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Term Sheet – Friday, July 25

July 25, 2014, 2:08 PM UTC


Hello, Erin Griffith here filling in while Dan is out. Contact me here: or here: @eringriffith

Last night SecondMarket announced its CEO and founder, Barry Silbert, would step down to focus on all things bitcoin. If you’ve been following Silbert, that should be no surprise — Silbert has been an major Bitcoin enthusiast and investor in the sector, backing at least 30 companies in recent years. He’ll now head up SecondMarket’s bitcoin business full-time and serve as chairman of SecondMarket Holdings, the parent company to both businesses.

But where does that leave SecondMarket? In 2011, the company was heralded as the latest innovation in employee retention and investment democracy. (Anyone can now buy pre-IPO Facebook!) SecondMarket even raised $34.2 million in venture funding itself, from Social+Capital Partnership, FirstMark Capital and Temasek Holdings. 

But then, pre-IPO Facebook share sales descended into utter chaos, and, as I wrote in Monday’s column, startup CEOs and investors are increasingly saying “no thank you” to secondaries. I spoke with SecondMarket’s interim CEO, Bill Siegel, about that last night. He’s been running operations for SecondMarket since 2011. (The interview has been condensed and lightly edited for clarity.)

How have SecondMarket’s products changed since the Facebook era?

Late 2011 was the fever pitch of  pure, over-the-counter, pre-IPO private company stock trading mania, centered mostly around Facebook. We knew Facebook was going public, and that was obviously a large source of revenue. But the market was shifting, starting a year prior to that. A lot of the other private companies didn’t like the way the pre-IPO market was shaping up.

We began to formulate a product around what private companies wanted and desired. The first was a legal solution. You could structure these things as tenders keep them private. The company controls everything--the rules, the price, who can sell and how much--not the external broker or some buyer that is scalping around for shares. Then we productized the user experience.

How has that shift worked out for you?

We have been developing this since the private market wound down [in early 2012]. These are very private transactions. We are having, in 2014, a record year. We’ve done almost $1 billion in private company secondaries in first half of this year.

Do you agree with what we wrote on Monday, that startups are increasingly wary about letting shareholders cash out early?

I can understand why companies are really reticent, and its why we changed our model back in 2011. The companies were being really proactive. We heard from the companies saying, “Quite frankly, [selling shares] should be outlawed because it's so distracting. We don’t want anything like [what happened at Facebook] to develop and we’re looking at ways to change the bylaws in our businesses so it can be explicitly outlawed.” Venture firms have said when founders are forming their companies, they’re [outlawing share sales] at that stage. That was when we realized a different solution was going to be required.

The pressure to give employees a little bit of liquidity will not go away. Fast-growing businesses are going to see the pressure increase and its a question of resources. The last thing you want to do when you’re the CFO is to hire three people to do stock plan administration because of all of the employees screaming for liquid equity.

The right of first refusal (ROFR) requests are not going to stop as you grow and get more mature and build up a large ex-employee stockholder base. There are always going to be people looking to buy that stock and looking at those ex-employees. The easiest way is to do a broad-based tender and clean up the cap table. A lot of the tenders are set up to align incentives. For example, a current employee can only sell 10%, but ex-employees have to sell 100%.

Who are the most common buyers on SecondMarket today?

One third is just the company tendering and using their own cash to buy back shares. Two thirds are third parties. Out of those, the most common are mutual funds — 75% are mutual funds, the other 25% are hybrid growth hedge funds. The mutual fund involvement is certainly notable. The sheer fact that these companies are waiting so much longer to go public and that value creation is accruing to venture investors is the main impetus for a lot of these mutual funds.

Are you doing more volume now than you were before Facebook?

This year we’ll do the same amount of private company secondary transactions that we did in the years where Facebook was at its largest. That’s notable because the size and velocity with which Facebook was trading during those years was gargantuan. We’ll do on the order of 50-60 transactions this year.

After Facebook, SecondMarket had layoffs and scaled back. Have you expanded back to the same size you were in those days, too?

No, we had a significant team. We’ve refined our sales and marketing model so it's not as labor-intensive as it was back them. That was over-the-counter, all phone-brokered at the time. We are not a phone broker anymore, we’re a product and technology company. No longer is the focus on trading, so it’s taking as little labor as possible to transact these secondaries.

You’re VC-backed as well. What’s ultimate outcome for SecondMarket?

We have a big market to get into and a few more products on the slate. It’ll be heads down for at least a couple of years.

What’s the future of secondaries?

The trend is towards repeat and recurring [tender offerings], and that is being messaged to employees at the company. People look at [equity] as a lottery ticket, kind of. When you run [a tender offer] every year or twice a year, that shifts the way the employees view that stock. This is actually now compensation. It’s not just a lottery ticket. That’s really meaningful, especially for growth companies. Companies can use that as a retention tool, and it can be a meaningful part of compensation.


 Correction: Yesterday's Term Sheet should have said that Graham Whaling joined Avista Capital Partners, not Graham Capital. Apologies for the error. 


NextNav, a Sunnyvale, Calif.- and McLean, Va.-based location services company, has raised $70 million in Series D funding led by New Enterprise Associates and Oak Investment Partners with participation from Columbia Capital, Telecom Ventures, and Goldman Sachs Investment Partners.



FanMode, a London-based social application for sports fans, raised $2.4 million in seed funding, primarily from Swedish and South African angel investors.

PhysIQ, a Naperville, Ill.-based startup that uses predictive analytics technology for health monitoring, closed a $4.6 million Series A funding round led by 

CounterTack, a Waltham, Mass.-based company threat detection company, raised $20 million in Series B funding from Alcatel-Lucent. with participation from Goldman Sachs, SFS VC, Fairhaven Capital, Razor’s Edge and the U.S. Army’s venture capital arm, OnPoint Technologies.

Tracksmith, a Wellesley, Mass.-based running apparel company, has raised $1.6 million from Lerer Hippeau Ventures, Index Ventures, and a number of angel investors. 

Intelomed Inc., a Pittsburgh-based medical device company, has raised $3.85 million in funding from high-net-worth individuals.

Essence Group Holdings Corporation, parent of Lumeris, a St. Louis-based provider of health management software, has raised $71 million in funding from prior investors Kleiner Perkins Caufield & Byers, Sandbox Industries, BlueCross BlueShield Venture Partners, and Camden Partners, as well as new investors, which were not disclosed.

Carigo, an Austin, Texas-based content storage software company, has raised $5 million in venture funding from undisclosed investors, according to an SEC filing.

Concepta, a York, England-based fertility and diagnostics startup, has raised £2.3 million ($3.9 million) in funding from Finance Yorkshire's Seedcorn Fund, Diagnostic Capital and Angel CoFund.

CrowdCurity, a San Francisco-based crowdsourced web security company offering “bug bounties” raised $1 million in seed funding from Tim Draper and Kima Ventures, with participation from Gerhard Eschelbeck, Dr. Fengmin Gong and 500Startups. The company participated the Bitcoin accelerator program, 

Fixed, a San Francisco-based app to help people fight parking tickets, has raised $1.2 million in seed funding. Investors include Y Combinator, Merus Capital, and angel investors.


SodaStream International, a Lod, Israel-based maker of carbonators, is in talks with private equity firms about a potential buyout, which would value the company at $828 million, Bloomberg reported. Trading was halted on the company’s shares after the news broke.  

Allegro Development Corporation, a Dallas, Texas-based provider of software for power and gas utilities, has agreed to a recapitalization by Vector Capital and Cerium Technology for an undisclosed price.

Dataflow, a Hong Kong- based provider of immigration compliance software, has sold to EQT Mid Market. Terms were not disclosed.

Injured Workers Pharmacy, a specialty pharmacy, has completed its sale to ACON Investments and Triton Pacific Capital Partners from Audax Group and Parthenon Capital Partners. Terms were not

Sanofi (EN PARIS:SAN) is reviewing options for an $8.5 billion portfolio of off-patent drugs. The deal has garnered interest from KKR, Blackstone Group, and TPG Capital Management, Bloomberg reported. The company has also discussed the sale with Warburg Pincus, Mylan Inc. and Abbott Laboratories.  

Bandit Industries, a Mount Pleasant, Mich.-based maker of wood chippers, stump grinders and forestry mowers, has agreed to sell to Huron Capital Partners in a recapitalization deal.

Brightside Group, a UK-based insurance broker, has been acquired by AnaCap Financial Partners for an undisclosed amount.


Healthscope Ltd, the Australian hospital company owned by TPG Capital Management and The Carlyle Group, will go public, pricing its shares at the top of its target range of A$1.76 to A$2.29 at A$2.10 ($1.98), raising A$2.25 billion ($2.12 billion) for its buyout owners, Reuters reported.

El Pollo Loco Holdings Inc., a Costa Mesa, Calif.-based  fast-casual restaurant, raised $107 million in its  IPO on Nasdaq under the symbol LOCO, selling 7.1 million shares for $15 at the top of its proposed range. That price gives El Pollo Loco has a market value of $538 million. El Pollo Loco is backed by Trimaran Capital.

Townsquare Media, Greenwich, Conn.-based operator of 312 radio stations, raised $92 million in its IPO on NYSE under the symbol TSQ. The company offered 8.3 million shares at $11, below its proposed range of $14 to $16. The company’s shares fell on its first day of trading. Townsquare is backed by Oaktree Capital Management.

Orion Engineered Carbons, Germany-based producer of carbon black, raised $351 million in its IPO on NYSE under the symbol OEC. The company offered 19.5 million shares, greater than the proposed amount, 18 million, at $18, below its proposed range of $21 to $24. The company’s controlling shareholders are Rhone Capital and Triton Private Equity.

Innocoll, an Ireland-based developer of biodegradable surgical implants, raised $59 million on NASDAQ under the symbol INNL, offering 6.5 million shares at $9, below the proposed range of $13 to $15. Shareholders include Cam Investment (28.7% pre-IPO stake), Morgan Stanley (23.6%), NewSmith Opportunities Private Equity Fund (12.7%) and ACL Investments (8%).


SFW Capital Partners has sold Agdata, a Charlotte, N.C.-based provider of data analytics for the agriculture and animal health industry it purchased in 2010, to Vista Equity Partners.

ADA Cosmetics, a Kehl, Germany-based supplier of cosmetics and accessories to hotels, has agreed to sell to Ardian, an investment company. ADA Cosmetics was acquired by the Carlyle Group in 2011.

CBS Local Media agreed to acquire Eventful, Inc., a concerts and events listing startup based in San Diego, for an undisclosed amount. Eventful had raised $19.6 million from DFJ, Omidyar Network, Bay Partners, and Telefonica Ventures.

Google (NASDAQ: GOOG) agreed to acquire San Francisco-based Twitch, a video platform and community for gamers, for $1 billion. Twitch has raised $35 million from Bessemer Venture Partners, Alsop Louie Partners, WestSummit Capital, Take-Two Interactive Software, Thrive Capital, and Draper Associates. Rumors of the deal first cropped up in May.

Secret Escapes, a London, U.K.-based luxury travel site that specializes in flash sales, has acquired London-based My City Venue, a digital concierge service, for an undisclosed price. Secret Escapes raised $13 million from Index Ventures, Octopus Ventures and Atlas Venture.

Quintiq, a provider of supply chain and operations planning software, has sold to Dassault Systèmes (Euronext Paris: DSY.PA) for approximately €250 million. Quintiq was 48%-owned by LLR Partners and Newspring Capital.


GE’s Measurement & Control business took a minority equity investment in Meridium, a Roanoke, Va.-based asset performance management (APM) software company, in order to jointly develop software.

Energy Future Holdings Corp. has solicited refinancing bids for its Oncor electricity distribution unit which is 80% owned by the firm. The bankrupt firm was taken private by KKR & Co., TPG Capital and Goldman Sachs Capital Partners seven years ago in the largest leveraged buyout in history.

Zillow ($Z), the largest U.S. real estate website, is interested in acquiring its primary competitor, San Francisco, Calif.-based Trulia ($TRLA), for as much as $2 billion in cash and stock, its current approximate market value. Read more at

Viator, a San Francisco-based provider of online and mobile travel bookings founded in 1995, has sold to TripAdvisor for an undisclosed amount.

Tensar International Corporation, a Morrow, Ga.-based soil company, has sold to Castle Harlan, Inc. The company was an investment of American Capital and KRG Partners. American Capital earned a $12.6% return on its investment.


Founders Fund has created an allocation within its $1 billion fifth investment fund for seed-stage investments in areas like aeronautics, advanced computing, energy, life sciences and nanotechnology called "FF Science."

New Capital Partners, held a final closing of its third private equity fund, New Capital Partners Private Equity Fund III L.P., at $232 million in commitments.  The fund had an initial target of $200 million.

KKR is currently marketing eight different funds to investors, the company said on its quarterly earnings report this week. That includes: a sophomore infrastructure fund, a direct lending fund and special situations funds.

CLSA Capital Partners has created a co-investment fund in partnership with Nexen, a tire maker in South Korea. National Pension Service of Korea (NPS) has invested, and MBK Partners, H&Q Asia Pacific, IMM Private Equity and Mirae Asset Private Equity will be involved. The fund has commitments of KRW300 billion ($295 million).


Orlando Mendoza has joined Method Advisors as a Boston-based partner Previously Mendoza led the private equity global advisory practice at Twin Focus Equity Partners.

Eric Bourguignon has joined Cantor Fitzgerald Europe as director of consumer and retail on the firm’s corporate finance team. Bourguignon was previously senior vice president on the retail coverage team at HSBC Investment Bank.