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March 30, 2017

THE WRONG KIND OF RETURN

Yesterday the startup community was buzzing over a story by Business Insider's Alyson Shontell about Wiley Cerilli, an entrepreneur and venture partner at First Round Capital, and President Trump's son-in-law Jared Kushner. Cerilli's startup, Good Uncle, took a small seed investment from Kushner. (Not to be confused with his brother Josh Kushner, who is a much more active venture investor through his firm Thrive Capital.)

Last year Cerilli, who disagreed with the political stances of Trump and was uncomfortable with Kushner's role the presidential campaign, did something unusual. He gave the money back. You can read the details of how that exchange went down here.

 
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Outside of a proper exit (selling or going public), it's very uncommon for startups to return an investor's money. When it does happen, it's usually for two reasons:

  1. The company is a failure and has some money left in the bank. It's a gesture that's meant to show goodwill by giving investors a partial refund. Secret, the anonymous social media app, returned some money to investors when it shut down.
  2. The company has decided to pivot. Many startups dramatically change course. If the company raised venture capital for, say, an on-demand delivery service, and suddenly becomes a photo-sharing company, it only seems fair to offer those VC's the chance to re-assess the opportunity.

There are practical reasons beyond the bait-and-switch: The startup may have pivoted to a business model that competes with other companies in the investor's portfolio. The most famous example of this is Instagram, which Andreessen Horowitz backed when it was a check-in service. Once it pivoted to become Instagram, it directly competed with another Andreessen Horowitz portfolio company. No money was ever returned, but Andreessen Horowitz declined to invest in future rounds because of the conflict.

Usually it goes the other way, as happened with Nextdoor. The company started out as a sports site called Fanbase. Two years later, when it pivoted to its current product, the founders asked its investors at Greylock if they wanted their money back. Greylock said no - they invested in the team, regardless of what product they eventually build.

The logistics of returning investor money can be complicated, because the startup and all of its investors must unanimously agree. It's not just the company and the single investor that wants out - every other investor needs to be offered the same deal, and they all have the ability to veto such a transaction. The more money the startup has spent, the more complicated the transaction becomes.

What Cerilli did - returning the money on principle -- is much rarer. The fact that his company had enough money in the bank and its investment from Kushner was small made the break-up easier.

I asked Founders Fund, Peter Thiel's venture firm, whether it had encountered anything similar, given Thiel's association with Trump. A firm spokeswoman said no portfolio companies have asked to divest.

If they had, they probably would have had a harder time than Cerilli. Founders Fund tends to lead deals, meaning the startup would be attempting to return the bulk of the capital it raised. That also means the companies would have already spent a bigger chunk of the money they're trying to return. For now, the Good Uncle give-back appears to be an isolated event. "Wiley is the most principled founder I've ever met," one investor said.

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VENTURE DEALS

Looker, a Santa Cruz, Calif. data analytics company, raised  $81.5 million in Series D funding. CapitalG led the round, and was joined by Geodesic Capital and Goldman Sachs, Kleiner Perkins Caufield & Byers, Meritech Capital Partners, Redpoint Ventures, and Sapphire.

Oodrive, a French software company, raised €65 million ($70 million) in funding, according to Tech.eu. Investors include Tikehau Capital, MI3, and NextStage. Read more.

Cava, a Rockville, Md.-based chain of fast-casual Mediterranean restaurants, raised $30 million in funding, according to the Washington Business Journal. Investors include Revolution Growth, SWaN & Legend Venture Partners, and The Invus Group. Read more.

Filament, a Reno, Nev.-based provider of wireless industrial networks, raised $15 million in funding. Verizon Ventures and Bullpen Capital led the round, with participation from Intel Capital, JetBlue Technology Ventures, CME Ventures, Flex technology accelerator program Lab IX, Backstage Capital, Tappan Hill Ventures, Samsung NEXT, Resonant Venture Partners, and Digital Currency Group.

Raise.me, a San Francisco provider of micro-loans to high school and college students, raised $12 million in funding. Redpoint Ventures led the round, and was joined by GSV Acceleration, Owl Ventures, First Round Capital, and SJF Ventures.

Voxy, a New York City online learning platform that creates custom lessons for English learners, raised $12 million in funding. SJF Ventures led the round, and was joined by Inherent Group, Rethink Education, Contour Venture Partners, Weld North, and GSV Acceleration.

ShapeShift, a Swiss digital currency exchange, raised $10.4 million in funding. Earlybird Venture Capital led the round, and was joined by Access Venture Partners, Pantera Capital, Lakestar and Blockchain Capital, FundersClub, Digital Currency Group, and Erik Voorhees.

JoyRun, a Palo Alto, Calif. peer-to-peer food delivery app, raised $8.5 million in Series A funding. Floodgate led the round, and was joined by Visionnaire Ventures, Morado Ventures, CrunchFund, Triplepoint Capital, and angel investors. Read more at Fortune.

Optolexia, a Swedish edtech startup using artificial intelligence to diagnosis dyslexia, raised €5.2 million ($5.6 million) in funding, according to Tech.eu. Gabriel Urwitz, CEO of Segulah, led the round, and was joined by Pomona Group. Read more.

Munchery, a San Francisco food delivery startup, raised a $5 million lifeline, according to Bloomberg. Investors participating in the funding round, which reportedly nearly eliminates the stakes of the company's founders and departed employees, include Menlo Ventures and Sherpa Capital. Read more.

Chute, a San Francisco visual marketing service, raised $4.1 million in Series B funding from Salesforce Ventures and existing investors, according to VentureBeat. Read more.

Lidya, a Lagos, Nigeria online lender, raised $1.25 million in seed funding. Accion Venture Lab led the round, and was joined by Newid Capital and angel investors.

Byju's, an Indian edtech startup, raised an undisclosed funding from Verlinvest, according to the Economic Times. Read more.

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HEALTH + LIFE SCIENCES DEALS

Solid Biosciences, a Cambridge, Mass. Biotech company developing programs to target Duchenne muscular dystrophy, raised $50 million in Series C funding. RA Capital Management and Bain Capital Life Sciences led the round, with participation from RTW Investments, Foresite Capital, Cormorant Asset Management, Leerink Partners, Perceptive Advisors, Janus Capital Management, and Biogen.

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PRIVATE EQUITY DEALS

Endeavour Capital acquired a minority stake in Berkeley Research Group, an Emeryville, Calif.-based strategic advisor and expert testimony firm, for $62.5 million.

Togetherwork, a Columbus, Ga. provider of financial services for fraternities and sororities, acquired ABC Sports Camps, a Sammamish, Wash. provider of online registration and event management software for sports camps. Togetherwork is backed by Aquiline Capital Partners. Financial terms weren't disclosed.

L Catterton invested in Rhone, a New Canaan, Conn. men's activewear and lifestyle brand. Terms weren't disclosed.

Bridge Growth Partners acquired a majority stake in Accedian, a Saint-Laurent, Canada provider of network performance monitoring and assurance services.

Shimao Property Holdings Limited (SEHK:813) and Starwood Capital Group established a new hotel joint venture based in China.

PumpMan Holdings, which is backed by Soundcore Capital Partners, acquired Alyan Pump, a Folcroft, Pa. provider of custom pump packages, system installations, maintenance, and repair services. Terms weren't disclosed.

The Carlyle Group (Nasdaq:CG) is the projected winner in the bidding war to acquire iNova, an Australian subsidiary of Valeant Pharmaceuticals (NYSE:VRX), according to The Australian. Read more.

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OTHER DEALS

Praxair's (NYSE:PX) planned $34 billion merger with Linde AG (DB:LIN) could be in trouble. Linde's labor representatives have urged their board members to vote against the deal, per Reuters. Read more.

ConocoPhillips (NYSE:COP) agreed to sell its oil sands and western Canadian natural gas assets to Cenovus (TSX:CVE) for C$17.7 billion ($13.3 billion).

Boston Scientific agreed to acquire Symetis, a Swiss medical technology company, for $435 million in cash.

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IPOS

Saudi Aramco, a Saudi Arabia-based energy and chemicals company, hired JPMorgan Chase, Morgan Stanley, and HSBC as financial advisers for its IPO, according to Reuters. Read more.

Blue Apron, a New York City-based meal kit company, hired Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS), and Citigroup (NYSE:C) to lead its planned 2017 IPO, according to Reuters. The company last raised money in June 2015 at a valuation as high as $2 billion. Read more.

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EXITS

Rover is acquiring rival DogVacay, a Santa Monica, Calif. online community that connects pet owners with on-demand pet-sitters and dog-walkers. Terms weren't disclosed. Read more at Fortune.

KRG Capital Partners agreed to sell PAS International Holdings, a Denver, Colo.-based corporation, to StandardAero Holdings. Financial terms weren't disclosed.

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FIRMS + FUNDS

Legend Capital, the Beijing-based private equity and venture capital arm of Legend Holdings (SEHK:3396), raised more than $400 million for its seventh fund, according to Private Equity International.

DW Healthcare Partners, a Park City, Utah-based private equity and venture capital firm focused on the healthcare industry, raised $295 million for its fourth fund.

LongueVue Capital, a New Orleans-based private equity firm, raised $252 million for its third fund, LongueVue Capital Partners III.

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PEOPLE

Effie Epstein joined Sound Ventures as a managing partner and chief operating officer. Previously, Epstein led global strategy at Marsh.

Dan Lane joined Harmony Partners as a principal. Previously he was an investor at General Atlantic.

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