Group (ASX:MTR) received an acquisition proposal from Accor SA (ENXTPA:AC) at A$3.96 per share ($3.08) for a buyout price of A$1.18 billion ($916.98 million), according to Reuters. Read more.

Honeywell International Inc (NYSE:HON) plans to spin off non-core assets and create at least two new publicly listed companies, according to Reuters. Read more.

Guidewire Software, Inc. agreed to acquire Cyence, a San Mateo, Calif.-based software company that applies data science and risk analytics. Financial terms weren’t disclosed.


IPOs

Sea Ltd., a Singapore-based entertainment company, raised $646 million in an offering of 49.7 million ADSs priced at $12 to $14. The company posted revenue of $345.7 million and loss of $224.9 million in 2016. The company is backed by Tencent (39.7%) and Blue Dolphins Venture (14.7%). Goldman Sachs, Morgan Stanley, and Credit Suisse are bookrunners in the deal. It plans to list on the NYSE as “SE.”

Loton, a Beverly Hills, Calif.-based music streaming, set the terms of its IPO. The company plans to offer 7.7 million shares between $12 to $14 a piece, raising $100 million. In the year ending March 31, the company posted revenue of $225,000 and loss of $14.3 million. Also known as LiveXLive, the company is backed by Robert Ellin, a managing member of Trinad Advisors(50%), Sandor Capital(8.8%), and Primary Investments(6.1%). BMO Capital is listed as the sole bookrunner for the IPO, which plans to list under “LIVX.” The company has yet to disclose pricing terms.

Erytech Pharma, a Lyon, Frace biotech developing cancer treatments, filed for an $100 million IPO. In 2016, the company, posted revenue of $4.9 million and loss of $25.7 million. Baker Bros Advisors(15.4% pre-offering) and Auriga Partners (9.8%) back the company. Jefferies, Cowen & Company, and Oddo BHF are joint bookrunners in the deal. The firm plans to list on the Nasdaq as “ERYP.”

Funko, an Everett, Wash.-based maker of pop culture products, filed for an $100 million IPO. In 2016, the company posted revenue of  $426.7 million and income of $26.9 million.  Acon Investments, John P. and Trishawn P. Kipp Children’s Trust, and Fundamental Capital Partners back the company. Goldman Sachs, J.P. Morgan, BofA Merrill Lynch, Piper Jaffray and Jefferies are joint bookrunners in the deal. The firm plans to list on the Nasdaq as “FNKO.”

Aquantia, a San Jose, Calif.-based Ethernet manufacturer, filed for an $86 million IPO. The company posted revenue of $86.7 million and loss of $277,000 in 2016. Pinnacle Ventures(10.9% pre-offering), Walden International(10.7%), Rusnano (11.1%), Mubadala Investment Company(10.3%), and Paxion Partners(6.8%). Morgan Stanley, Barclays, and Deutsche Bank are joint bookrunners in the deal. The company plans to list on the NYSE as “AQ”.

Allena, a Newton, Mass.-based company developing metabolic disorder treatments, filed for an $92 million IPO. In 2016, the company posted loss of $24.5 million. The company is backed by Frazier Healthcare(18.5% pre-offering), Third Rock Ventures (16.8%), Bessemer Venture (14.6%), Fidelity (11.8%), HBM BioCapital (10.2%), PFM LP (8.9%)  and Pharmstandard International (5.4%). Credit Suisse, Jefferies, and Cowen & Company were named joint bookrunners in the deal. The company plans to list of the Nasdaq as “ALNA.”

Spero Therapeutics, a Cambridge, Mass.-based company seeking a treatment for drug-resistant bacterial infections, filed for a $86 million IPO. In 2016, the company posted revenue of $335,000 and loss of $29.9 million. The company is backed by GlaxoSmithKline(17% pre-offering), Atlas Venture (16.4%), and Alphabet(13.2%). BofA Merrill Lynch, Cowen and Company, Stifel, and Oppenheimer & Co. are joint bookrunners in the deal. The company plans to list on the Nasdaq as “SPRO.”


EXITS

Bpost acquired Radial, a King of Prussia, Penn.-based provider of e-commerce logistics and omnichannel technology services, in a deal valued at $820 million. Sterling Partners was the seller.

AMP Capital acquired ITS ConGlobal, a U.S.-based logistics group, from Carlyle Infrastructure Partners. Financial terms weren’t disclosed, but the acquisition was worth more than $500 million, according to Reuters. Read more.

New Mountain Capital LC will buy DRB Holdings, an Akron, Ohio-based provider of devices and software for the car wash industry, from Prairie Capital LP. Financial terms weren’t disclosed.


FIRMS + FUNDS

Sycamore Partners, a New York-based private equity firm, is seeking $4 billion for its latest buyout fund, according to Bloomberg. Read more.

Vertex Ventures, the venture capital arm of Singapore state investor Temasek Holdings, raised $210 million for its new fund, according to Reuters. Read more.


PEOPLE

Apposite Capital named Rory Pope and Alexander Cunynghame an investment executive.


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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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