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Term Sheet — Wednesday, May 20

May 20, 2015, 2:15 PM UTC

Random Ramblings

A bunch of items to kick off your Wednesday:

 Cop out: Rep. Paul Ryan (R-WI) yesterday said he was excluding carried interest tax treatment from this year's bipartisan business tax reform talks, meaning that the earliest it could be discussed is 2017. His rationale? "That is on the individual side of the code, so it’s not something that we’re looking at right now."

What a cop out. Ryan is right about the letter of the law, but not its spirit. Carried interest is collected by general partnerships and/or management companies, and then distributed to individual partners (who get to claim it as a capital gain). This isn't like regular income or even regular investment income. It is specific to business earnings and has every reason to be included in a business tax reform discussion.

 New fund alert: VC firm Formation 8 has quietly held a first close on a new $100 million-targeted fund that will invest exclusively in hardware companies, Fortune has learned. Among the initial limited partners is Flextronics, which is the former employer of Formation 8 partner Lior Susan (who is a co-lead partner on the hardware fund, alongside Jim Kim).

Also worth noting that Formation 8 also is raising a seed fund led by Drew Oetting. The firm continues to invest out of a $500 million flagship fund (Formation8 Partners II), which was raised last year.

 Strangeland: Just as Silicon Valley’s attention was turned to tip-off of the Golden State Warriors game last night, word came down that David Lee has resigned as managing partner of seed-stage investment juggernaut SV Angel. According to a memo sent to LPs, it was a “personal decision to spend more time with his wife, children, and extended family in Los Angeles. Effective immediately, Ron and Topher Conway will serve as co-Managing Partners of all SV Angel funds.”

To be clear, I have no reason to doubt the official explanation. And can certainly appreciate the logistical difficulty of running one of the Bay Area’s most active seed-stage investment groups when your home and family are located more than 350 miles to the south. Moreover, Lee is one of the few VCs who seems to garner universal admiration from peers and entrepreneurs.

However (you knew there was a ‘but’): Lee was the sole managing partner of SV Angel’s most recent fund, and also was the only person listed on several special purpose vehicles that SV Angel had used to make larger investments in unicorn-type deals. It is highly unusual for someone in that sort of position to resign without giving LPs any warning, nor even a transition period. LPs committed to Lee, and now SV Angel is basically telling them that Ron Conway (and his son) are in charge of vehicles that the elder Conway had previously referred to as “David’s.”

I reached out to both Lee and Ron Conway to ask if the move required LP approval, due perhaps to a keyman trigger. Lee didn’t respond, while Conway forwarded my email to a PR rep who declined further comment.

 Barney backtrack? Back in January, former Congressman Barney Frank appeared at a private equity industry conference, where he was asked for his thoughts on the Dodd-Frank rules that require SEC registration for any private equity firm with $150 million or more in AUM. He said that he disagreed with certain GOP efforts (led by Rep. Robert Hurt) to completely eliminate the registration requirement, but also suggested that the SEC should have the "power to adjust [the threshold] upwards after a certain period of years."

The statement sent waves throughout the private equity market, and elicited cheers from managers sitting just over that threshold. After all, what Democrats would oppose such a change if Barney Frank supported it?

Well, here's the thing: Barney Frank may not actually support it. In a recent Harvard University conference on ending institutional corruption (led by Larry Lessig), Frank was asked about his comments and basically plead ignorance. "I don't fully recall that," Frank said. "I may have misspoken... We did start out with a somewhat lower level. I may not have understood the question."

 Recommended reading: My Fortune colleague Leena Rao this week published an in-depth profile of venture capitalist, and former Facebook exec, Chamath Palihapitiya. In it, he talks on the record about his failed negotiations with Kleiner Perkins, and why his firm distributed 30,000 smartphones to people throughout the country. Read it here.


 Altice (Paris: ATC) has agreed to acquire a 70% stake in St. Louis-based cable operator Suddenlink Communications at an enterprise value of around $9.1 billion. The sellers are BC Partners and Canada Pension Plan Investment Board, which paid $6.6 billion to acquire the company in July 2012. BC Partners and CPPIB will retain the other 30% interest.

Altice also is considering a takeover bid for Time Warner Cable (NYSE: TWC), according to Reuters. Time Warner Cable’s prior agreement to be acquired by Comcast collapsed last month.


 Regenexbio Inc., a Rockville, Md.-based gene therapy company, has raised $70.5 million in Series D funding. Vivo Capital led the round, alongside return backers Brookside Capital and Venrock. Other participants included Janus Capital Management, Jennison Associates, Perceptive Advisors, QVT Financial, Tourbillon Global Ventures, Sectoral Asset Management, Cormorant Asset Management, Foresite Capital Management, RTW Investments, Deerfield Management and Fidelity Biosciences. Chardan Capital Markets served as placement agent.

WePay, a Palo Alto, Calif.–based provider of payment processing for websites, has raised $40 million in new VC funding. FTV Capital led the round, and was joined by Rakuten and return backers Highland Capital Partners, August Capital, Continental Investors and Ignition Partners. Read more.

Centro, a Chicago-based ad-tech company, has raised $30 million in new VC funding. Neuberger Berman Private Equity led the round, and was joined by return backer FTV Capital. Read more.

Coho Data, a Palo Alto, Calif.-based provider of “web-scale flash storage for the enterprise,” has raised $30 million in Series C funding. March Capital Partners led the round, and was joined by Hewlett Packard Ventures, Intel Capital and return backers Andreessen Horowitz and Ignition Partners.

General Fusion, a Vancouver-based developer of fusion energy, has raised C$27 million in new VC funding led by Malaysia’s Khazanah Nasional Berhad.

Fuze, a San Francisco-based cloud video conferencing company, has raised $20 million in new VC funding from Hermes Growth Partners. The company also acquired LiveMinutes, a Redwood City, Calif.–based online team workspace platform, for an undisclosed amount. LiveMinutes backers had included Great Oaks Venture Capital, Newfund Management (France) and Pritzker Group Venture Capital.

Algolia, a France-based provider of a SaaS search API for developers, has raised $18.3 million in new VC funding. Accel Partners led the round, and was joined by Lead Edge Capital, individual angels and return backers Alven Capital, Point Nine Capital and Storm Ventures. Read more.

Samanage, an Israel-based SaaS platform for managing internal assets, has raised $16 million in Series B funding. Marker LLC and Vintage Investment Partners co-led the round, and were joined by return backers Carmel Ventures, Gemini Israel Ventures and Silicon Valley Bank.

Stride Health, a San Francisco-based health insurance platform for freelancers and independent contractors, has raised $13 million in Series A funding. Venrock led the round, and was joined by Fidelity Bioscience and seed backer NEA. Read more.

Wonolo, a San Francisco-based provider of on-demand labor to fill hourly or daily jobs for small businesses, has raised $2.2 million in seed funding. PivotNorth Capital led the round, and was joined by CrunchFund and Foundry Group. Other company backers include the Coca-Cola Founders Program.



 Apollo Global Management has agreed to acquire two companies and merge them: Protection 1, a Lawrence, Kansas–based provider of business and home security services, and ASG Security, a Beltsville, Md.-based provider of security monitoring solutions. No financial terms were disclosed, except that the combined company is expected to have in excess of $500 million in annual revenue. Protection 1 currently is owned by GTCR, while AGS is being sold by Parthenon Capital Partners.

 ConvergeOne, an Eagan, Minn.–based provider of enterprise communications solutions and managed services, has acquired two network services companies companies: Mountain States Networking (Salt Lake City) and Sunturn (Littleton, Colo.). No financial terms were disclosed for either deal. ConvergeOne is a portfolio company of Clearlake Capital Partners.

eProdigy, a New York-based provider of online services to the alternative finance market, said that it has secured $100 million from an undisclosed private equity firm. The deal is structured as a term loan, a convertible note feature and participation rights.

Golden Gate Capital is among several private equity firms circling auto-parts and services retailer Pep Boys (NYSE: PBY), according to the WSJ. The company has a current market cap just south of $500 million. It had an agreement to be taken private in 2012 by Gores Group, but the deal later fell apart amidst poor Pep Boys earnings. Read more.

TA Associates has acquired a majority stake in Procare Software, a Medford, Ore.–based provider of child care management solutions. No financial terms were disclosed.


No IPO news this morning. 


 Hellman & Friedman has completed its previously-announced $2.8 billion sale of Wood Mackenzie, a UK-based energy analytics group, to Verisk Analytics Inc. (Nasdaq: VRSK).

Intel Corp. (Nasdaq: INTC) completed its previously-announced acquisition of German chipmaker Lantiq from Golden Gate Capital and T-Venture. No financial terms were disclosed.

Pandora Media Inc. (NYSE: P) has agreed to acquire New York-based music analytics startup Next Big Sound for an undisclosed amount. Next Big Sound had raised nearly $8 million in VC funding from firms like Foundry Group, IA Ventures and SoftTech VC.

Permira is in early talks to sell Genesys Telecommunications Laboratories Inc., a Daly City, Calif.-based maker of call center software, according to the WSJ. The company could be valued north of $3.5 billion (including debt).

Welltok Inc., a Denver-based health optimization platform, has acquired Predilytics, a Burlington, Mass.–based healthcare predictive analytics company. No financial terms were disclosed. Welltok has raised around $85 million in VC funding from NEA, IBM, Qualcomm Ventures, Emergence Capital Partners, InterWest Partners, Miramar Venture Partners Hearst Health Ventures, Catholic Health Initiatives and Okapi Venture Capital. Predilytics had raised over $20 million from Highland Capital Partners, Flare Capital Partners, Flybridge Capital Partners and Qualcomm Ventures.


 Amino Technologies (LSE AIM: AMO) has acquired Boox Media, a Finnish cloud TV platform, for €7.9 million. Read more.

 Charter Communications (Nasdaq: CHTR) said that it remains committed to acquiring BrightHouse Networks, an East Syracuse, N.Y.-based cable operator, for approximately $10.4 billion in cash and stock ($2b/$8.4b) from Advance Publications. The deal originally had been contingent on the Comcast/Time Warner Cable transaction being completed.

Liberty Global (Nasdaq: LBTY) chairman John Malone yesterday told Bloomberg that a merger with Vodafone (LSE: VOD) would be a “great fit.” Read more.

United Technologies (NYSE: UTX) is expecting bids later this month for its Sikorsky helicopter unit, according to the WSJ. Possible suitors include Boeing, Airbus and Lockheed Martin. Read Fortune’s earlier coverage.

 Weathernews (Tokyo: 4825), a Japan-based provider of crowdsourced weather information, has acquired Boston-based rival Weathermob for an undisclosed amount. Read more.


No firm or fund news this morning.


 Michael Barrish has joined Macquarie Group as a managing director of U.S. debt capital markets. He previously was with RBC Capital Markets.

 Feroz Dewan is stepping down as hedge fund operations at Tiger Global, in order to launch his own firm. The move results in Scott Shleifer taking over public equities. He previously had been co-head of Tiger’s private markers business, which now will be led solely by Lee Fixel. Read more.

 Ilya Fushman has joined Index Ventures as a general partner. He previously was head of product at Dropbox.

 Lona Nallengara is stepping down as chief of staff to SEC chairwoman Mary Jo White. No word yet on his future plans. Nallengara joined the SEC in 2011 as deputy director of the agency’s corporate finance unit. Read more.

 Longitude Capital has promoted Sandip Agarwala to managing director. He joined the firm in 2013, and focuses on structured investments in the biotech and medical device spaces.

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