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Term Sheet — Tuesday, March 24

Random Ramblings

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That was the message from Pinterest to its employees last week, during an all-hands meeting at the company’s San Francisco headquarters. But this wasn’t the sort of announcement that caused tears and frantic searches for cardboard boxes. Instead, it was followed by audible sighs of gratitude.

Fortune has learned that Pinterest told employees that if they have been with the company for at least two years and choose to move on (or who are terminated), they now can hold onto their vested stock options for another seven years (post-departure) without exercising them. By doing so, Pinterest has removed a massive tax liability that haunts the dream of many successful startup employees.

Here is how we described the broader situation last summer:

Early startup employees often take stock options in lieu of higher salaries. It’s a transaction covered in optimistic capitalism, with the employee betting that today’s worthless paper eventually will be valued higher than a few thousand greenbacks. And so the employee goes to work, in an effort to realize that vision.

But there is a big catch.

If the employee leaves the company after his options vest, he usually is required to exercise the options within a few months or else they are terminated. And exercising the options can create a big up-front tax bill.

The capitalist solution to this, of course, is for the employee to exercise the options and then sell some of the stock – either on the secondary market or back to the company – to cover the IRS demands. But many of the hottest startups are refusing to cooperate.

Pinterest, which recently raised new funding at an $11 billion valuation, is among those that has largely refused to cooperate (save for a tender offer back in October 2012). But, unlike many of its peers, Pinterest has spent time working on a creative way to solve the tax dilemma.

“The principle we’re operating under is one of fairness,” explains Pinterest co-founder Evan Sharp. “If you’ve made an important contribution to Pinterest, you should be able to keep that value. And that shouldn’t just be for people with enough cash to satisfy their tax liability.”

To be clear, Pinterst is not the first company to think of something like this. Asana last summer made a similar policy change, so that its ISOs don’t expire for 10 years after being granted. And I’m pretty sure that Quora was first to this party.

But Pinterest is the first of the so-called “unicorns” to take the plunge, and I’d imagine that its peers will soon feel pressure to do the same.

From the courthouse: Ellen Pao vs. Kleiner Perkins moves into the closing argument phase today, after which it heads to the jury. Barring a last-minute settlement — which seems highly unlikely — that means we are likely to have a verdict by the end of this week.

I have absolutely no idea what the jurors are thinking, but let me briefly play out worst case for Kleiner Perkins. It seems that Judge Kahn’s weekend ruling on punitive damages means that the VC firm could theoretically be on the hook for a whopping $160 million.

Pao sued the management company, rather than individual funds, and LPs tell me that they would not be required to pay any of a guilty verdict (namely thanks to LPA carve-outs for internal firm disputes, as opposed to the firm being sued by a portfolio company or other third-party entity). KPCB does have some insurance for this sort of thing, but legal sources say they’ve never heard of VC firms having insurance that even approaches the $160 million figure.

So who pays? This is where things get pretty murky. KPCB has a management company that collects fund fees, but even 2% annually on committed capital for its four most recent funds would only work out to $57 million per year (and, again, it isn’t still earning 2% on the full commit from an invested 2010 vehicle). Plus, a lot of that money is needed to keep the lights on, pay employees, etc. So my best guess is that there would be some sort of clawback situation, although it’s unclear how expansive that would be. Would it only apply to those who were with KPCB at the time of the alleged offenses? Or just those there now? If the former, would that include Ellen Pao herself?

Perhaps the only ones paying out of piocket would be the LLC’s actual three owners, which SEC registration docs list as John Doerr, Ted Schlein and Brook Byers. Or (big longshot) could the LLC file for bankruptcy, with a new LLC being formed to house the funds?

And, of course, all of this is predicated not only on a massive loss in this round, but also on losing an almost-certain appeal. So yes, we’re getting way ahead of ourselves. So let’s maybe revisit in a few days.


• Warburg Pincus has agreed to acquire a majority stake in Sterigenics International, a Deerfield, Ill.-based provider of outsourced contract sterilization services, from GTCR. The deal is being referred to as a recap, with GTCR retaining a minority position. No financial terms were disclosed, but Reuters put the enterprise value north of $2 billion (including debt). Goldman Sachs and Jefferies managed the process. Read more.


• Aeglea Biotherapeutics Inc., an Austin, Texas-based developer of treatments for inborn errors of metabolism and therapies targeting tumor metabolism, has raised $44 million in Series B funding. Return backers Lilly Ventures and Novartis Venture Fund co-led the round, and were joined by UT Horizon Fund and new investors OrbiMed Advisors, Jennison Associates, Venrock, RA Capital Management, Rock Springs Capital, Ally Bridge Group and Cowen Investments.

• Semma Therapeutics, a Cambridge, Mass.-based developer of a cell therapy for Type 1 diabetes, has raised $44 million in Series A funding. MPM Capital led the round, and was joined by Fidelity Biosciences, ARCH Venture Partners, and Medtronic. The company also said that “entered into an undisclosed agreement with Novartis Pharmaceuticals.”

• Localytics, a Boston-based analytics and marketing platform for mobile and web apps, has raised $35 million in Series D funding. Sapphire Ventures led the round, and was joined by return backers Foundation Capital and Polaris Partners. Read more.

• Rsam, a Secaucus, N.J.–based provider of governance, risk and compliance solutions, has raised $32 million in growth equity funding from JMI Equity.

• Lendio, a South Jordan, Utah-based small business lending marketplace, has raised $20.5 million in new funding. Napier Park’s Financial Partners Group led the round, and was joined by Blumberg Capital, North Hill Ventures, Pivot Investment Partners and return backers Tribeca Venture Partners, Runa Capital and Highway 12 Ventures.

• Improbable Worlds, a UK-based distributed computing platform for gaming developers, has raised $20 million in VC funding from Andreessen Horowitz. Read more.

• Falcon Social, a Denmark-based enterprise social media management platform, has raised $16 million in Series B funding. Prime Ventures led the round, and was joined by return backers Northcap and Target Partners.   

• M.Gemi, a Boston-based provider of hand-crafted Italian shoes, has raised $14 million in seed and Series A funding. Backers include General Catalyst Partners, Breakaway Ventures and Forerunner Ventures.

• Keywee, an Israeli content marketing startup, has raised $9.1 million in Series A funding. Innovation Endeavors and Marker LLC co-led the round, and were joined by The New York Times Company and UpWest Labs.

• Skycure, a mobile threat defense startup with offices in Israel and Silicon Valley, has raised $8 million in Series A funding. Shasta Ventures led the round, and was joined by New York Life Insurance Co. and seed backers like Pitango Venture Capital.

• Cotopaxi, a Utah-based maker of outdoor gear, has raised $6.5 million in Series A funding. Greycroft Partners led the round, and was joined by New Enterprise Associates, Forerunner Ventures, Lerer Hippeau Ventures and individual angels. Read more.

• Rigontec GmbH, a German developer of RNA-based immunotherapeutics for the treatment of cancer and viral diseases, has raised €4.8 million in new Series A funding (round total is now €14.25 million). Forbion Capital Partners and Sunstone Capital provided the new capital. Existing shareholders include Wellington Partners, Boehringer Ingelheim Venture Fund, NRW.BANK and High-Tech Gründerfonds.


• Advent International has agreed to acquire Brazilian higher education company Faculdade da Serra Gaúcha. No financial terms were disclosed for the deal, which is expected to close by July.

• American Securities has sponsored a recapitalization of Aspen Dental Management Inc., an East Syracuse, N.Y.-based dental support organization. No financial terms were disclosed. Existing Aspen Dental backers Ares Management and Leonard Green & Partners will continue to be company shareholders.

• Ares Management has completed its previously-announced acquisition of a 48% stake in American Tire Distributors Inc., a Huntersville, N.C.-based tire distributor, from TPG Capital for $620 million. In related news, ATD has withdrawn an IPO registration that it originally filed last summer. Read more.

• Baird Capital has acquired a majority stake in Clearwater Group, a UK-based provider of water treatment, hygiene, engineering and pump services. No financial terms were disclosed.

• The Carlyle Group has agreed to acquire a majority stake in asset services firm Conifer Financial Services LLC. No financial terms were disclosed for the deal, which is expected to close sometime next quarter.

• Dicom Transportation Group, a Montreal-based portfolio company of Wind Point Partners, has acquired Modern Forwarding, an Ontario-based provider of truckload and less-than-truckload transport with emphasis on U.S.-Canada cross-border business. No financial terms were disclosed.

• MB Funds has completed its previously-announced acquisition of Kotkamills Oy, a Finnish maker of specialty papers and wood-based products, from OpenGate Capital. No financial terms were disclosed.

• Humana Inc. (NYSE: HUM) has agreed to sell Concentra Inc., an Addison, Texas–based provider of urgent care and physical therapy, to a joint venture between Select Medical Holdings Corp. (NYSE: SEM) and Welsh, Carson, Anderson & Stowe. The deal is valued at around $1.055 billion in cash. Read more.

• J.H. Whitney Capital Partners has acquired Pediatric Services Holding Corp. (f.k.a. PSA Healthcare), a Norcross, Ga.–based provider of home care services for medically fragile children, from Portfolio Logic LLC and Nierenberg Investment Management Co. No financial terms were disclosed.


• Blueprint Medicines, a Cambridge, Mass.-based developer of kinase inhibitors for genomically-defined cancers, has filed for a $100 million IPO. It plans to trade on the Nasdaq under ticker symbol BPMC, with Goldman Sachs and Cowen & Co. serving as lead underwriters. The pre-revenue company has raised around $115 million in VC funding from firms like Third Rock Ventures (41.8% pre-IPO stake), Beacon Bioventures (13.43%), Partner Fund Management, Wellington Management Company, RA Capital, Tavistock Life Sciences, Perceptive Advisors, Sabby Capital, Cowen Investments, Redmile Group, Biotechnology Value Fund, Casdin Capital and Nextech Invest.


• Baird Capital has sold Digi-Star, a Fort Atkinson, Wis.-based provider of agricultural solutions involving weight sensors and control systems, to a subsidiary of Topcon Corp. (Tokyo: 7732). No financial terms were disclosed.


• Deutsche Wohnen (XTRA: DWNI), a German real estate company, has received Austrian regulatory approval for its €1.2 billion takeover of Austrian real estate company Conwert Immobilien (WBAG: CWI).

• Hotel Shilla Co Ltd., a subsidiary of Samsung Group, has agreed to acquire a 44% stake in DFASS, a Miami-based in-flight duty free retailer, for $105 million. The deal also includes an option whereby Hotel Shilla can acquire another 36% stake in DFASS within five years. Read more.

• Lenta (LSE: LNTA), a Russian budget hypermarket chain, has raised $225 million via a share sale that included investment from the Russian Direct Investment Fund. Read more.

• Ross Stores (Nasdaq: ROST), a Dublin, Calif.-based discount apparel and home goods retailer, announced a 2-for-1 stock split. Read more.

• Vivendi said that it has no plans to sell Universal Music Group, despite calls for it to do so from activist investor P. Schoenfeld Asset Management. Read more.

• Wilson Sporting Goods, a subsidiary of Finland’s Amer Sports Corp. (Helsinky:AMEAS), has agreed to acquire the Louisville Slugger baseball bat brand from Hillerich & Bradsby Co. Inc. for approximately $70 million. Under terms of the agreement, Hillerich & Bradsby will continue to manufacture the bats in its Louisville, K.Y. factory. Read more.


• Accel Partners has closed its fourth India-focused VC and growth equity fund with $305 million in capital commitments.


• Ruth Porat has stepped down as chief financial officer with Morgan Stanley, in order to take the same position with Google. Read more.

• The Carlyle Group has named managing director Brian Bernasek as head of global industrial and transportation team. It also has named managing director Stephen Wise as co-head of its global healthcare team (joining Karen Bechtel). Prior industrials/transport sector chief Greg Ledford will remain with the firm as a managing director.

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