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Term Sheet — Thursday, June 11

Random Ramblings

Last week I wrote a bit about the lack of big VC-backed tech exits so far this year. Yesterday I got a bit more detailed in a blog post, and have a few follow-up thoughts:

1. Fitbit is scheduled to price its IPO next Wednesday night. If successful — which is almost certain, unless prospective investors freak out about yet another lawsuit from rival Jawbone — it would be just the eighth VC-backed tech company to go public this year. And there aren’t any more scheduled for June. That means 2015 is on pace for fewer VC-backed tech IPOs than in any year since 2009 (i.e., the throes of the financial crisis).

2. While exits for VC-backed tech companies have been lethargic, there has been some strong IPO and exit activity for VC-backed biotech companies. Got to think there are some pangs of regret right now at the slew of generalist venture firms that killed off (or effectively decimated) their life sciences practices a few years back.

3. I’m beginning to wonder about how the rise of founder-controlled share structures is playing into the reticence of unicorns to go public. Not only because of vote control, but also because investors don’t have any real ability to accelerate the type of internal discipline that public market investors demand. And, if I’m right, will this become a large enough issue that early-stage VCs begin shying away from such transactions in the first place?

4. We had some Twitter debate yesterday over whether or not LPs really care about time to exit, in terms of how it affects their IRRs. Some folks felt that top LPs ignore IRR in favor of cash-on-cash returns, so all’s well that ends well. While I generally agree that cash-on-cash is king, that ignores the reality that portfolio managers are indeed judged on IRR in the interim — and sagging IRRs could result in those portfolio managers not being kept around for the eventual salad days. Moreover, many big IPOs result in stock distributions to LPs rather than cash distributions, so the LPs can hold on for the upside if they so desire.

5. Most LPs who manage VC portfolios also manage PE portfolios, the latter of which continues to throw off cash. There could be a trickle-down effect when it comes time for follow-on fundraising. LPs do tend to move toward the distributions…

6. Some VCs tell me that the real IPO issue is structural, in terms of the rise of activists and the relative lack of long-term holders. I’ve got a few quibbles with this — particularly given that mutual and hedge funds are doing later-stage deals for the purpose of getting an IPO foothold — but let’s accept the thesis. If so, then why are valuations continuing to rise so steadily, when the exit door is partially closed? It’s hard to have it both ways.

• Your turn: The private equity club deal has been effectively dead for several years now, thanks to factors like increased LP co-investment programs. But recently I met with an LBO exec who tells me that a lesson he took from the financial crisis was how valuable it was to have so many different points of view around the boardroom when things got tough.

So here is my question for you, dear readers: Do you believe the burst of pre-crash club deals helped prevent the rash of LBO blowups that many expected? And, if so, should LBO firms reconsider their current approach?

• Personnel note: David Gorton has quietly rejoined private equity firm Tailwind Capital as a managing director. He was with the firm as a vice president until 2012, before leaving to join J.F.Lehman & Co. as a principal.

• As the tux turns: Back in February, Erin Griffith reported that ousted Men’s Wearhouse founder George Zimmer was raising cash for a ecommerce tuxedo rental business. Then he seemed to drop it, instead launching an on-demand tailor service whose initial partners include Macy’s. Now comes word that Macy’s has also partnered with Men’s Wearhouse on a… tuxedo rental business.


• Pax Labs, a San Francisco-based developer of vaporization technology that is entering the e-cigarette market, has raised $46.7 million in Series C funding. Fidelity and Sivia Capital were joined by return backers like Tao Capital and Sand Hill Angels. Read more at Fortune.


• Twist Bioscience, a San Francisco-based startup focused on synthetic DNA, has raised $37 million in Series C funding. Illumina Inc. led the round, and was joined by Fidelity Management and Research Co., Foresite Capital Management and return backers like Tao Invest, ARCH Venture Partners Paladin Capital Group and Yuri Milner.

• XTuit Pharmaceuticals Inc., a Cambridge, Mass.-based developer of therapeutics targeting disease-promoting microenvironment in cancer and fibrotic diseases, has raised $22 million in Series A funding. New Enterprise Associates led the round, and was joined by CTI Life Sciences, Arcus Ventures, Omega Funds and Polaris Partners.

• Personali, an online service that helps retailers make real-time price adjustments, has raised $12 million in VC funding led by Norwest Venture Partners. Read more.

• Evrythng, a London-based IoT smart products platform, has raised $7.5 million in new VC funding. BHLP LLC and Atomico co-led the round, and were joined by Dawn Capital, Cisco Systems and Samsung Ventures.

• ZypMedia (f.k.a. ExtendTV), a San Francisco-based programmatic media-buying platform for local advertising, has raised $4.4 million in Series B funding. Sinclair Broadcast Group (Nasdaq: SBGI) led the round, and was joined by return backer U.S. Venture Partners.

• Rinse, an on-demand dry cleaning and laundry service, has raised $3.5 million in seed funding. Backers include Arena Ventures, ff Venture Capital, Great Oaks Venture Capital, Accelerator Ventures, MESA Ventures, Expansion Venture Capital, Rothenberg Ventures, Base Ventures, Structure Capital and Otter Rock Capital.

• Kolibree, a French maker of connected electric toothbrushes, has raised an undisclosed amount of Series A funding from SEB Alliance, Innovacom, Cap Horn Invest and the Dental Investment Group for Health.


 Arbor Investments has sponsored a recapitalization of Concord Foods, a Brockton, Mass.–based maker of food products and custom ingredients to the consumer, foodservice and industrial markets. No financial terms were disclosed.

• Arlon Group has acquired The Coastal Companies, a processor and supplier of fresh produce and dairy in the Mid-Atlantic region, from MSouth Equity Partners for an undisclosed amount.

• The Blackstone Group and Goldman Sachs are part of a group that is bidding for Northern Rock’s $20 billion mortgage securitization vehicle, according to Reuters. Also in the consortium are Och Ziff and TPG Capital’s special situations unit. Read more.

• Bravo Sports, a Santa Fe Springs, Calif.-based maker of sporting goods and outdoor equipment, has raised an undisclosed amount of private equity funding from St. Cloud Capital.

• J. Crew, the apparel retailer owned by Leonard Green & Partners and TPG Capital, said that it is cutting 10% of the jobs at its New York headquarters. It also has tapped a new head of design for women’s wear at its namesake brand. Read more at Fortune.

• KKR has acquired two hotels in Antwerp: The Radisson Blu Astrid Hotel and the Park Inn Hotel. No financial terms were disclosed.

• LNK Partners said that it is investing $100 million to help support the $4 billion acquisition of Life Time Fitness Inc. (NYSE: LTM) by Leonard Green & Partners and TPG Capital.

• StoneCalibre has acquired Broadcast Microwave Services Inc., a Poway, Calif.-based maker of mobile microwave communications equipment, from Cohu Inc. (Nasdaq: COHU). No financial terms were disclosed.


• Axovant Sciences Ltd., a Bermuda-based developer of an Alzheimer’s therapy acquired from GlaxoSmithKline, raised $315 million in its IPO. The company priced 21 million shares at $15 per share, compared to earlier plans to offer 17.9 million shares at between $13 and $15 per share. It has an initial market cap of around $1.4 billion, and will trade on the NYSE under ticker symbol AXON. Jefferies, Evercore ISI and RBC Capital Markets served as lead underwriters.

• Blue Buffalo Pet Products, a Wilton, Conn.-based maker of natural pet foods, has filed for a $500 million IPO. It plans to trade on the Nasdaq under ticker symbol BUFF, with J.P. Morgan and Citigroup serving as co-lead underwriters. The company reports $102 million of net income on $918 million in revenue for 2014. Shareholders include The Invus Group.


• Microsoft (Nasdaq: MSFT) has acquired BlueStripe Software, a Morrisville, N.C.-based provider of application management services, for an undisclosed amount. BlueStripe had raised funding from Trinity Ventures and Valhalla Partners. Read more at Fortune.

• VMG Partners has agreed to sell Vega, a provider of plant-based nutrition products, to WhiteWave Foods Co. (NYSE: WWAV) for around $550 million in cash.


• Johnson Controls (NYSE: JCI) said that it is considering a spinoff of its auto parts business, which generated around $22 billion in revenue last year.

• Monsanto (NYSE: MON) said that it will take its unsolicited $45 billion takeover bid for Swiss agribusiness Syngenta AG (Swiss: SYN) directly to Syngenta shareholders. Earlier this week, Monsanto sweetened the offer with a $2 billion breakup fee if the merger fails to garner regulatory approval. Read more.

• Sidewalk Labs has been launched by Google to focus on “developing and incubating urban technologies to address issues like cost of living, efficient transportation and energy usage.” It will be led by former Bloomberg CEO Dan Doctoroff. No financial terms were disclosed. Read more at Fortune.

• Willis Group Holdings (NYSE: WSH) has agreed to acquire Elite Risk Services Ltd., a provider of risk services, re/insurance broking and consultancy services to clients in Taiwan. No financial terms were disclosed.


• Goldman Sachs has raised more than $1 billion from its high-net-worth clients for its second fund to invest in later-stage private companies, according to the FT. Read more.

• Shoreline Capital has raised $500 million for its third fund focused on Chinese distressed debt and special situation investments. It also has held a $115 million first close on an “overflow” sidecar fund.


• Andrew Kwee is joining Australia-based MLC Private Equity as head of a new office in New York City. He previously was a partner with LGT Capital Partners.

• John Mack, former chairman and CEO of Morgan Stanley, has joined Star Mountain Capital as a senior advisor and strategic investor.

• Matt Murphy has joined Menlo Ventures as a managing director. He previously was a partner with Kleiner Perkins Caufield & Byers.

• Dongao Yan and Jessie Chenxian Gao have joined the Hong Kong offices as a senior vice president and senior associate, respectively. Yan previously was with FLAG Squadron Asia, while Gao was with Partners Group.

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