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Term Sheet — Tuesday, June 16

June 16, 2015, 2:04 PM UTC

Random Ramblings

Earlier this month, around 100 institutional investors gathered at the Rosewood Hotel in the heart of Silicon Valley, for the annual limited partner meeting of venture capital firm Andreessen Horowitz. What they heard was the firm’s staunch belief that the tech market is not currently in a bubble, despite the proliferation of so-called unicorn startups.

The VC firm’s argument was first presented to investors by chief operating officer Scott Kupor, via a slideshow that is now available on the firm’s website. It primarily compares the current environment to that of the dotcom bubble, showing that today’s tech investment volumes are much smaller despite a much larger number of Internet users (not to mention mobile Internet users). The firm also argues that the unicorn development — and relative lack of IPOs — means that most of the value appreciation is going to private market investors (i.e., those in the room).

For example, Andreessen Horowitz reports that the total amount of venture capital and IPO financing dollars in 2014 was $48 billion, compared to $71 billion in 1999. That works out to around 2.6% of today’s GDP, while the 1999 figure comprised a much higher 10.8% of GDP. Moreover, the S&P IT index’s forward price-earnings ratio is 16.1x today versus 39x in 1999. All of this comes at a time when the global Internet population is 7.5x larger and annual e-commerce revenue is up more than 25x.

As for the unicorns, Andreessen Horowitz essentially argues that all of these later-stage, high-dollar venture rounds are essentially substitutes for IPOs, which it acknowledges are on "life support." The volume of early-stage funding, however, has remained somewhat stable since the financial crisis.

What that means, according to the VC firm, is that private market investors are in line to recognize much more value from their 2015 portfolios than they were in past eras — as evidenced by public market investors like mutual funds and hedge funds dipping down to improve their cost bases.

In short: This time is different because there are always differences between markets that are 15 years apart. What’s important, Andreessen Horowitz believes, is understanding these differences and how they should impact investment returns (positively or negatively). And as its slides show, the firm remains bullish.

But there are three big issues that, from my perspective the Andreessen Horowitz presentation glosses over a bit too quickly:

1. While it is true that today’s tech P/E multiples are closer to the early 1990’s than the late 1990’s, a big part of that is because so few of the unicorns have gone public. So is it really an apples to apples comparison? Moreover, while public equity investors were the main beneficiaries of past stock price run-ups for companies like Amazon and Microsoft, they also were the primary losers when a wider swath of VC-backed tech companies collapsed in late 2000 and 2001. When trying to understand the current lack of unicorn IPOs, one common explanation is that these companies, while typically older than 1999 IPO issuers, share traits like unprofitabilty and immature corporate governance. What if VC firms like Andreessen Horowitz are nearing the same type of inflection point that public equities investors hit in late 2000? Different but the same? The flip-side of hoarding value appreciation by keeping companies private is that you’re also increasing risk.

2. In a related vein, Andreessen Horowitz’s presentation treats the relative lack of tech IPOs as a sign of market health. As I wrote last week, there is a much less charitable way to view it. Moreover, the lack of IPOs also means that the public markets have yet to validate many of these unicorn valuations.

3. One difference between 1999 and today that wasn’t addressed in the presentation was that of founder control, or how VCs have much less influence over portfolio companies than they did in years past. Part of this, of course, is directly related to the success of Facebook — a founder-controlled company that opted not to sell out early (against the advice of most of its investors and advisors, save for the notable exception of Marc Andreessen) in an obvious stroke of business genius. It is unclear how this change will ultimately play out, but it certainly puts much more value on startup stock-picking than on operational value-add.

 Update: Last month we reported that Martini Media, a San Francisco-based company that connects brands with luxury online audiences, has quietly signed a letter of intent to be acquired by a strategic buyer. But we didn't know the buyer's identity. This morning comes word that it is lifestyle content publisher. Evolve Media.

Dear private equity folks: Yes, I know I've been focusing a bunch on VC stuff these last couple of weeks. I blame lingering Silicon Valley fumes. But heading over to SuperReturn U.S. now, so...


Coty (NYSE: COTY) is nearing a deal to buy three brands -- Calvin Klein, Cerrutti and Wells -- from Procter & Gamble Co. (NYSE: PG) for upwards of $12 billion, according to the NY Post. Private equity firms KKR, Warburg Pincus and CD&R also reportedly had interest in buying some of the brands. Read more.




 Zymergen, an Emeryville, Calif.-based biological materials engineering company that leverages both robotics and big data, has raised $44 million in Series A funding. Data Collective led the round, and was joined by AME Cloud Ventures, Draper Fisher Jurvetson, HVF, Innovation Endeavors, Obvious Ventures, True Ventures and Two Sigma Ventures. Read more.

 Hello, a San Francisco-based maker of sleep monitors, has raised $40 million in new VC funding led by Temasek at around a $250 million valuation ,according to the FT. Read more.

Lattice Engines, a San Mateo, Calif.–based predictive marketing startup, has raised $28 million in Series D funding. River Cities Capital and Piper Jaffray Merchant Banking co-led the round, and were joined by return backers Sequoia Capital and NEA. Read more.

Actility, a Paris-based Internet-of-things startup, has raised €22.5 million in new VC funding. Ginko Venturers (a unit of Foxconn) led the round, and was joined by KPN, Orange, Swisscom, Fonds Ecotechnologies, Idinvest Partners and Truffle Capital.

ServiceTitan, a Glendale, Calif.-based cloud-based management platform for home service businesses, has raised $18 million in Series A funding at around a $100 million valuation. Bessemer Venture Partners led the round.

CyMedica Orthopedics, a Scottsdale, Ariz.-based developer of medical devices that target muscle atrophy, has raised $11.5 million in Series A funding. Backers include Research Corporation Technologies, California Technology Ventures and Aphelion Capital.

Azimo, a London-based digital money transfer service, has raised $20 million in Series B funding at a reported $100 million valuation. Frog Capital led the round, and was joined by MCI Investments and return backers and Greycroft Partners. Read more.

CricHQ, a New Zealand-based cricket digital platform, has raised US$10 million in funding from Tembusu Partners (Singapore).

EnSilo, an Israeli cybersecurity startup, has raised $10 million in Series A funding. Lightspeed Venture Partners led the round, and was joined by return backer Carmel Ventures.

Philo, a San Francisco-based platform that lets college students access live TV or DVR on a multitude of devices, has raised $10 million in Series B funding. Return backer New Enterprise Associates led the round, and was joined by CBC New Media Group, HBO, Rho Ventures, XFund and CEO Andrew McCollum.

La Ruche qui dit oui (dba The Food Assembly), a France-based platform for connecting local growers and other food producers with consumers, has raised $9 million in Series B funding. Union Square Ventures and Felix Capital were joined by XAnge and Quadia.

Sketchfab, a New York-based online platform for sharing 3D files, has raised $7 million in Series A funding. FirstMark Capital led the round, and was joined by return backers Balderton Capital, Borealis and TechStars.

Connectifier, a Costa Mesa, Calif.–based online recruitment platform that leverages AI, has raised $6 million in first-round funding. True Ventures led the round, and was joined by Galeo Ventures, Okapi Ventures and individual angels. Read more.

PolicyGenius, a Brooklyn, N.Y.-based insurance policy quote and compare platform, has raised $5.3 million in Series A funding. Karlin Ventures and Susa Ventures co-led the round, and were joined by AXA Strategic Ventures.

SigOpt, a new open-source optimization platform, has raised $2 million in seed funding from firms like Andreessen Horowitz and Data Collective. Read more.

Sigfox, a French provider of a cellular network dedicated to the Internet-of-Things, has raised an undisclosed amount of new funding from Samsung, according to TechCrunch. This appears to be part of a $115 million funding round the company recently announced, from firms like Elliott Management Corp., Telefonica, SK Telecom, NTT DOCOMO Ventures, GDF SUEZ, Air Liquide and Eutelsat. Read more.


 Argyle Executive Forum, a New York-based provider of C-level executive events, has raised an undisclosed amount of private equity funding from Wicks Group of Cos.

 Lone Star Funds has acquired a 70% stake in Belgian carpet manufacturer Balta Group from Doughty Hanson for an undisclosed amount.

Montagu Private Equity has agreed to acquire DEAS Holding, a Denmark-based property manager. No financial terms were disclosed.

Tengram Capital Partners has agreed to acquire Zanella, a New York–based luxury menswear brand. No financial terms were disclosed.

Saladworks, a Conshohocken, Penn.–based fresh-tossed salad restaurant chain, has raised an undisclosed amount of private equity funding from Centre Lane Partners.

SQL Sentry, a Charlotte, N.C.–based provider of software for SQL server database professionals, has raised $25 million in growth equity funding from Mainsail Partners.


 Chiasma Inc., a developer of octreotide capsules for acromegaly, has filed for an $86.25 million IPO. It plans to trade on the Nasdaq under ticker symbol CHMA, with Barclays and Cowen & Co. The company has raised over $170 million in VC funding, from firms like MPM Capital (39.7% pre-IPO stake), Fidelity (16%), Abingworth (15.3%), Med Health Ventures (13.4%), F2 Capital (11.2%), ARCH Venture Partners (7.9%), Rock Springs Capital and Sofinnova Ventures.

 Cinven is exploring an IPO for German ceramic components maker CeramTec, according to Bloomberg. The offering could value the company at around $1.7 billion. Read more.

Fitbit, a San Francisco-based maker of wearable fitness tracking devices, has increased its IPO terms to 34.5 million shares being offered at between $17 and $19 per share. If it prices at the top of its revised range, the company would have an initial market cap of around $3.89 billion. Read more.

Invuity, a San Francisco-based developer of medical devices to improve visualization in minimally-invasive surgeries, raised $48 million in its IPO. The company priced 4 million shares at $12 per share (below $14-$16 range), but its stock finished up on its first day of trading at $14.92 per share. The company is now listed on the Nasdaq under ticker symbol IVTY, while Piper Jaffrey, Leerink Partners and Stifel served as lead IPO underwriters. It reports nearly a $21 million net loss on $13 million in revenue for 2014. Invuity had raised around $96 million in VC funding from Wellington Management (16.3% pre-IPO stake), HealthCare Royalty Partners (14%), InterWest Partners (12.6%), Kleiner Perkins Caufield & Byers (11.2%) and Wexford Capital (5.8%).

Jupai Holdings Ltd., a Chinese provider of wealth management services, has filed for a $100 million IPO. It plans to trade on the NYSE under ticker symbol JP, with Credit Suisse and China Renaissance serving as lead underwriters. The company reports $14.6 million of net income on around $39 million in revenue for 2014. Shareholders include e-House (China) Capital (33.1% pre-IPO stake) and SINA Hong Kong (11%).

Ollie’s Bargain Basement Holdings, a Harrisburg, Penn.-based extreme value retailer owned by CCMP Capital, has filed for a $150 million IPO. It plans to trade on the Nasdaq under ticker symbol OLLI, with JPMorgan, Jefferies and BofA Merrill Lynch serving as lead underwriters. The company reports nearly $30 million in net income on $638 million in revenue for 2014.

Ooma Inc., a Palo Alto, Calif.-based provider of telecom solutions to consumers and small businesses, has filed for an $86.25 million IPO. It plans to trade on the NYSE under ticker symbol OOMA, with BofA Merrill Lynch and Credit Suisse serving as lead underwriters. The company reports a $6.4 million net loss on around $72 million in revenue for 2014. Shareholders include Worldview Technology Partners and WI Harper Group.

Poseidon Containers, a Greece-based operator of 18 container ships, has filed for a $100 million IPO. It plans to trade on the NYSE under ticker symbol PCON, with Morgan Stanley, Deutsche Bank and UBS serving as lead underwriters. Company backers include private equity firm Kelso & Co.

Seres Therapeutics Inc., a Cambridge, Mass.-based developer of a microbiometherapeutics platform, has set its IPO terms to 6.25 million shares being offered at between $15 and $17 per share. It would have an initial market cap of approximately $586 million, were it to price in the middle of its range. The pre-revenue company plans to trade on the Nasdaq under ticker symbol MCRB, with Goldman Sachs and BofA Merrill Lynch serving as lead underwriters. Shareholders include Flagship Ventures (54.7% pre-IPO stake), Nestle Health Science (18.3%), Fidelity (8.1%) and Enso Ventures (5.9%).

vTV Therapeutics Inc., a High Point, N.C.-based developer of drugs to treat Alzheimer’s disease and Type 2 diabetes, has filed for a $172.5 million IPO. The company plans to trade on the Nasdaq under ticker symbol VTVT, with Piper Jaffray and Stifel serving as lead underwriters. Shareholders include Ronald O. Perelman.


 Bit9, a Waltham, Mass.-based cybersecurity startup, has quietly completed an acqui-hire of Objective Logistics, a Boston-based maker of restaurant management software. Objective Logistics raised around $9 million in venture equity and debt funding since 2010, from firms like Atlas Ventures, Google Ventures and NextView Ventures. Bit9 has raised over $100 million, from firms like Atlas, .406 Ventures, Highland Capital Partners, Kleiner Perkins and Sequoia Capital. Read more.

 SunEdison (NYSE: SUNE) has agreed to acquire Globeleq Mesoamerica Energy, a Central American renewable energy company, from Actis (70%) and Mesoamerica Power Ltd. (30%). No financial terms were disclosed.


 Berkshire Hathaway has agreed to acquire a 3.7% stake in Insurance Australia Group (ASX: IAG) for approximately US$388 million. Read more.

General Electric is receiving only “lukewarm interest” in its Australian commercial lending business, which it is hoping to sell for nearly $3 billion, according to the NY Times. Read more.

UnitedHealth Group (NYSE: UNH) has made a “preliminary takeover approach” for $42 billion healthcare insurance rival Aetna Inc. (NYSE: AET), according to the WSJ. The paper also reports that Anthem Inc. (NYSE: ANTM) has held talks about acquiring Cigna Corp. (NYSE: CI). Read more.

Velcro Companies has acquired two Belgian companies: Alfatex, a manufacturer of hook and loop fasteners in the medical, automotive and industrial sectors; and Gevaert, a maker of elastic and rigid webbings for the apparel industry. No financial terms were disclosed for either deal.

Wahanda, a European hair and beauty marketplace, has raised €65 million in new funding from existing shareholder Recruit Holdings (Tokyo: 6098), which now will hold around an 80% stake in the business. Wahanda also said that it is buying French online beauty platform ZenSoon for an undisclosed amount.


 ARC Financial Corp. has closed its eighth energy-focused private equity fund with $1.5 billion in capital commitments. Atlantic-Pacific Capital served as placement agent.'

Foundation Capital is raising upwards of $325 million for its eighth VC fund, according to a regulatory filing.

 Goldman Sachs is launching a new loan platform for consumers and small businesses, according to the WSJ. Read more.

 Kleiner Perkins Caufield & Byers has created a $4 million seed fund called KCPB Edge, which is a carve-out from its $450 million general early-stage fund. Read more.


 Robert Fioretti has joined Falconhead Capital as a managing director. He previously was a founding team member and managing director with Mistral Equity Partners.

Matthew McCooe has been named CEO of Connecticut Innovations. He previously was a managing partner of Chart Venture Partners.

Jonathan Pollack has joined The Blackstone Group as a senior managing director in the firm’s real estate group, and as chief investment officer of real estate debt strategies. He previously was with Deutsche Bank.

Rob Rueckert, formerly a managing director with Intel Capital, has joined Sorenson Capital.

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