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August 16, 2018
THE NEW WEALTH OF NETWORKS

Good morning, Term Sheet readers. In today's guest column, Floodgate partner Mike Maples explores how the tech community can harness the power of connections in a world of "networked capitalism."

Matters of housekeeping: Please email deals to lucinda.shen@fortune.com.

 
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A little more than a decade ago, I started investing in startups. My whole career had been as an entrepreneur and operator. It was a new challenge.

The thesis was simple: The most valuable businesses of the future would be networks, rather than traditional companies. I got off to a good start, investing in companies like Twitter and Twitch. Soon, Ann Miura-Ko and I co-founded Floodgate, and we backed other networks like Lyft, Okta, Xamarin, and many more.

Today, I am convinced that:

  • Software-defined networks will be the most valuable businesses, displacing traditional corporations as central actors.
  • Networks can bring exponential improvements in prosperity throughout the world.
  • Networks will encounter fierce resistance from traditional businesses, governments, and other parts of society that don't want a different future.
  • Tech leaders are part of the problem, and this needs to change for networks to realize their full potential.

From Companies to Networks

Free-market capitalism has recently come under fire, so it's easy to lose sight of the miracle of the last 200 years. Technologies of the railroad and steam engine, combined with financial innovations of a stock market, made it possible for big companies to drive extraordinary breakthroughs. Prosperity leapt massively forward. The worldwide standard of living increased 14-fold from 1800 to 2000—the most in human history by far.

Networks are even more powerful because their foundations are even stronger. Large corporations leveraged mass production, mass distribution, and economies of scale. Networks leverage mass computation, mass connectivity, and network effects. Because computation and connectivity improve at exponential rates, the owner of a network has insurmountable advantages over the owner of a traditional corporation.

Examples have emerged already: Taxis are company-centric. Lyft is a software-defined network. Airbnb applies this to the domain of hospitality. And smartphones from Apple overpowered traditional mobile phones from Nokia. But it's only beginning. Soon, we will see networks reimagine all sectors of the economy, from energy to manufacturing, to money itself.

What's new and why now?

Smartphones were the tipping point. Now a device that was smart and connected could be used by billions. Once we had a world where computers and connectivity were pervasive, the "tech industry" was no longer part of the economy… for the first time, software-defined networks became the animating force of the economy.

Corporations have used software and networks since the 50s, but for a different reason: As a way to improve their existing business models. Hotels have used software to automate reservations, but not to change the business of hospitality. Nokia used software to manufacture phones, run their back office and their CRM systems, but their phones were enhanced by software and networks rather than defined by them.

Corporations believe that bits enhance atoms. Networks recognize that bits are the new capital and atoms are the new labor.

Crypto Networks are coming next

Crypto and blockchains reimagine money, based on software-encoded sound money principles enforced by large-scale networks.

Governments have substituted politically-motivated policies for the integrity of sound money, reducing growth, long-term investment, and personal freedoms. Irresponsible manipulation of the price of money has enriched insiders and Wall Street speculators while punishing the Middle Class. And too often financial service providers haven't been accountable for the fees they charge, the risks they take, the quality of service they deliver, or their transparency to customers.

The shift to networks will be messy

Corporations raised thorny questions. Child labor, antitrust laws, and trade unions were a pushback to early corporate overreach. Luddites broke machines. Populist politicians like William Jennings Bryan promised a return to a simpler time.

Today is messy too. "Rent-seekers" like the taxi lobby try to prevent the spread of ride sharing. Fear of immigration and globalization clouds our policy making. We also see self-promoters like Elizabeth Holmes at Theranos pitching technologies that claim to promise a better future while taking advantage of people's optimism.

Greatness is a decision. So is a better future. Moore's Law and Metcalfe's Law are exponential, which means they can bring abundance to everyone on earth. We can repeat the miracle of the last 200 years, but faster and with less impact on the environment.

Whether you are an entrepreneur, corporate exec, financier, or government official; whether you are in Silicon Valley or Beijing, Shanghai or Caracas, Peoria or Zug—harnessing the power of networks is one of the most important duties for those who want to create prosperity and fulfill our potential in the coming future.

However, the global startup culture needs to grow up. We don't need "disruptors," "dis-intermediators," "brogrammers," robots that "eat" jobs, or technology that eats anything at all. We need people like Bill Hewlett, David Packard, and Bob Noyce. We need the next Andrew Carnegie and J.P. Morgan. We need to bring prosperity forward for more people more quickly and show how this is possible so people will be excited and not afraid.

Read the op-ed on the site here. You can find Mike Maples on Twitter here.

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THE LATEST FROM FORTUNE...

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Twilio Hires Ex-Video Game Executive Nils Puhlmann as Its Security Chief (by Robert Hackett)

PepsiCo Is Creating a New Unit to Develop Smaller Brands (by Beth Kowitt)

CEO-to-Worker-Pay Ratio Nears Pre-Financial Crisis Levels (by Lucinda Shen)

ELSEWHERE

Amazon may be going after theaters. Uber's losses. $400 million for HEC Pharm from Blackstone. CalPers adopts new private equity policy. Pot publication won't take Bitcoin in IPO. Artemis looks to sell stake in Busson's hedge fund group. Tesla's reported subpoena. Tecent's rare profit drop.

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VENTURE DEALS

Deposit Solutions, a Hamburg-based banking platform, raised $100 million in funding. Vitruvian Partners led the round and was joined by investors including Kinnevik and e.ventures.

Sila Nanotechnologies, a maker of battery materials, is raised $70 Million in Series D funding. Sutter Hill Ventures led the round and was joined by investors including Next47 and b.

Sen Do Technology, a Ho Chi Minh City-based online marketplace, raised $51 million in Series B funding. SBI Group led the round, and was joined by investors including SoftBank Ventures Korea, Daiwa PI Partners, and SKS Ventures.

Common Networks, a San Francisco wireless internet service provider, raised $25 million in Series B funding. General Catalyst led the round and was joined by investors including Eclipse Ventures and Lux Capital.

AxiaMed, a Santa Barbara, California-based healthcare payments technology firm, raised $12.4 million in funding. Health Enterprise Partners led the round.

Karma, a Stockholm-based startup that helps for restaurants and supermarkets to sell unsold food to consumers, raised $12 million in funding.  Kinnevik led the round, and was joined by investors including Bessemer, Electrolux, and e.ventures.

Clobotics, a Seattle and Shanghai-based maker of drones and retail intelligence solutions, raised another $11 million in its Series A round. New investors included Nantian Infotech VC and Wangsu Company.

Lucidity, a Los Angeles-based digital advertising blockchain, raised $5 million in funding. 3Rodeo, CoinUs, Cypher Group, YouBi Capital, and Pithia were the investors.

Visor, an real-time data and gaming improvement developer, raised $4.7 million in Series A funding. Accel led the round and was joined by investors including Y Combinator, Afore Capital, and NextGen Venture Partners.

ListingSpark, an Austin-based real estate listing platform with a reduced fee, raised $2 million in Series A funding. The investor was Silverton Partners.

ROOM, a New York-based firm for office spaces, raised $2M in seed funding. Slow Ventures led the round.

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HEALTH AND LIFE SCIENCES DEALS

Bugworks Research, an India and Delaware-based biopharma startup targeting multi-drug resistant bacteria, secured $9 million in series A funding. University of Tokyo Edge Capital led the round, and was joined by investors including Acquipharma Holdings and 3ONE4 Capital.

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PRIVATE EQUITY DEALS

Align General Insurance Agency merged with Catalytic Risk Managers, a San Diego-based insurance firm, with funding from Bregal Sagemount. Financial terms weren't disclosed.

Dominus Capital invested in BluSky Restoration Contractors, a Centennial, Colo.-based provider of restoration and roofing services. Financial terms weren't disclosed.

KCM Capital Partners recapitalized Atlantic Beverage, an Edison, N.J.-based food and beverage distributor in partnership with existing investors Huron Capital and Stonehenge Partners. Financial terms weren't disclosed.

Medlogix LLC, a portfolio company of Excellere Partners, acquired Integrity Medicolegal Enterprises and Michigan Evaluation Group, two medical record review firms based in Minneapolis, Minn. and Southfield, Mich. respectively. Financial terms weren't disclosed.

Patria Investimentos is reportedly weighing a bid for Companhia Energetica de Sao Paulo, Reuters reports citing a source. Read more.

Pinnacle Dermatology, a portfolio company of Chicago Pacific Founders, acquired North Oakland Dermatology, a North Oakland, Mich.-based dermatology practice. Financial terms weren't disclosed.

Rising Sun Ventures acquired a majority stake in Eyenalyze, a Conway, Ak.-based data analytics software firm for restaurant owners and franchises. financial terms weren't disclosed.

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IPOs

TKK Symphony Acquisition, a Hong Kong-based blank check company seeking a consumer focused business, priced its $220 million IPO, saying it plans to offer 22 million shares priced at $10 apiece. Former TPG partner Sing Wang is CEO. EarlyBirdCapital is underwriter. It plans to list on the Nasdaq as "TKKSU." Read more.

111, a Shanghai-based online retail drugstore, filed for a $200 million IPO. It posted revenue of $145 million and loss of $37.7 million. J.P. Morgan, Citi, and CICC are underwriters. It plans to list on the NYSE as "YI." Read more.

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EXITS

Best Buy agreed to acquire GreatCall, a San Diego provider of connected health and personal emergency response services, from GTCR,  for $800 million.

Coinbase acquired Distributed Systems, a decentralized identity startup. Distributed Systems previously raised $1.7 million in funding from investors including Floodgate, Version One Ventures, the House Fund, 8VC, and Alsop Louie Partners. Financial terms weren't disclosed. Read more.

JD Beauty Group, a portfolio company of Topspin Partners, agreed to acquire Ouidad, a New York City-based hair curling products maker, from JH Partners.

Vista Equity Partners invested in iCIMS, a Holmdel, N.J.-based recruitment tech firm. Susquehanna Growth Equity, the seller, will remain a shareholder. Financial terms weren't disclosed.

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F+FS

Ridgemont Equity Partners raised $1.25 billion of a targeted $1.5 billion of its third fund, per SEC filings.

Foundation Capital plans to raise $350 million for its ninth venture fund, per SEC filings.

Matrix Partners raised $300 million for its third Indian venture fund, per SEC filings.

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PEOPLE

Minsoo Chi joined Spider Capital as a Senior Associate. He was previously an Associate at NGP Capital. Neal Goldman also joined as an Operating Partner. He was previously cofounder and CEO of Capital IQ.

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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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