Term Sheet -- Tuesday, December 11

A DIRECT PUBLIC DEBUT

Good morning, Term Sheet readers.

Airbnb and Slack might be the first two unicorns to follow in Spotify’s footsteps.

According to Recode, the tech startups are considering making their public debuts via a direct listing of their shares. A direct listing is an unusual move with some clear benefits — no banks, no roadshow, no crazy fees, and no lock-up period.

All eyes were on Spotify when it went public in April because people thought its IPO could serve as a template for existing unicorns looking for a cheaper, more innovative approach to going public. Now, several are curious about going down the banker-less path.

As Recode notes, a company like Airbnb would fit the direct listing model well because 1) it does not need to raise any money as it would in a typical IPO and 2) it has a recognizable, global brand. However, unlike Spotify, Airbnb has not allowed for much private stock trading over the years, so this would make it hard to determine how to price its shares on opening day.

In March, I asked Spotify’s first investor, Northzone general partner Pär-Jörgen Pärson, whether he thought more unicorns would follow suit in pursuing the non-traditional IPO path. He said:

“I think it’s highly unlikely that a B2B company can go down this route. It’s just unlikely that a smaller market-cap company would be able to get enough interest in the capital markets. So for huge market cap, household names with cash-efficient models that don’t need to raise external capital, I absolutely think it could be a right fit. But there are very few companies who have all of those characteristics.”

This is why I was surprised to see that Slack, a B2B SaaS company, was also considering a direct listing. True — Slack is the rare enterprise startup with a brand that’s relatively recognizable that it might somehow work, but it seems like this is less obvious for Slack than it would be for Airbnb.

It’s hard to know whether the direct listing model is a good one given there’s only been only one sole example of a company that made it work. Unicorns have to ask themselves whether the risk is worth the reward in this case.

HEALTHCARE PREDICTIONS: Bob Kocher and Bryan Roberts are both longtime healthcare investors and partners at venture capital firm Venrock. They wrote a piece for Fortune about their top 10 healthcare predictions for 2018. Here are three interesting trends to watch, according to Kocher and Roberts:

Consolidation in digital health

Growth equity will get tighter in 2019 for small companies that have not achieved product market fit. This will lead to a flurry of consolidation into platforms. Many new companies have been started over the last five years, and it is time to sort the true successes from the “just OKs”. Compounding this trend is large employers going from being the early adopters, to more willing to rely on their health plan partners who have responded to the proliferation of point solutions by incorporating many of them into their standard benefit designs. This will be a rough transition for many early stage companies since payers have even longer sales cycles and higher standards for proving effectiveness than large employers.

InsureTech takes a lump or two

We think that we are near peak hype cycle for insurance technology. 2019 is likely to be a year of toe stubbing for many. Upcoding is one area of risk since it has proven to be the fastest way to make money in Medicare Advantage. Coding has led to a cat-and-mouse game of payers mining charts for uncoded diseases and CMS auditing them and nearly always finding errors and levying fines. Upcoding is so pervasive that CMS actually cuts Medicare Advantage reimbursement annually using a “coding intensity adjustment.” Start-up payers that have enjoyed great fundraising success are likely to find the very complex operations and scaling required for their actual businesses much harder than investor PowerPoint pitch creation.

Telemedicine takes off

We think that 2019 will be the year that payers finally realize that it is far better to fully embrace and encourage telemedicine usage as opposed to burying it in their unengaging member portals and clunky mobile apps. Oscar compellingly reports that more than half of their members use telemedicine and rely on Oscar to route them to care, increasingly telemedicine. Kaiser will do more than half of all visits virtually. Health plans now have enough years of claims data to discover that telemedicine saves a bunch of money and makes members far happier than going to a doctor’s office. Even Medicare is adding codes to reimburse telemedicine. As a result, we expect telemedicine usage to more than double in 2019, while making substantive inroads beyond flu & cold into areas such as chronic disease management.

Read more at Fortune.

SYSTEMATIC INVESTING: I just read a really interesting profile of Ryan Caldbeck, the founder and CEO of CircleUp. He’s talking about building a systematic fund in the private markets. On Twitter, he wrote, “Systematic quant VC/PE funds are coming, and they will grow quicker than anyone expects.” This move could either be insane or completely revolutionary. From the story:

What CircleUp is doing can’t be done sitting alone at a computer at home, says Kroner: Quantifying the investment process in private markets looks like a long shot because the data is not widely and easily available.

Yet the difficulty of the challenge excites [Ken] Kroner, who believes Caldbeck and his team will show the naysayers and slow movers that a systematic private equity fund is possible. “Once CircleUp proves that it can be done, you know that KKR and Blackstone and BlackRock’s private markets division are going to be copying CircleUp,” he says. “They’re going to be emulating CircleUp because there’s alpha on the table.”

Read the full profile here.

VENTURE DEALS

• Plaid, a San Francisco-based fintech company, raised $250 million in Series C funding. Mary Meeker led the round (from Kleiner Perkins’ growth fund), and was joined by investors including Andreessen Horowitz, Index Ventures, Goldman Sachs, NEA, Norwest Venture Partners, and Spark Capital.

• Vroom, a Grand Prairie, Texas-based national online auto retailer, raised $146 million in Series G funding. AutoNation led the round, and was joined by investors including T. Rowe Price Associates, Inc., L Catterton, General Catalyst Partners and Fraser McCombs Capital.

• InVision, a digital product design platform, raised $115 million in Series F funding. Spark Capital led the round, and was joined by investors including Goldman Sachs, Battery Ventures, ICONIQ Capital, Tiger Global Management, FirstMark, and Geodesic Capital.

• WhiteSwell, a company developing new ways to treat acute decompensated heart failure, raised $30 million in Series B funding. Investors include RA Capital Management and an InCube Ventures syndicate.

• Quali, a company that delivers environments-as-a-service for cloud and DevOps automation, raised $22.5 million in Series C funding. Jerusalem Venture Partners led the round, and was joined by investors including Dell Ventures, Kreos Capital, Evergreen Ventures, Gemini Israel Ventures and ORR Partners.

• Spring Discovery, an operator of a machine learning-based drug discovery platform, raised $18 million in Series A funding. General Catalyst and First Round co-led the round.

• AppOnboard, a Los Angeles-based mobile app demo and analytics platform for developers, raised $15 million in Series B funding. Breakaway Growth Fund led the round, and was joined by investors including Paul Heydon, Tiller Partners & Rainier Partners, Manta Ray Ventures, Runa Capital, Korea Investment Partners, Mirae Asset Management, MTGx, Troy Capital Partners, and 500 Startups.

• Jaanuu, an El Segundo, Calif.-based medical apparel brand, raised $15 million in funding. JMK Consumer Growth Partners led the round, and was joined by investors including the Nordstrom family and David Kessenich.

• Zesty.ai, an Oakland, Calif.-based artificial intelligence startup, raised $13 million in Series A funding. Blamar led the round, and was joined by investors including Plug & Play Ventures.

• Solo.io, a Cambridge, Mass.-based software company that helps enterprises adopt and operate cloud native technologies, raised $11 million in Series A funding. Redpoint Ventures led the round, and was joined by investors including True Ventures.

• BacklotCars, a Kansas City, Mo.-based online wholesale automotive marketplace, raised $8 million in funding. Origin Ventures led the round, and was joined by investors including Revolution’s Rise of the Rest Seed Fund, Pritzker Group Venture Capital, KCRise Fund, Royal Street Ventures, and Chaifetz Group.

• NavVis, a Germany-based provider of indoor spatial intelligence solutions for businesses, raised funding of an undisclosed amount for a total of $35.5 million. Digital+ Partners led the round, and was joined by investors including Kozo Keikaku Engineering Inc, MIG, Target Partners and BayBG.

• Pimcore, an Austria-based open-source software platform for managing digital data and customer experiences for any channel, device, or industry, raised $3.5 million in Series A funding. German Auctus Capital Partners led the round.

PRIVATE EQUITY DEALS

• Solara Medical Supplies, which is backed by Linden Capital Partners, acquired Pal-Med Inc, a South Carolina-based direct-to-patient provider of insulin pumps and diabetic testing supplies. Financial terms weren't disclosed.

• Meridian Adhesives Group acquired Evans Adhesive Corporation, a manufacturer of industrial adhesives. Financial terms weren't disclosed.

• Acrisure LLC, a Caledonia, Mich.-based national and global insurance brokerage, raised $2 billion in funding. Investors include Blackstone, Partners Group and Harvest Partners SCF.

• Addison Group, which is backed by Odyssey Investment Partners, acquired Mondo, a New York City-based professional staffing firm focused on information technology and digital marketing. Financial terms weren't disclosed.

• Hammond, Kennedy, Whitney & Company Inc acquired Fresh Direct Produce LLC, a Canada-based distributor of fresh, ethnic, tropical, organic and specialty produce. Financial terms weren't disclosed.

OTHER DEALS

Abiomed agreed to invest $15 million into Shockwave Medical, a company focused on the development and commercialization of intravascular lithotripsy to treat complex calcified cardiovascular disease.

IPOs

• Synthorx, a La Jolla, Calif.-based developer of immunotherapies for solid tumors, plans to raise $130.9 million in an offering of 11.9 million shares priced at $11, the midpoint of its $10 to $12 range. Avalon Ventures (32% pre-offering), RA Capital Management (28.2%), and OrbiMed (21.5%) back the firm. Jefferies, Leerink Partners, and Evercore ISI are underwriters. It plans to list on the Nasdaq as “THOR.” Read more.

EXITS

• EQT agreed to acquire Cast & Crew Entertainment Services, a Burbank, Calif.-based technology provider of software and services for the entertainment production industry. The seller was Silver Lake. Financial terms weren't disclosed.

FIRMS + FUNDS

• Cotton Creek Capital, an Austin-based lower-middle market private equity firm, raised over $148 million for its third fund, according to an SEC filing. The target is $250 million.