Term Sheet — Wednesday, July 28
Cyrus Sanati here filling in for Dan who is resting this week at the Fortune Reeducation Center in New York. Dan is in good hands now and should be back on the job as early as next Monday! Until then, he will be our guest here at the Center. What goes on here you say? Well, it is a very soothing place where the muzak never stops and Kool-Aid flows free from a funnel. For funzees, Dan will enjoy hours and hours of story time, where our summer interns will take turns reading Dan lots of exciting books, such as: "King of Capital: The Remarkable Rise, Fall, and Rise Again of Steve Schwarzman and Blackstone; and, my personal fave, "The Masters of Private Equity and Venture Capital: Management Lessons from the Pioneers of Private Investing." I'll report back on his progress tomorrow. Until then, feel free to email me at email@example.com or hit me up via twitter @BeyondBlunt .
• Should I be worried? Should you?
I was frankly surprised by the deluge of emails and tweets I received yesterday concerning my missive against Airbnb and my general disgust with what has become known as "the sharing economy."
Since the Internet affords so much anonymity, responses to my pieces usually start out something like this:
"You're a f*cking moron."
That is usually followed by a rant, where the commenter basically talks their book to me, normally using flawed logic and/or extreme examples.
But yesterday, I experienced something different: nearly all of the feedback was positive, which, to someone who has been writing political and economic commentary on the Internet for a decade is, well, shocking, to say the least.
In general, I have found that normal people (as in people who don't usually comment on anything) do so only when they really feel strongly about something - and since our passive-aggressive and politically-correct society is so full of rage, it is usually anger.
But yesterday was different. The responses I received generally went like this:
"That is exactly how I feel... I am glad that somebody said it."
"I work at (some Silicon Valley darling or VC or PE firm) and I want to say that you are totally right. Please don’t use my name…"
I know how to respond to angry portfolio managers and illogical ideologues, but not to this!
The audience here at Term Sheet is pretty sophisticated with many working deep in the bowels of the venture-capital, private equity and technology industries. Basically, y'all ain't no dummies. So the fact that I received such a huge response leads me to believe that there is a lot of doubt out there at the moment.
The last time I saw this much doubt in the markets was probably 2006 and 2007, right before the “Credit Crunch,” which he later became the "Financial Crisis."
Back then, most of my sources were bankers and traders - Wall Street types. Anyway, everybody knew the property market was out of whack (don't believe that they didn't know), but what was really concerning the market was all these huge leveraged buyouts getting done at sky high valuations.
The bankers working those deals would tell me (usually after 3 to 4 drinks) that they knew that they were overpaying and that the valuations on the deals made no sense, but that they had to do the deal because they had no choice. They had to spend the money before it was gone.
I can't help but feel a strange parallel to a lot of the emails I received yesterday from people in Silicon Valley - but I didn't have to get them drunk to tell me how they feel. I just needed to write a simple column questioning the valuation of one company and it all came out.
Listen, this isn't "Zero Hedge", and I am not some crazy bearish Cassandra. But based on what I saw yesterday, it seems that a lot of people are concerned about the money flowing to startups, leading to these crazy valuations for companies from Airbnb to Snapchat.
When I asked the VCs yesterday why their firms were funding these companies they essentially told me the same thing that those bankers said to me back during the LBO boom - they need to spend the money before it goes away. While they believe that the company they are investing in could make money down the road, they weren't sure that they would make money soon enough.
During the housing crisis and the LBO boom, it was the banks that ended up holding a lot of the toxic debt securities. When they had to write down the value of those securities, they were forced to raise capital to plug the holes in their balance sheets. Most banks would've failed, but thanks to the government stepping in, they didn't. We, as in the media, called it a "bailout" but it was really more a stopgap measure. The government lent money to the banks, giving them time to work out their issues. Why did the government step in? It did so because banks are at the center of the financial system. If they failed it would've been catastrophic.
Now here's the real question.
With most of the money fueling the startup boom coming from venture capital and other private sources, what is going to happen when inevitably go south and a lot of these companies start to fail? Will the government step in to save VC firm X and shareholder Y the way it did Citibank? And if not, how will the economy be able to absorb all of these losses?
If you have any ideas shoot me an email at sea at firstname.lastname@example.org and I'll shares some of them tomorrow.
• Carlyle mints money but pulls back on the throttle
The Carlyle Group reported a second quarter profit of $31 million last night, up 55% from the $20 million the reported over the same time last year. The Washington, D.C., private equity firm's profit rose despite the fact that it sold fewer assets in the quarter - $5.8 billion vs $6.5 billion compared to a year ago. Carlyle raised a healthy $4.7 billion in new capital in the second quarter, which is down from the $7.4 billion it raised a year earlier. It seems that Carlyle is pulling back on the throttle as the firm invested only $1.6 billion in the quarter, half the $3.4 billion it invested in the second quarter of last year.
• Deal volume down but profits strong at Apollo
Apollo Global Management reported a second quarter profit of $56.4 million, down 21% ($17 million) from the same time last year amid a slow down in deal volume at the firm, due mainly to a decline in divestitures. But while the company didn't offload much stuff in the quarter, what it did manage to sell it was able to post a healthy profit. Apollo said that it more than doubled its money on the two biggest sales for the firm during the quarter, Great Wolf Resorts and the insurer Bri.
THE BIG DEAL
• Solvay, the Belgian chemical company, acquired Cytec, the New Jersey-based chemical company, for $5.5 billion. Solvay will pay $75.25 per share for Cytec in cash, representing a premium of 28.9% over Cytec’s last closing price. The deal is expected to strengthen Solvay’s mining chemicals business. Cytec generated revenue of around $2 billion last year, largely from the production of composite materials for aircraft and cars.
Fortune's Jonathan Chew has more here
VENTURE CAPITAL DEALS
• Blockspring, a small tech startup, raised $3.4 million dollars in seed funding led by the team at Andreessen Horowitz and SV Angel. The company says it will use the cash to build a tool called Blockspring for Spreadsheets, which would allow excel and Google Sheets users access web services from spreadsheets. READ MORE
• Zeotap, a San Francisco-based tech company, secured $6.4 million in Series A funding. www.ZeoTap.com
• Acrobatiq, a Pittsburgh- based provider of adaptive courseware, raised $9.75M in series A funding. Investors in the round included the Bill & Melinda Gates Foundation. www.Acrobatiq.com
• TytoCare, an emerging telehealth solutions company, raised $11 million in a Series-B round funding led by Portland, Oregan-base Cambia Health Solutions. www.tytocare.com
• Optoro, the Lanham-based re-seller of unwanted retail goods, received a $40 million debt financing commitment from TriplePoint Venture Growth BDC Corporation and Square 1 Bank. At the end of last year, Optoro raised $50 million in Series C funding www,Optoro,com
• Driveway Software, the San Mateo-based telematics company just closed a $10 million Series A funding round led by Roman Abramovich, of Ervington Ventures and owner of London’s Chelsea Football Club. Driveway is a smartphone-based telematics company that makes the Drivewise.ly (iOS/Android) app, a social driving app with over 200,000 users logging 500 million miles in the last five years. The app is pretty cool in that it automatically analyzes every car trip you take using your smartphone's sensors to score your driving, giving you tips based on your performance and mileage on how to drive safely and save gas. Drivewaysoftware.com
PRIVATE EQUITY DEALS
• Lone Star Funds acquired London property developer Quintain Estates & Development for £700 million ($1.09 billion). The purchase price represents a 22% premium over the developer's share price. Quintain owns the land around Wembley Stadium and focuses mainly on the residential sector.
• NantKwest, a clinical-stage cancer immunotherapy company, saw its shares surge 39% yesterday on its first day of trading, even though it priced at the top of the range. Investors are clearly bullish on the Cardiff-by-the-Sea, CA company's future as the biotech firm currently has no drugs approved. ZERO. The company's treatment for cancer and infectious diseases is still in the first phase of clinical trials. It may be a long time till the company ever makes a dime - any hiccup in the approval process will cause its shares to crumble. www.NantKwest.com
• Accenture invested $200 million to build up its Accenture Interactive’s design capabilities. This follows the the company's 2013 acquisition of Fjord and most recently Chaotic Moon, among others. Accenture Interactive will also be continuing to grow its Fjord unit through a large-scale recruiting program for design professionals, training new and existing design professionals, and the opening of more Fjord design and innovation studios in the US and abroad.
FIRMS & FUNDS
• Vistara Capital Partners, a Vancouver, B.C.-based venture firm, said today it hit its $100 million fundraising goal in just four months. The fund will provide growth capital to technology and tech-enabled service companies based in the United States and Canada with revenues between $10 million and $120 million. VistaraCapital.com
• Golden Gate Ventures, a Singapore-based venture firm, said it raised $50 million with the close of venture firm's second fund, Golden Gate Ventures Fund II LP. The fund focuses on investment in Southeast Asian tech startups. Investors and advisors to the fund include Temasek, Eduardo Saverin (co-founder of Facebook), and Monitor Capital Partners, a European multi-family office. Additional partners included Singapore’s National Research Foundation, NAVER (parent company of LINE messenger), and Far East Ventures, the venture capital arm of Far East Organization, one of the largest property developers in Southeast Asia.
•Foresite Capital, a San Francisco-based healthcare growth equity firm, raised $450 million with the closing of Foresite Capital Fund III. The fund now has more than $1 billion in assets.
MOVING IN, UP, ON & OUT
• Todd Jackson is leaving Twitter to become the head of strategy for Dropbox. Mr. Jackson was director of content and discovery at Twitter since his mobile app startup, Cover, was acquired by the social network in spring 2014. Jackson fills the hole created by the departure of Ilya Fushman, who headed strategy for Dropbox for Business before leaving two months ago to become a partner at Index Ventures.Fortune's Heather Clancy has more here.
• PayPal co-founder Max Levchin is leaving as chairman of Yelp’s board, the company said after releasing terrible quarterly earnings last night. Levchin says he is resigning to focus on his new startup Affirm, which is rethinking the way consumers borrow money, allowing them to obtain a micro-loan at a point of sale transaction instead of using a credit card. Affirm recently raised $275 million in new funding. Levchin is also on the board of Yahoo. Fortune's Leena Rao has the full story here.
• Kevin Elliott, is joining Kainos Capital, a Dallas-based firm specializing in acquiring and managing food and consumer businesses, as a Partner. Mr. Elliott has more than 25 years of operating, turnaround, and mergers and acquisitions experience in the consumer goods, retail and distribution industries. Mr. Elliott most recently was President and COO of Nash Finch before the sale of the company's sale to Spartan Stores
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