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Term Sheet — Friday, January 16

Friday Feedback

The sun is shining, the IPO market is expected to return next week and I’m just a couple days away from screaming my (cold and wet) head off in Foxboro. In other words, it’s time for some Friday Feedback.

Let’s kick off with a couple of emails about private equity fund valuations. Jason: “In addition to inflating fund values in support of new fund raises, to the extent you can, I would also try to dive into inflated fund values as it pertains to avoiding clawback scenarios. For example, say a fund has 4 current portfolio companies that are treading water with 2 great exits that produced significant carry.  Many LP agreements will state that the clawback goes into effect if the fund value dips below the carry hurdle rate. I would bet you’ll see some creative valuation techniques to avoid that scenario. As to your point on commonsense steps for LPs… good luck. I worked at a lower middle-market fund that had terrible performance and the LPs just stood around and stared at their feet.  The fund is still operational and drawing a management fee today… In speaking to LPs they are, for the most part, aware of the issues but don’t seem to want to burn the political capital necessary to rock the boat in order to get  the votes necessary to do anything about it.”

Anon LP: “There’s no doubt valuations get loftier prior to fundraising. We look for any recent changes in valuation methodology (e.g. EBITDA multiple to P/E multiple or NPV of discounted cash flows). More importantly, for established firms, we first analyze the realized track record. Presuming a decent sample size (20+ exits) and an attractive, well dispersed multiple and IRR, many LPs undertake a ‘X’ quarters prior exercise. I’ve done three and five quarters for ‘X.’  We compare ultimate exit price to the valuation three or five quarters prior for that entire basket of realized exits.  We do find that many of our best firms are actually quite conservative and see a big uptick between those end points. Then for the unrealized portfolio, the assessment really needs to be company-by-company.”

• Jeremy on Cuba: “There is definitely excitement around Cuba in certain industries (hospitality and cruise are likely two of the early winners). But, the U.S. relaxing its embargo is only half the equation: Cuban politics is a major (often forgotten) hindrance to US (or European) firms entering that market. Although its government has publicly stated it are open to international investment, the committee in charge of issuing investment permits has yet to approve a single foreign investment contract since the new law was passed and department formed last year.

• Adam on the rise of connected home startups in an age of falling home ownership: “Home ownership can increase in the absolute and also drop as a percentage of the whole (population expansion). Also, if the wealth gap expands, those at the top (who are probably more likely to own single family residences) will have more excess cash flow/liquidity available to support the market for these new products. So perhaps there can be viability and scale in some of these ideas.”

• Josh on Chris Sacca’s Lowercase Capital fund that currently has a paper return multiple of 216x on called capital: “I’d love to know how many investments did he make out of that $8M fund, and/or what size were the investments in those good companies? If he made 20 investments of $400K each, that is an even more incredible story, vs. if he made 300 investments of $25K each, which might say more that it was a good vintage to be doing seed investing.”

Okay Josh. From what I can tell from the documents, the fund invested in 32 different companies, with 19 of those investments still active. It works out to an average of $185,000 invested per company (sometimes over multiple rounds), although the median is a hair below $100,000. The only investment above $1 million was for Twitter stock, while the fund’s most lucrative investment — Uber — was below the median.

• Have a great weekend… Go Pats!


• ClassPass, a New York-based fitness class subscription service, has raised $40 million in Series B funding led by General Catalyst and Thrive Capital.


• Clinipace Worldwide, a Morrisville, N.C.-based provider of clinical research software, has raised $50 million in new equity and debt financing. Virgo Investment Group led the round, and was joined by Crestline Investors and return backers Morgan Stanley Expansion Capital, Hatteras Venture Partners, Harbert Venture Partners and Mario Family Funds. An SEC filing suggests that the equity tranche is around $32 million.

• Agrivida Inc., a Medford, Mass.-based developer of enzyme-feedstock systems for animal nutrition, has raised $12 million in Series D funding. Cultivian Sandbox Ventures led the round, and was joined by an affiliate of Maschhoff Family Foods, Middleland Capital, the Sontag Family Trust and return backers Kleiner Perkins Caufield & Byers, DAG Ventures, Bright Capital Partners, Gentry Venture Partners, Northgate Capital and PrairieGold Venture Partners.

• Clear Clinic & Schweiger Dermatology Management Co., a provider of dermatology services in the New York metro area, has raised $12.4 million in Series A funding led by SV Life Sciences.

• Skydio, a Menlo Park, Calif.-based drone startup, has raised $3 million in seed funding. Andreessen Horowitz led the round, and was joined by Accel Partners.


• Ardian and Resource Partners have acquired Polish cookie-maker Chojecki for an undisclosed amount. Chojecki will be merged with European confectionary company Delicpol, which Ardian and Resource Partners acquired back in 2012.

• Castik Capital, a Luxembourg-based private equity firm, has acquired Waterlogic PLC, an Ireland-based provider of point-of-use drinking water purification and dispensing systems and services, for £122.6 million.

• Consero Global Solutions, an Austin, Texas-based provider of cloud-based outsourced finance and accounting services, has raised $5 million in private equity funding from Kayne Partners.

• Dexter & Chaney Inc., a Seattle-based provider of financial and operational management software for construction contractors, has secured an undisclosed amount of growth equity funding from Pamlico Capital.

• Essia Health, a Woodland Hills, Calif.-based provider of medical scribes and EMR go-live support services, has acquired Eastside Specialty Scribes, a Bellevue, Wash.-based medical transcription company. No financial terms were disclosed. Essia Health is a portfolio company of Camden Partners.

• Genstar Capital has completed its previously-announced acquisition of Telestream, a Nevada City, Calif.-based provider of live and on-demand digital video tools and workflow solutions, from Thoma Bravo. No financial terms were disclosed.

• GI Partners has agreed to completed its previously-announced acquisition of Canadian healthcare IT company LogibecInc. from OMERS Private Equity for an undisclosed amount.

• Partners Group has agreed to invest an undisclosed amount in the construction of Seabras-1, which would be the first direct subsea fiber optic cable between New York and Sấo Paulo, Brazil. The total project cost is approximately $500 million, and the developer is Seaborn Networks.

• Quintana Energy Partners has acquired Fairview, Okla.-based Cimarron Acid and Frac from Annapurna Capital Management. No financial terms were disclosed.

• Thompson Street Capital Partners has acquired EchoSat Communications, a Lexington, Ky.-based provider of technology solutions for the transmission, translation and security of payment data. No financial terms were disclosed. Partnering with Thompson Street on the deal was Tom Wimsett, founder and managing partner of payments consulting firm Wimsett & Co.

• Welsh, Carson, Anderson & Stowe has acquired a majority stake in AIM Software, an Austria–based provider of data management software to the financial services industry. No financial terms were disclosed.

• White’s Holdings LLC, a Washington, Penn.-based oilfield services company, has raised an undisclosed amount of private equity and debt funding from F.N.B. Capital Partners, Ridge Capital and Kayne Anderson. First National Bank of Pennsylvania provided senior financing


• Entellus Medical Inc., a Plymouth, Minn.-based developer of “balloon” devices for dilation of chronic sinusitis, has set its IPO terms to 4.375 million shares being offered at between $15 and $17 per share It plans to trade on the Nasdaq under ticker symbol ENTL, with BofA Merrill Lynch and Piper Jaffray serving as lead underwriters. It would have an initial market cap of around $279 million, were it to price in the middle of its range. Shareholders include Esses Woodlands Health Ventures (26% pre-IPO stake), SV Life Sciences (23.9%), Split Rock Partners (21.1%) and Covidien Ventures (7.2%).


• Advent International has hired Goldman Sachs to find a buyer for German debt collection company GFKL, according to Reuters. The deal could be valued at more than €500 million. Read more.

• Foschini, a South African clothing retailer, has acquired British clothing and apparel retailer Phase Eight from TowerBrook Capital Partners for £238 million.


• Comdata has hired Barclays to find a buyer for its Stored Value Solutions gift card unit, according to peHUB. The deal could be valued at more than $600 million, with private equity firms expected to bid. Comdata is a subsidiary of FleetCor Technologies (NYSE: FLT). Read more.


• 17 Capital of London has closed its third private equity fund-of-funds with €500 million in capital commitments.

• CTI Life Sciences, a Montreal-based VC firm focused on life sciences startups, has closed its second fund with C$134 million in capital commitments. Limited partners include Teralys Capital, BDC Capital, Fonds de solidarité FTQ and Caisse de dépôt et placement du Québec.

• Infosys Ltd. (NYSE: INFY) has launched a $250 million “Innovate India Fund” that will support Indian start-ups in such areas as artificial intelligence, automation, pervasive connectedness as well as collaboration and design technologies. This is in addition to the company’s existing $250 million venture fund.

• NGP Energy Capital Management has closed its eleventh natural resources private equity fund with $5.325 billion in capital commitments.

• TVC Capital, a San Diego-based growth equity firm focused on the software sector, has closed its third fund with $115 million in capital commitments.

• Warburg Pincus has allocated around $1 billion for deals in the mining sector, according to Bloomberg. Read more.


• The Blackstone Group has named Kenneth Caplan global chief investment officer of its real estate unit, reporting to group head Jonathan Gray. Caplan has been Blackstone’s head of European real estate, a role that now will be taken on by London-based Anthony Myers.

• Larry Keele is planning to retire from Oaktree Capital Management, the firm he co-founded and for which he currently leads a $5 billion U.S. convertible securities portfolio, as first reported by. Read more.

• Philip Kemp has joined Waud Capital Partners as a principal focused on investor relations. He previously served in IR functions at such private equity firms as Doughty Hanson, Ripplewood Holdings and India Equity Partners.

• Leeds Equity Partners, a New York-based private equity firm focused on the education market, has made several promotions: Scott VanHoy to managing director, Eric Geveda to principal, Christopher Mairs to principal, Kevin Malone to vice president and Doug Saidenberg to associate.

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