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Term Sheet — Friday, May 29

May 29, 2015, 2:02 PM UTC

Random Ramblings

“The valuations are just made up.”

This is a line I’ve heard (and read) over and over when it comes to the high prices that venture capitalists are paying to invest in tech startups, including the so-called unicorns. It’s said as a contrast to how companies are valued by the public markets, which is broadly-believed to be a better arbiter due to its relative size, dynamism and transparency.

And, to be sure, precious few of these unicorns have chosen to go public. But I’m not so sure that the public markets deserve their reputation as smarter than the private markets.

Since the beginning of last year, Pitchbook data shows there have been 17 U.S. IPOs of VC-backed tech companies that were valued at $1 billion or more either at the start or close of their first day of trading (excluding six such biotech companies). Of those, nine closed trading yesterday with stock prices lower than where their stock price opened on their first day of trading. Another one — New Relic — closed trading yesterday lower than where it closed on its first day of trading.

Or, put another way, the public markets overvalued more than half of the big VC-backed tech companies it “received” over the past 17 months. This isn’t about VC firms driving up prices to win deals. It’s about sophisticated public market investors being wrong, despite all of their supposed advantages.

And before you think that the public markets only overvalue, they can undervalue too. The aggregate market cap of those 17 companies was 65.23% higher yesterday than it was at the end of the cohort’s first day of trading (some of which, admittedly, is due to increases in the number of outstanding shares).

I’m not trying to argue that private market valuation creep isn’t an important issue, or that most of the unicorns will keep their horns. Instead, I’m simply saying that we shouldn’t use the public markets as a canny cudgel to reject tech startup valuations, since they haven’t proven any better at predicting future value.

 New fund alert: Healthcare growth equity firm Foresite Capital is nearing a final close on its third fund, which is expected to hit its $450 million hard cap, according to a source familiar with the situation. This comes just over one year since Foresite announced that it had raised $300 million for its second fund. Portfolio companies include Aduro BioTech, Intarcia Therapeutics, Sequenta and Zafgen. No comment from the firm, natch.

 Quiz Time: Can you name the longtime corp dev exec at a publicly-traded Internet giant who is heading to the VC world? Hint: This person helped lead one of the tech world's buzziest M&A deals of the past six months.

 Double-dip the chips: Yesterday's big deal was Avago's agreement to acquire rival chipmaker Broadcom for around $37 billion, which would be the largest pure tech merger in history. It's also helped push Avago stock even higher, thus generating some significant (paper) ROI for private equity firm Silver Lake.

You might recall that Avago was originally created in 2005 by Silver Lake and KKR, via a carve-out of Agilent's chip business. The two private equity firms would later take the company public and, by 2011, were effectively exited with around 5x cash-on-cash returns. Only real mistake was selling, given that Avago stock at the time was in the mid-$20's -- Silver Lake and KKR's original cost basis was $5 per share -- whereas it opened trading today at $144.50 per share.

Silver Lake, however, did get back in around 18 months ago, via a $1 billion convertible note deal that helped support Avago's all-cash $6.6 billion purchase of LSI Corp. Were Silver Lake to convert its notes at Avago's current trading price, it would be around a 3x return.

 Have a great weekend!


 Snapchat disclosed in a regulatory filing that it has raised $537 million in new equity funding (out of a total listed offering amount of $600 million). The company isn't commenting on the filing, but earlier reports suggest that this is the round that includes Alibaba at a $15 billion valuation, and that the offered securities were common stock. The filing says that some of the securities were sold as early as this past February.

CNBC's Kayla Tausche is reporting this morning that the round could end up garnering $650 million at around a $16 billion post-money valuation.

VENTURE CAPITAL DEALS, a Chinese ecommerce site for international fashion brand products, has raised $30 million in Series C funding. Pacific Venture Partners led the round, and was joined by return backer Kleiner Perkins Caufield & Byers.

 LifeImage, a Newton, Mass.-based platform for electronic medical image exchange, has raised $17.5 million in new VC funding led by Cambia Health Solutions, a Portland, Ore.-based nonprofit healthcare company. Existing shareholders include Cardinal Partners, Galen Partners, Health Evolution Partners and Long River Ventures.

 AutoGraph, a Seattle-based provider of personalized mobile experiences for consumers, has raised $2.7 million in new VC funding from existing backers like Voyager Capital and members of the Alliance of Angels.


 CVE Technology Group, a Riverdale, N.J.–based provider of smartphone repair and refurbishment services to carriers, insurers and smartphone manufacturers, has raised an undisclosed amount of funding from Bison Capital Partners.

 The Ontario Teachers’ Pension Plan has acquired Infiltrator Systems Inc., an Old Saybrook, Conn.–based manufacturer of engineered plastic chambers, synthetic aggregate leachfields, plastic tanks and accessories used in the wastewater and stormwater industries. The seller was Graham Partners, while Harris Williams & Co. managed the process. No financial terms were disclosed.

 Propel Equity Partners has acquired Juratoys, a France-based maker of European toy brands Janod and Kaloo. No financial terms were disclosed. Propel will fold Juratoys into its existing Alex Brands platform, which includes Slinky and Shrinky Dinks.

 St. Croix Hospice, an Oakdale, Minn.-based hospice provider owned by Clearview Capital Partners, has acquired certain assets of Iowa-based Saint Jude Healthcare for an undisclosed amount.

 The XLerate Group, a Charleston, S.C.–based auto auction company owned by Huron Capital Partners, has acquired Schoolcraft, Mich.-based Greater Kalamazoo Auto Auction. No financial terms were disclosed.


 Ironshore Inc., a Bermuda-based insurer, has withdrawn its $100 million IPO registration. This follows a recent agreement whereby China’s Fosun International will acquire the 80% of Ironshore it doesn’t already own for $1.84 billion.


 Apple (Nasdaq: AAPL) has acquired Metaio, a German augmented reality company that had raised VC funding from Atlantic Bridge Capital and Enterprise Ireland. No financial terms were disclosed. Read more.

 Daum Kakao, a listed Korean Internet company, has agreed to buy San Francisco-based photo-sharing site Path for an undisclosed amount. Path had raised nearly $80 million in VC funding from firms like First Round Capital, CrunchFund, Kleiner Perkins and Index Ventures. Read more.


 Equinix (Nasdaq: ENQX), a Redwood City, Calif.-based data center operator, has agreed to acquire UK rival Telecity Group (LSE: TCY) for £2.35 billion. Read more.

 J.D. Power, a subsidiary of McGraw Hill Financial Inc. (NYSE: MHFI), has agreed to acquire the Used Car Guide business of the National Automobile Dealers Association. No financial terms were disclosed for the deal, which is expected to close in early Q3.

 Pfizer has offered to acquire French gene-editing company Cellectis (Nasdaq: CLLS) for upwards of €1.5 billion, according to the FT. Cellectis completed its U.S. IPO just two months ago, at which time it counted Pfizer among its minority shareholders. Read more.

 Steris Corp. (NYSE: STR) said that it will fight the FTC’s expected decision to block its proposed $1.9 billion acquisition of Synergy Health (LSE: SYR), a UK-based provider of outsourced sterilization services for medical device manufacturers and hospitals. The tax-inversion deal was announced last year. Read more.


 HarbourVest Partners has agreed to acquire around a $1.5 billion portfolio of private equity fund interests from the Canada Pension Plan Investment Board, according to LBO Wire. Represented managers include PAI Partners and Welsh Carson Anderson & Stowe.


 Geraldine Alias joined Choate Investment Advisors as a portfolio manager and member of the firm's investment committee. She previously was a principal with North Bridge Growth Equity.

 Steve Cohen has been named president of the Excelsior Growth Fund, a nonprofit community development financial institution that makes loans to small businesses in New York State. He currently is executive VP and deputy commissioner at Empire State Development, where he leads the Department of Small Business Services and Community Economic Development.

 Carl Press has joined Thoma Bravo as a San Francisco-based vice president. He previously was a senior associate with HighBar Partners.

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