GROWTH AT ALL COSTS
Good morning, Term Sheet readers — I’m back!
Snap: $310 million loss on $320 million in revenue
Uber: $1 billion loss in the first three months of 2019
Lyft: ~$1 billion loss in 2018
Slack: $140 million loss in the last fiscal year
I read a Wall Street Journal column titled, “Why Investors Don’t Care That Snap and Lyft Are Hemorrhaging Money” with great interest this morning. It explains how Silicon Valley seems to be shielded from expectations of profitability. Who cares if you’re losing billions of dollars as long as you’re growing? Hell with profitability, investors think, we’re betting on the ~future~.
The story notes:
Not all sectors work like this. If an unprofitable restaurant chain tried to build an IPO on a promise to add more stores, the market would scoff, Mr. Ritter says, because no one will believe that you can make money on 150 restaurants if you can’t do it with 100.
What makes tech companies different? The belief that their product has a much brighter future where revenues will eventually rise to cover an astronomical cost base, and that they’ll eventually be freed of the cutthroat competition that forces them to buy market share.
Consider this: Right before the dot-com bubble burst, more than 600 companies held initial public offerings in 1999 and 2000. Only 14% of those companies were profitable. [*cringe*] Before you panic, it’s important to note that these days fewer startups are going public, and many of the companies actually making it to public markets are well capitalized and already have a proven business idea — even if that idea is a money-losing car or an unprofitable ride-hailing service.
So the bottom line is this — growth sells. Investors today are willing to overlook profitability so long as there’s a promise for long-term growth. “Eye-popping market capitalizations are assigned to companies whose plan for profitability is hard to discern beyond their willingness to spend and spend and spend on growth that promises a profit…someday,” the story says.
My question to you is this: Do you buy the long-term growth story that founders are selling? Or do you see a day when all of this outrageous spending comes crashing down? Reply to this email & share your thoughts.
‘CONTRACTS OF SILENCE:’ Speaking of things you should absolutely care about, signing a non-disclosure agreement is one such thing. My colleague Jeff John Roberts writes about how NDAs have played a central role in a number of recent tech industry controversies, raising new questions about their proliferation and scope.
At companies like Google, Apple, and Amazon, every low-level employee or contractor is expected to sign an NDA, and so are vendors and visitors. The contracts typically don’t specify a dollar figure for violating the terms, but they do make one thing clear: Anyone who talks too much—about anything from their salaries to their manager’s weird behavior—may be sued.
I’ve written before about how NDAs and claims of “trade secret” can become a problem when companies are doing something shady. At Theranos, for example, silence was golden. The company kept departments siloed, preventing employees from discussing projects with one another. It also demanded all visitors sign a non-disclosure agreement before entering the building.
When hundreds of millions of dollars are on the line, investors should expect accountability, transparency, and verification. This is becoming harder and harder as private companies actively work to maintain secrecy. Roberts explains that it’s unlikely that companies will reform this practice on their own and that “any checks on the use of NDAs may have to come from political leaders.”
• Magic Leap, a Plantation, Fla.-based augmented reality startup, raised $280 million in funding, from NTT DOCOMO Inc.
• Coursera, a Mountain View, Calif.-based online learning platform, raised $103 million in Series E funding. SEEK Group led the round, and was joined by investors including Future Fund and New Enterprise Associates.
• BostonGene, a Boston-based biomedical software provider, raised $50 million in Series A funding. The investor was NEC Corporation.
• Tray.io, a San Francisco-based automated workflows startup, raised $37 million in Series B funding. Spark Capital led the round, and was joined by investors including Meritech Capital, GGV Capital, True Ventures and Mosaic Ventures.
• Vue.ai, a Redwood, Calif.-based developer of an AI platform that helps online retailers, raised $17 million in Series B funding. Falcon Edge Capital led the round, and was joined by investors including Sequoia and Global Brains.
• Butternut Box, a London-based fresh dog food business, raised £15 million ($19.4 million) in funding. Five Seasons Ventures and White Star Capital co-led the round, and were joined by investors including Passion Capital, Literacy Capital, and Kreos Capital.
• Lattice, a San Francisco-based people management platform, raised $15 million in funding. Shasta Ventures led the round, and was joined by investors including Thrive Capital, Khosla Ventures and Y Combinator.
• AskNicely, a Portland, Ore-based and New Zealand-based customer feedback platform, raised $10 million in Series A funding. Nexus Venture Partners led the round, and was joined by investors including Blackbird Ventures and K1W1.
• ZeroNorth, a Boston-based provider of orchestrated risk management, raised $10 million in Series A funding. ClearSky Ventures led the round, and was joined by investors including Crosslink Capital, Rally Ventures, and Petrillo Capital.
• Savonix, a San Francisco-based cognitive health company, raised $9.6 million in funding. Fusion Fund and Wavemaker Partners led the round, and were joined by investors including DEFTA Partners, Rethink Impact and DigiTx Partners.
• Viral Launch, an Indianapolis-based provider of software and services for brands, raised $7.3 million in Series A funding. Tenfore Holdings led the round, and was joined by investors including Mentor’s Fund and UpOver Ventures.
• Babel Health, a Pittsburgh-based provider of risk adjustment software and services to health plans, raised $5 million in Series A funding. Investors include Draper Triangle Ventures.
• MakersPlace, a San Francisco-based blockchain art platform, raised $2 million in seed funding. Uncork Capital led the round, and was joined by investors including Draper Dragon Fund and Abstract Ventures.
HEALTH AND LIFE SCIENCES DEALS
• Sirnaomics Inc, a Gaithersburg, Md.-based biopharmaceutical company focused on RNAi therapeutics against cancer and fibrotic diseases, raised $47 million in funding. Investors include CR-CP Life Sciences Fund, Rich Yield Capital, Rolling Boulder Investment and Legend Sky Investment.
• Symic Bio, an Emeryville, Calif.-based biopharmaceutical company, raised $11 million. Cell Innovation Partners led the round.
PRIVATE EQUITY DEALS
• EMV Capital acquired a controlling stake in Vortex Biosciences, a Palo Alto, Calif.-based provider of liquid biopsy of circulating tumor cells. Financial terms weren’t disclosed.
• LLR Partners made an investment in Magaya Corporation, a Miami-based provider of warehouse, cargo and supply chain management software solutions. Financial terms weren’t disclosed.
• Elanco Animal Health (NYSE:ELAN) agreed to acquire Aratana Therapeutics (NASDAQ:PETX), a pet therapeutics company. Financial terms weren’t disclosed.
Parsons, a Centreville, Va.-based defense tech firm, plans to raise $500 million in an IPO of 18.5 million shares priced between $26 to $28 apiece. It posted revenue of $3.6 billion in 2018 and income of $222 million. It plans to list on the NYSE as “PSN.” Read more.
Mayville Engineering, a Mayville, Wi-based manufacturing services firm, plans to raise $126 million in an IPO of 6.3 million shares priced between $19 to $21 apiece. GreatBanc Trust Company backs the firm. It plans to list on the NYSE as “MEC.” Read more.
Peloton Therapeutics, a Dallas-based biotech focused on kidney cancer, filed for a $115 million IPO. The firm has yet to post a revenue. The Column Group (19.6%), Topspin Partners (11.3%), and Nextech Invest (5.8%) back the firm. J.P. Morgan, Citi and Jefferies are underwriters. It plans to list on the Nasdaq as “PLTX.” Read more.
Bicycle Therapeutics, a Cambridge, U.K.-based developer of oncology therapies based on bicyclic peptides, filed for a $86 million IPO. The firm posted revenue of $7.1 million in 2018. Atlas Venture (9%), Novartis (12.7%), and GlaxoSmithKline (12.2%) back the firm. Goldman Sachs, Jefferies and Piper Jaffray are underwriters. It plans to list on the Nasdaq as “BCYC.” Read more.
Cortexyme, a South San Francisco, Calif.-based biotech creating Alzheimer’s disease therapies, plans to raise $74.8 million in an IPO of 4.4 million shares priced between $16 to $18 apiece. Pfizer (14.7% pre-offering) backs the firm. It plans to list on the Nasdaq as “CRTX.” Read more.
IDEAYA Biosciences, a South San Francisco, Calif.-based firm focused on cancer immunotherapies, filed for a $70 million IPO. The firm has yet to post a revenue. 5AM Ventures (18.7%), Canaan Partners (15.6%), and Celgene (7.8%) back the firm. J.P. Morgan, Citi and Jefferies are underwriters. It plans to list on the Nasdaq as “IDYA.” Read more.
Applied Therapeutics, a New York-based Phase 2 biotech focused on diabetic cardiomyopathy, plans to raise $60 million in an IPO of 4 million shares priced between $14 to $16 apiece. Alexandria Venture and E Squared back the firm. It plans to list on the Nasdaq as “APLT.” Read more.