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Term Sheet — Monday, August 3

August 3, 2015, 2:03 PM UTC

Random Ramblings

Greetings from the home office, where my typing finger muscles are regaining their memory after a couple of weeks off. First, big thanks to Erin Griffith and Cyrus Sanati for filling in during my absence. Second, let's get back to it:

 Introduction: There was a time, not too long ago, when venture capitalists proudly avoided any tech startup that was prone to regulatory risk. But that was before the massive (on paper) payouts for companies like AirBNB and Uber and, well… even the most prudent among us are prone to playing Powerball when the grand prize gets big enough.

So it should not be too surprising that there is now a high-powered regulatory consulting firm focused on startups, and which takes equity in lieu of cash. It’s called Tusk Ventures, and is led by Bradley Tusk, campaign manager for NYC Mayor Michael Bloomberg’s reelection campaign in 2009 and previous deputy governor in Illinois. Tusk also leads a more traditional consulting firm called Tusk Strategies -- much of the senior team is the same -- where the average monthly retainers run $50,000.

This is the consultancy behind Uber’s recent (and successful) fight against NYC Mayor Bill de Blasio’s proposal to cap the number of cars Uber could have on the road, with Tusk having originally began advising Uber in 2011 in exchange for equity (not really designed as a test case, but that’s how it worked out). Other portfolio companies include Zendrive and General Assembly, with plans to have up to 10 by year-end.

Tusk says that the separate firm was created, in part, because: (1) This sort of work requires a dedicated investment team -- he hired ex-Blackstone exec Jordan Nof as head of investments -- that wasn’t needed on the general consulting side; (2) The compensation is much more equity-driven; and (3) He wanted each group to, possibly, be able to go public someday without the other side’s complications.

He adds that the firm is expecting to mostly work with U.S. startups, although it’s possible that they’ll try helping some foreign companies navigate stateside governments.

 Placement agent problems: Texas Attorney General Ken Paxton has been indicted on multiple felony charges (including securities fraud), related to his past efforts to help secure indirect investments for a tech startup without disclosing that he would be receiving commissions for his efforts and for misrepresenting himself as an investor in the company (or so go the allegations). At the time, Paxton was a member of the Texas state legislature.

 Moving on: Sean Murphy has quietly stepped down as a managing director of private equity with Angelo Gordon, which he first joined back in 2006. No word yet about his reasons for leaving or his future plans. According to his LinkedIn profile -- which does not reflect the departure -- Murphy’s active board seats included Benihana, Balducci’s, Kings Food Markets, Firebird Restaurants and KEE Action Sports.

 Also moving on: Elizabeth Grainville-Smith has resigned as a managing director with BV Investment Partners, which she first joined in 1996 as an associate. Her deals included CAMP Systems, Jobson Publishing, New Track Media and Rave Reviews Cinema. LPs were informed early last month, and word is that she plans to focus on angel investing going forward, with a particular focus on women-owned businesses.

 One more: Pete Kight is no longer a senior advisor with Comvest Partners, a role he assumed in 2013 after stepping down as the private equity and debt investment firm’s managing partner. Prior to joining Comvest in 2010, Kight spent 26 years as founder and CEO of CheckFree (which was acquired by Fiserv in 2007, where Kight would serve as vice chairman).


 In memoriam: Jerry Kohlberg, arguably the father of leveraged buyouts, passed away last Thursday at the age of 90. According to the NY Times, the cause of death was cancer.

Kohlberg led the corporate finance department of Bear Stearns during much of the 1960's and early 1970's, where his protegees included Henry Kravis and George Roberts. In addition to helping Bear Stearns clients raise equity and debt capital, Kohlberg developed something called the "bootstrap" deal, which used leverage to help older company founders achieve liquidity. He and his team later expanded the model to include carve-outs of orphaned industrial product lines, before leaving Bear Stearns in 1976 (along with Kravis and Roberts) to pursue the strategy fulltime as Kohlberg Kravis Roberts & Co. (after Bear Stearns had refused their offer to form a dedicated in-house LBO group).

Kohlberg ultimately would leave KKR in 1987, in a split that was portrayed amicably at the time but much more acrimoniously in the book Barbarians at the Gate (issues included everything from strategy to hours at the office to personality clashes). He and his son would later form Kohlberg & Co., a smaller private equity firm where he still served as chairman at the time of his death. Notably, Kohlberg & Co. always focused on the sort of friendly (i.e., not-hostile) transactions that would later be emulated by almost the entire private equity market (including KKR).

“Jerry was a man of integrity and moral courage," George Roberts said in a statement. "For many years, he was a friend and mentor to Henry and me. Jerry cared about people and gave freely of his time and wealth. Henry and I are proud that our firm’s name is Kohlberg Kravis Roberts. Jerry will be missed and remembered by many.”

 Saying goodbye: A funeral mass for Summit Partners executive Joe Trustey will be held this Wednesday morning in Wenham, Mass., while visiting hours begin tomorrow afternoon. For more information, please go here. The Trustey family also asks that, in lieu of flowers, donations in Joe's memory be made to the A.J. Trustey Epilepsy Research Fund, c/o Virginia Fuller, Brigham & Woman's Hospital, 75 Francis Street, Boston, MA 02115.


 Snapdeal, an Indian e-commerce company, is nearing a $500 million fundraise led by Alibaba Group, according to Re/Code. The deal would value Snapdeal at around $5 billion, and also would include Foxconn Technology Group and, possibly, existing investor SoftBank. Read more.


 OYO Rooms, an online marketplace for budget hotels in India, has raised $100 million in new VC funding. SoftBank led the round, and was joined by return backers Greenoaks Capital, Lightspeed India and Sequoia Capital. Read more.

 Zscaler, a San Jose, Calif.-based provider of cloud security solutions, has raised $100 million in new VC funding. TPG Growth led the round, and was joined by return backers EMC and Lightspeed Ventures. Read more.

 Cylance, an Irvine, Calif.-based cybersecurity startup that leverages artificial intelligence and algorithmic science, has raised more than $42 million in Series C funding. DFJ Growth led the round, and was joined by KKR, Dell Ventures, Capital One Ventures and TenEleven Ventures. Read more.

 Driveway Software Inc., a San Mateo, Calif.-based mobile telematics company, has raised $10 million in new VC funding led by Ervington Investments.

 WizRocket, a Palo Alto, Calif.-based provider of user engagement optimization solutions, has raised $8 million in new VC funding from Sequoia Capital and return backer Accel Partners. Read more.

 BoardVitals, a provider of a question bank and practice tests for those who plan to take medical boards, has raised $1.1 million in Series A funding from Rock Creek Capital.


 Allianz Capital Partners is in advanced talks to acquire German highway service station chain Tank & Rast GmbH for more than €3.5 billion, according to the WSJ. Also participating in the buyer group are the Abu Dhabi Investment Authority, Borealis Infrastructure and Munich Re. Allianz Capital Partners previously owned part of Tank & Rast, but sold it in 2004 to Terra Firma Capital Partners for €1 billion. Terra Firms subsequently sold half of its stake to RREEF. Read more.

 AUA Private Equity Partners has sponsored a recapitalization of Tijuana Flats Holdings, a Winter Park, Fla.-based fast-casual Tex-Mex restaurant chain. No financial terms were disclosed.

 Battery Ventures has agreed to acquire the Physical Security business unit of NICE Systems (Tel Aviv: NICE) for upwards of $100 million. The group will become a New Jersey-based, stand-alone company, providing video management and analytics technology.

 Berkshire Partners and New Balance Holding have completed their previously-announced acquisition of The Rockport Co., a Canton, Mass.-based shoemaker, from Adidas Group AG for $280 million. As part of the deal, New Balance affiliate Drydock Footwear (brands include Cobb Hill, Aravon and Dunham) has been combined with Rockport to form The Rockport Group.

 Hilco Vision, a Plainville, Mass.-based eyewear and eyewear accessories acquisition platform owned by Blue Point Capital Partners, has acquired German eyecare companies Breitfeld & Schliekert GmbH and Lexxoo International GmbH. No financial terms were disclosed.

 Pritzker Group Private Capital has acquired PLZ Aerospace, a St. Clair, Mo.-based manufacturer of specialty aerosol product, from Olympus Partners. No financial terms were disclosed.


 Ten companies are expected to price IPOs on U.S. exchanges this week. They are: Amplify Snack Brands, Aimmune Therapeutivcs, Benitec Biopharma, GC Aethetics, Intec Pharma, Philadelphia Energy Solutions, Planet Fitness, RiverBanc Multifamily Investors, Sunrun and Zynerba Pharmaceuticals. Read more.

 Mevion Medical Systems Inc., a Littleton, Mass.-based provider of proton therapy systems for use in radiation treatment for cancer patients, has withdrawn its IPO registration. The company originally filed for a $69 million offering last October, with Jefferies and Leerink Partners serving as co-lead underwriters. It says that current market terms were “not sufficiently attractive.”


 American Industrial Partners has agreed to sell Carlstar Belts, a Franklin, Tenn.-based maker of belts used in industrial, commercial and consumer applications, to The Timken Co. (NYSE: TKR). No financial terms were disclosed, except that Carlstar Belts generated around $140 million in revenue over the past year.

 Behrman Capital has sold Selig Sealing Holdings, a Naperville, Ill.-based maker of tamper-evident induction cap and closure liners, to CC Industries Inc. for an undisclosed amount. CC Industries is owned by Henry Crown & Company.

 Olympus Partners has completed its previously-announced sale of Waddington Group, a Covington, Ky.-based maker of disposable cups and cutlery, to Jarden Corp. (NYSE: JAH) for $1.35 billion.

 Yahoo Inc. (Nasdaq: YHOO) has agreed to acquire Polyvore, a Mountain View, Calif.-based online fashion community. No financial terms were disclosed, although TechCrunch puts the price-tag at around $25 million in cash (plus another $35m in executive retention set-asides). Polyvore had raised around $22 million in VC funding from firms like Benchmark, Harrison Metal, Matrix Partners, Goldman Sachs and DAG Ventures. Read more.


 ALPS, a subsidiary of DST Systems (NYSE: DST), has acquired Red Rocks Capital LLC, a Golden, Colo.-based asset manager focused on the listed private equity space. No financial terms were disclosed. Red Rocks co-founders Adam Goldman and Mark Sunderhuse will continue to manage the Red Rocks investment strategy.

 CIT Group (NYSE: CIT) has completed its previously-announced acquisition of OneWest Bank for approximately $3.4 billion in cash and stock.

 Genex Systems, a Wayne, Penn.-based provider of workers’ compensation clinical services, has acquired Comprehensive Industrial Disability Management Services Inc., a Westlake Village, Calif.-based provider of utilization review software and services to the workers’ compensation market. No financial terms were disclosed.

 HSBC (LSE: HSBC) has agreed to sell its Brazil business to Banco Bradesco (BOVESPA: BBDC4) for approximately $5.2 billion. Read more.

 Nokia has agreed to sell digital mapping business Here to a consortium that includes German automakers Audi, BMW Group and Daimler. The deal is valued at around €2.8 billion. Uber had offered to buy the business for a similar price, before dropping out of the process last month. Read more.


 Accel-KKR, a Menlo Park, Calif.-based private equity firm focused on the tech sector, is raising upwards of $1.2 billion for its fifth fund, according to a regulatory filing.

 Trident Capital, a Palo Alto, Calif.-based VC firm, is raising upwards of $200 million for a cybersecurity-focused fund, according to a regulatory filing.

 Vector Capital, a San Francisco-based private equity firm focused on the tech sector, is raising upwards of $1.2 billion for its fifth fund, according to a regulatory filing.


 Debra Germaine has joined executive search firm Korn Ferry as a Boston-based senior client partner in the tech and digital practice. She previously was a managing partner with CT Partners.

 QuestMark Partners has promoted Brian Matthews to partner. He had joined the early-stage VC firm back in 2008.

 Rob Rosenblum and Susan Gault-Brown have have joined Wilson Sonsini Goodrich & Rosati as Washington, D.C.-based partners in the law firm’s corporate and securities practice. They previously were partners with K&L Gates.

 Eric Rosiak has joined FBR & Co. as a managing director and head of the SBIC funds placement group. He previously was a managing director with Commerce Street Capital.

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