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Term Sheet — Friday, July 10

Friday Feedback

The sun is shining, Greece is reversing course (again) and next Monday’s Term Sheet will be coming to you from Fortune Brainstorm Tech in Aspen. In other words, it’s time for some Friday Feedback:

First up is a fairly lengthy email on the CalPERS carry situation, from someone who used to be on the inside. Let’s call him John:

“LPCA had a mandate from CalPERS to track fees and carry (along with performance and all that other good stuff), but this was far from a complete reporting. The math was very much back of the envelope estimates primarily using reported and internally calculated IRRs and… this was mostly done by low-level analysts. The only time a reasonably accurate calculation was done was during diligence on a new fund, but that is on a handful of funds.

When the transition from LPCA to CalPERS happened, nobody at CalPERS took the responsibility of taking this over so, even though LPCA’s numbers were suspect, it was better than CalPERS’ completely ignoring it. Real was so focused on reducing fees on new commitments that I think he did a disservice by not worrying about what was currently going out the door on the ongoing commitments.

In short, CalPERS, being the government bureaucracy it is, nobody within PE took any responsibility and the higher ups (Tollette, et al) probably believe the PE group not being able to track carry is reasonable, since they are not overly familiar with the PE world. My firm belief is that doing this would have taken a lot of boring leg work that nobody wanted to do (sourcing deals is way more exciting and better looking on your resume), so it never got done and nobody was accountable. The problem is that Real’s big master plan of taking everything in-house means they hired a whole team of people to do this kind of stuff. So that cost is now not reported as a consultant expense. It probably is reported as a lump sum at the entire org level, so investment returns look better.”

One more on this: “CalPERS was one of the founders of ILPA. One of ILPA’s accomplishments was the creation of the ILPA template, used to “standardize” GP reporting. One of the data elements of the ILPA template is the amount of carried interest paid to a fund GP currently, to date, and since inception.  Over the past few years, Calpers has been the only LP requesting/requiring the ILPA template. Based on Tollette’s comments and your homework; the ILPA template is either used for origami or the Calpers’ dysfunction is deeper than observed.”

• Mark on the issue of VC value post-IPO: “Most LPs don’t want VCs holding post lockup stock, preferring distributions and turning stock over to their public managers.”

• Finally, I asked for thoughts on how the Greek crisis would affect your business. Here is a detailed response from MS:

“Greece itself will have no long-term effects on world markets. Greece is a pinpoint on the map, with a matching (relative) debt size… The problem is that Greece’s current debt situation will soon be reached by Portugal, and soon after by Spain and Italy.

Politics dictate that Germany will negotiate the next debt crises with the same heavy hand, demanding austerity and spending cuts. However, the Portuguese people will have just seen tens of thousands of Greeks lose everything by not withdrawing their money before the negotiations reached a head. As such, they will begin withdrawing their funds before the negotiations can find progress. As less money is in the Portuguese banking system, the loans required to save the country become larger and the leverage for the Portuguese government when negotiating with the EU diminishes. Portugal too will be forced out of the Euro.

This sets up a massive test, as the remaining governments will have to balance increasingly extreme Euro politics and incredibly risky and unprecedented financial challenges to ring-fence and stabilize Spain and Italy, whose defaults would threaten the modern financial system. Regardless of how it plays out, this time will be fraught with extreme danger that all participants will finally understand. As such, PE/VC will drastically tighten up, and M&A will likely only been seen by companies trying to massively gain market share by scooping up all of their struggling competitors.”

• Have a great weekend…


• Procter & Gamble (NYSE: PG) has agreed to sell a portfolio of 43 beauty brands — including Covergirl and Vidal Sassoon — to Coty (NYSE: COTY) for $12.5 billion. Read more.


• Xiaozhu, a Chinese version of Airbnb, has raised $60 million in Series C funding at a valuation north of $200 million. JOY Capital led the round, and was joined by Morningside Ventures, CITIC Capital and Heyu Capital. Read more.

• BitFury Group, a San Francisco-based provider of bitcoin blockchain infrastructure and transaction processing solutions, has raised $20 million in new VC funding. Backers include DRW Venture Capital, iTech Capital and Georgian Co-Investment Fund.

• Xagenic, a Toronto-based developer of a point-of-care molecular diagnostics platform, has raised C$15 million in Series C funding. Backers include Domain Associates, CTI Life Sciences, BDC Capital and the Ontario Growth Capital Corp.

• TrapX Security, a San Mateo, Calif.-based provider of “deception-based cybersecurity defense,” has raised $9 million in Series B funding. Intel Capital and Liberty Israel Venture Fund co-led the round, and were joined by return backers BRM Group and Opus Capital.

• Eligo Bioscience, a Paris-based developer of “ultraprecise antibiotics,” has raised €2 million in Series A funding led by Seventure.

• Querium Corp., an Austin, Texas-based developer of AI-based virtual tutor software, has raised an undisclosed amount of new VC funding from SustainVC and Wild Basin Investments.

• Kreditech, a German credit rating service that leverages social and commerce data, is raising $110 million in Series C funding, with Peter Thiel among those who has already signed on, according to TechCrunch. Existing shareholders include Varde Partners, Blumberg Capital and Point Nine Capital. Read more.


• Antin Infrastructure Partners has agreed to acquire a majority stake in Amedes Group, a provider of medical diagnostics services in Germany and Belgium, from General Atlantic. No financial terms were disclosed.

• Apax Partners, The Carlyle Group and CVC Capital Partners are among those circling Dutch lingerie maker Hunkemoller, according to Reuters. A sale could value the company at around €500 million. Read more.

• Blue Sky Alternative Investments and Partners Group have acquired a majority stake in HPS, an Australian outsourced hospital and oncology pharmacy. No financial terms were disclosed, except that the company generates around A$130 million in annual revenue. Read more.

• Century Park Capital Partners has acquired Vernon, Calif.-based Mikawaya, a 105-year-old producer of Japanese pastries and specialty frozen desserts. No financial terms were disclosed.

• IKKS, a French “ready-to-wear” apparel maker, has raised an undisclosed amount of private equity funding from LBO France and The Silverfern Group.

• Thomas H. Lee Partners is in “advanced talks” to acquire the enterprise unit of eBay (Nasdaq: EBAY) for nearly $1 billion, according to Reuters. This is the unit formerally known as GSI Commerce, which eBay bought for $2.4 billion in 2011. Read more.

• USAGM Topco LLC, a Santa Ana, Calif.-based provider of security and janitorial services, is finalizing an equity commitment from Warburg Pincus, according to Dow Jones. USAGM currently is owns by Partners Group, which is expected to retain an equity position.


• Eight companies are expected to price IPOs on U.S. exchanges next week: Rapid7, Chiasma, MCBC Holdings, Ooma, Jupai, Ollie’s Bargain Basement, Innovation Economy Corp. and ProNAI Therapeutics.


• TPG Capital has hired Jefferies Group to explore a sale of Vita Group, a UK-based foam rubber maker, according to Bloomberg. Read more.


• PluralSighta Layton, Utah-based provider of online education for software developers, has acquired HackHands, a San Francisco-based online mentoring platform for programmers. No financial terms were disclosed. PluralSight last summer raised a $135 million Series B round at nearly a $1 billion valuation from Insight Venture Partners, Iqoniq Capital and Sorenson Capital.

• Splunk (Nasdaq: SPLK) has acquired Caspida Inc., a Palo Alto, Calif.-based cybersecurity startup that detects malware or unusual activity inside a corporate network, for $190 million. Read more.


• Fulcrum Capital Partners, a Canadian private equity firm, has closed its fifth fund with C$344 million in capital commitments.

• New Water Capital, a Boca Raton, Fla.-based private equity firm focused on the lower middle-markets, has raised $406 million for its debut fund, according to a regulatory filing. The firm’s founding partners include John Disa (ex-Ashley Furniture), Mark Becker (ex-Hammond, Kennedy, Whitney & Co.) and Brian McGee (ex-Sun Capital Partners).


• Gridiron Capital has promoted William Hausberg to managing director. He currently serves on the board of Gridiron portfolio companies Motion Recruitment Partners, Counsel on Call, Performance Health, and Dent Wizard.

• Kathleen LaPorte, a founding partner of New Leaf Venture Partners, has been named CEO of Nodality Inc., a South San Francisco-based biotech startup where she had served since last year as chief business officer.

• Peter Read is no longer a general partner with Google Ventures in Europe, as first reported by TechCrunch. The longtime London angel investor had joined the firm just last summer, as it announced a $100 million fund dedicated to European startups. Read more.

• Bruce Mendelsohn has agreed to joined Perella Weinberg Partners as a senior member of its bankruptcy advisory practice, according to the NY Times. He previously was head of restructuring for the Americas at Goldman Sachs. Read more.

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