On deals and dealmakers.
5 Qs WITH A DEALMAKER
Good morning, Term Sheet readers.
Bart Stephens is the co-founder and managing partner of Blockchain Capital, the oldest and most active venture capital firm dedicated to blockchain technology and the cryptocurrency ecosystem. Its portfolio includes Coinbase, Ripple, and Abra. “We’re not betting on the price of Bitcoin, we’re betting on the adoption of blockchain technology,” Stephens says.
Oh, and he was one of the crypto panelists at J.P. Morgan’s SF offices while Jamie Dimon was bashing Bitcoin. ¯\_(ツ)_/¯
We had a pretty frank and in-depth chat about cryptocurrency and the blockchain. (PS: I know it’s technically six questions, but one is a follow-up.) His answers might ruffle a few feathers, so I’m eagerly awaiting your feedback. Read the full Q&A here.
TERM SHEET: What do you think is one of the biggest misconceptions about the blockchain or cryptocurrency right now?
STEPHENS: The blockchain and cryptocurrencies have elicited an emotional response from financial incumbents. The technology is controversial and misunderstood, but that doesn’t make it any less real. I would encourage Jamie Dimon and others to do some homework first. It is not a fraud. It is not a Ponzi scheme. It’s a robust technology that is going to impact multiple industries in an additive way. Don’t discount it.
For too long, Silicon Valley has ignored the tsunami. Many of my friends who are at generalist VC firms dismiss this stuff out of hand because they’re not spending the time to do the homework.
Wall Street has been pretty skeptical of cryptocurrency. What are your thoughts on Jamie Dimon’s recent remarks on Bitcoin being a fraud?
While Jamie Dimon was making those comments, I was an invited speaker at JP Morgan’s offices in San Francisco to give a talk with other fund managers and clients of JP Morgan who are really curious about cryptocurrencies and the underlying blockchain technology.
So there’s a lot of hypocrisy going on with Jamie Dimon. But I would note that for every negative Jamie Dimon, I could point you to two positive Wall Street CEOs like Lloyd Blankfein at Goldman Sachs and Abigail Johnson at Fidelity, who are making constructive comments on both cryptocurrency and the blockchain.
Every new technology that is confusing, fast-moving, and disruptive is going to be controversial. You’ll see people have emotional reactions. That’s part of why Blockchain Capital exists. We know this industry requires specialization.
In the first half of the year, initial coin offerings raised more than $1 billion for blockchain-based projects — many of which consist of little more than a white paper. How do you tell scam ICOs from legitimate ones?
People are focused on the wrong thing. ICOs are a transaction, but the underlying idea of a tokenized network is more important. Tokenized networks enable entrepreneurs to have new options to finance their businesses. They can produce a token on top of the Ethereum blockchain that allows them to crowdsource capital — not just from investors, but also from future users who will help build the value of that network. Think engineers, other entrepreneurs, developers, and thought leaders.
I think we’re looking at an enlargement of the concept of venture capital. Like all new technologies, ICOs can be misused. There will be fraud, just like there are frauds in the regular stock market. Just because a technology is misused or overheated doesn’t mean it’s not a really important technology. And again, the idea of tokenized networks is more important here, not the ICOs itself, the transaction which people tend to focus on.
[TS NOTE: Tokenized networks explained here.]
How do you think ICOs will change the venture landscape?
There’s a deafening silence coming from Sand Hill Road when it comes to blockchain technology, cryptocurrencies, and certainly ICO technologies. To me, ICO technology allows for the re-imagining of capital formation. Early adopters and software developers are now invited to a party that’s traditionally been for insiders-only — Wall Street executives, Silicon Valley executives, or elite Sand Hill Road firms. So it doesn’t surprise me that Sand Hill Road is not interested in this technology. It’s opening up an exclusive party to other people who create value in the network.
Do you think there will be more and more of these startups that misuse ICOs?
I think that the best entrepreneurs will build businesses that involve venture capitalists and ICO financing. I think that there will be misuse of the technology just like there’s misuse of traditional financing technology. This industry is not immune from the foibles of greed and human psychology.
How do you avoid crashing if this is all just one big bubble?
First, I do not think it’s a bubble. If it is a bubble, it won’t hurt Wall Street, and it won’t hurt Main Street. Second, scale matters. The market cap of Bitcoin, if you want to think of it as an equity, is roughly $70 billion. That’s about the same market cap as one publicly-traded fintech stock called Paypal. That’s the smallest bubble I’ve ever seen relative to the scale of other financial crises.
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• GM’s Mary Barra makes a U-turn on China (by Jen Wieczner)
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Masayoshi Son is talking about a second Vision Fund. Goldman creates ‘a brain trust’ to boost deals business. A shocking end for U.S. World Cup is a blow to sponsors. How to turn down a billion dollars. How Israel caught Russian hackers looking for U.S. secrets.
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• Petuum, Inc, a Pittsburgh-based machine learning infrastructure platform, raised $93 million in Series B funding. SoftBank Group Corp. led the round, and was joined by investors including Advantech Capital.
• eShares, a Palo Alto, Calif.-based equity management platform, raised $42 million in Series C funding. Menlo Ventures and Social Capital co-led the round.
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• Brilliant, a San Mateo, Calif.-based developer of a voice and touch control system over lighting, music, climate, and other smart home products, raised $21 million in Series A funding. August Capital led the round, and was joined by investors including Miramar Ventures, The Box Group, and the Stanford-StartX Fund.
• Bigscreen, a Berkeley, Calif.-based virtual reality remote desktop app, raised $11 million in Series A funding, according to The Wall Street Journal. True Ventures led the round, and was joined by investors including Andreessen Horowitz. Read more.
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• SidelineSwap, a Franklin Square, N.Y.-based online marketplace for sports gear and equipment, raised $2 million in seed extension funding. Investors include Global Founders Capital, Haystack Partners, Riverpark Ventures and Fullstack Sports Ventures.
• GrowLife Inc, a Seattle-based indoor cultivation service provider, raised funding of an undisclosed amount from Chicago Venture Partners.
HEALTH AND LIFE SCIENCES DEALS
• Azura Ophthalmics Ltd., an Israel-based clinical-stage biotechnology company developing innovative therapies for meibomian gland dysfunction, raised $16 million in Series B funding. Investors include OrbiMed, TPG Biotech and Brandon Capital’s Medical Research Commercialisation Fund, and Ganot Capital.
PRIVATE EQUITY DEALS
• Carlyle Group has acquired a 50% stake in Supreme, a New York-based clothing brand and skateboard shop, for approximately $500 million, according to Woman’s Wear Daily. The deal values Supreme at around $1.1 billion. Read more.
• CoAdvantage, a portfolio company of Morgan Stanley Private Equity, acquired Progressive Employer Management Company, a Sarasota, Fla.-based provider of payroll administration, workers’ compensation, employee benefits and human resource solutions for businesses. Financial terms weren’t disclosed.
• The Abraaj Group acquired a majority stake in QBCo SAS, a Colombia-based private label food manufacturing company. Financial terms weren’t disclosed.
• Solium Capital Inc acquired Capshare, a Sandy, Utah-based cloud platform for cap table management, electronic-share tracking, modeling and waterfall analysis. Financial terms weren’t disclosed.
• Sun Capital acquired AMES Taping Tools, a Suwanee, Ga.-based provider of automatic taping and finishing tools, supplies and training for the professional drywall finishing industry. Financial terms weren’t disclosed.
• StayWell acquired San Francisco-based MedHelp’s health engagement platform, industry-leading applications and talent. Financial terms weren’t disclosed.
• Azalea Health, an Atlanta-based provider of fully integrated web-based healthcare solutions, merged with Prognosis Innovation Healthcare, a Houston-based provider of electronic health records to rural and community hospitals. Financial terms weren’t disclosed.
• Nexa Resources, a spin off of Sao Paulo-based Votorantim Metais Holding(VM Holding) which produces base metals, said it plans to raise $605 million in an offering of 31 million shares(34% insider) between $18 to $21 a piece. VM Holding posted revenue of $1.9 billion and earnings of $110.5 million in 2016. J.P. Morgan, BMO, Morgan Stanley and Credit Suisse have been named global coordinators in the deal. BofA Merrill Lynch, Citigroup, Scotiabank, Bradesco BBI, and Credicorp Capital are joint bookrunners in the deal. The company plans to list on the NYSE as “NEXA.”
• Express Scripts Holding agreed to acquire eviCore Healthcare, a Bluffton, S.C.-based provider of medical benefit management services, for $3.6 billion. The sellers were General Atlantic, TA Associates and Ridgemont Equity Partners.
• Google acquired 60db, a Palo Alto, Calif.-based podcast app, according to Business Insider. The company had raised funding of an undisclosed amount from investors including Khosla Ventures, Rivet Ventures, and Bloomberg Beta.
• Grubhub Inc. (NYSE: GRUB) acquired Eat24, a San Bruno, Calif.-based food delivery company, for $287.5 million, from Yelp.
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FIRMS + FUNDS
• Icon Ventures, a Palo Alto, Calif.-based venture capital firm, raised $265 million fund for its fund, Icon VI.
• Pontifax AgTech Management, a Santa Monica, Calif.-based growth capital investor in the global food and agriculture sector, raised $105 million for its first fund, the Pontifax Global Food and Agriculture Technology Fund.
• Sheel Tyle is raising a $100 million fund called Amplo focusing on seed and follow-on deals, according to Forbes. Previously, Tyle co-led the seed-investing practice at at New Enterprise Associates. Read more.