Term Sheet — Thursday, August 13

August 13, 2015, 2:37 PM UTC

Random Ramblings

Startups fail all of the time. It's expected. It's understandable, even if for tech startups backed by deep-pocketed venture capitalists.

But it's not supposed to go down like this.

Late Sunday night, around 400 employees of on-demand personal assistant startup Zirtual got word that they were being pink-slipped. Customers -- even including some who had just paid upfront for new contracts -- were told that the service was being "paused."

On the one hand, it made a certain amount of sense. The outsourced personal assistant space is crowded, including several VC-funded startups that provide much more automation than Zirtual's human-centric product. Moreover, Zirtual considered all of its "ZAs" to be regular employees, thus making them more expensive than the Uber contractor model.

But shutting the whole thing down? Where were the existing investors -- including Mayfield and Tony Hsieh's Vegas TechFund -- with bailout money? Or an outside investor, in this age of fast venture funding, particularly for an on-demand startup with thousands of devoted, paying customers? And if the burn was too hot, why not just cut back on staffing -- some layoffs are better than all layoffs? Finally, what was Donovan doing on a web video interview program on Friday, appearing to not have a care in the world?

Before continuing, let me be clear that I don't have all of the answers yet. My reporting will continue. And much of what follows comes with an exclusive interview that my Fortune colleague (and former Zirtual client) Leigh Gallagher conducted yesterday with Donovan, which we have just posted here. Finally, I'm going to do this in notes form for the interest of time (I know Term Sheet is already late... no reason to make it even later):

Origin story: At the beginning of 2015, Zirtual was using an outsourced Silicon Valley CFO firm that had been recommended to it by one of its investors. But by early spring, Donovan and her team began to suspect something was amiss with the burn rate projections. What they discovered was that the firm -- which she will not name -- had missed two additional payroll cycles in October and November that would occur due to calendar anomalies (Zirtual cuts checks every 14 days). In Donovan's words, "The numbers were just completely f@#$d.”

After figuring out the correct figures, Donovan began trying to raise a new $3 million note. And the fundraise became even more urgent after Zirtual hired an in-house controller last month who uncovered even more math troubles.

Fundraise: As of early last week, Zirtual had around half of the $3 million committed, including a $750,000 commitment from existing shareholder Mayfield. Donovan had an micro VC firm lined up to provide the largest chunk (i.e., outside lead investor) but, for reasons that are not yet clear, that firm pulled out on or around last Thursday. There was no apparent back-up plan, particularly because terms of the note were of the 'all-or-nothing- variety (i.e., the first $1.5m wasn't coming without the second $1.5m). Mayfield and others made frantic calls into Friday night, but couldn't find a new taker.

About that interview: As all hell was breaking loose on Friday, Donovan appeared in an online video interview with Jason Calacanis, an angel investor who counts Zirtual among his portfolio companies. Neither she nor Calacanis hinted at any troubles, which has led some to accuse them of public deception. But the reality is that the interview was actually taped two days earlier (on Wednesday), when sources say Donovan was still convinced the outside investor was on board.

 Where were the existings? One outstanding question here is why Mayfield and Vegas TechFund didn't step up to complete the bridge. Each has plenty of money to do so, even if such a deal would have been relatively unusual.

One answer I've heard is that neither were convinced that the company, while projected to generate $11 million in annual revenue, had strong enough trajectory potential given its employee classification and relative lack of automation. Not to mention the continuing investment that would be needed as Zirtual tried to work its way into enterprises as a solution for assistant-less middle managers. It also didn't help that neither had too much skin in the game in the first place. But had either really wanted to save Zirtual, they could have done so. And their failure to do so served as a negative signal to outside investors who got those desperate calls late Friday.

Rookie CEO: Donovan has legitimate gripes (and maybe legal claims?) against the outsourced CFO firm and her existing investors. But, in the end, it was her responsibility to bring financial controls in-house earlier. An $11 million revenue run-rate company with more than 400 employees needs its own CFO. Moreover, she only had filled two of her board's five director spots -- she was a director, as was a Vegas TechFund rep who resigned over the weekend. Too few cooks in the kitchen sometimes leads to food not hitting the plates.

Epilogue: Startups.co on Monday agreed to acquire Zirtual, although sources told me that, as of last night, the deal hadn't officially closed. Pure all-stock fire sale with some potential upside for Zirtual investors if the thing turns around. No decisions yet on how many ZA's will be rehired (as contractors this time), or how much of the 40-person executive/operations team will be retained (including Donovan). Startups.co CEO Wil Schroter says he learned about the opportunity when, as a Zirtual client, he got the service pause notice. He also de facto acknowledges having done relatively little due diligence, believing that speed was of the essence in order to retain clients who are being wooed both by other startups and by some ZA's who are going into business for themselves. For example, Schroter does not know the outside investor that bailed, or why.

Again, more on this to come. If you have any info, feel free to drop me a line. Confidentiality guaranteed, if desired. Finally, one more suggestion that you read Leigh's new interview with Donovan, which is available here.



Pure Storage, a Mountain View, Calif.-based data storage company, has filed for a $300 million IPO. It plans to trade under ticker symbol PSTG, with Morgan Stanley serving as left lead underwriter. The company reports a $49 million net loss on $74 million in revenue for the first quarter of 2015, compared to a $30 million net loss on $25 million in revenue for the year-earlier period.

The company has raised more than $530 million in VC funding, and most recently was valued north of $3 billion. Shareholders include Sutter Hill Partners (27.4% pre-IPO stake), Greylock (17.3%) and Redpoint Ventures (5.7%). Read more.


 Vox Media, an online publisher whose brands include SB Nation and Re/Code, has raised $200 million in new VC funding from NBC Universal at a pre-money valuation of $850 million. The company previously raised $100 million from Comcast Ventures, Accel Partners, Allen & Company, General Atlantic, Khosla Ventures and Ted Leonsis. Read more.

 View, a Milpitas, Calif.-based smart window startup, has raised $150 million in new equity funding. NZ Super Fund was joined by return backers like Corning Inc. and Madrone Capital Partners. Read more.

 Stem, a San Francisco-based building energy management company that leverages software and banks of lithium-ion batteries, has raised $45 million in new VC funding. RWE Group led the round, and was joined by Angeleno Group, Iberdrola, GE Ventures, Constellation New Energy and Total Energy Ventures. Read more.

 Rhythm Metabolic Inc., a subsidiary of Boston-based Rhythm that is developing a treatment of obesity caused by genetic deficiencies in the MC4 pathway, has raised $40 million in Series A funding. OrbiMed, Deerfield Management, Wellington Management Co. and an undisclosed public healthcare investment fund were joined by return backers MPM Capital, New Enterprise Associates, Third Rock Ventures, Pfizer Ventures and Ipsen. www.rhythmtx.com

 WS02, a Palo Alto, Calif.-based open source enterprise middlewear platform, has raised $20 million in new funding. Pacific Controls led the round, and was joined by Toba Capital. www.ws02.com

 RIFT.io, a Burlington, Mass.-based open source network virtualization platform, has raised $16 million in Series A funding led by North Bridge Venture Partners. www.rift.io

 Talena, a Milpitas, Calif.-based big data availability management company, has raised $12 million in new VC funding from Canaan Partners, Intel Capital, ONSET Ventures and Wipro Ventures. www.talena-inc.com

 Soothe, a Los Angeles-based on-demand massage company, has $10.6 million in new funding from The Riverside Company. Read more.

 Who What Wear, a fashion content and commerce site, has raised $8 million in Series B funding. Amazon and Bertelsmann Digital Media Investments were joined by return backers Greycroft, Lerer Hippeau Ventures, Advancit Capital, Mesa Ventures, and Double M Partners. www.whowhatwear.com

 Tyfone Inc., a Portland, Ore.-based provider of mobile-first digital security solutions for financial and identity services, has raised $6.6 million in Series C funding. RPX Corp. (Nasdaq: RPXC) led the round, and was joined by return backer In-Q-Tel. www.tyfone.com

 Sarvint Technologies Inc., an Atlanta-based maker of “smart shirts” that use special fibers to detect and monitor body vital signs, has raised $6 million in Series A funding. CTW Venture Partners led the round, and was joined by Monta Vista Capital and Maxim Ventures. The company also signed a strategic agreement with Maxim Integrated Products (Nasdaq: MXIM) to bring Sarvint’s products to market. www.sarvint.com

 Front Row Education Inc., a San Francisco-based provider of a gamified and “data-driven” math education program for K-8 students, has raised $5.3 million in Series A funding. Amasia led the round, and was joined by firms like Harrison Metal and Baseline Ventures. www.frontrowed.com

 Pixlee, a San Francisco-based visual marketing platform, has raised $4 million in new VC funding. David Jones (ex-CEO of Havas) led the round, and was joined by GS Shop (Korea) and Brian Weiner (chairman of 360i). www.pixlee.com

 HUVRData LLC, an Austin, Texas-based provider of drone-based data analytics, has raised $2 million in angel funding from the Central Texas Angel Network, the Houston Angel Network and the Texas HALO Fund. www.huvrdata.com


 Aqua Terra Water Management LP, a Canadian portfolio company of Bregal Partners, has acquired Advanced Hydrocarbon Corp., a network of seven commercial disposal facilities served by 62 company-operated vacuum trucks in the College Station, Texas area. No financial terms were disclosed. www.aquaterrawatermanagement.com

 Corinthian Capital Group has acquired Best Lighting Products Inc., a Pataskala, Ohio-based maker of private label emergency and exit lighting products, from Wafra Partners. No financial terms were disclosed. www.bestlighting.net

 Energy & Minerals Group, a Houston-based private equity firm, has agreed to acquire an 18% stake in Australian shale acreage owned by Pangaea Resources Pty. No financial terms were disclosed. Read more.

 Northgate Capital has acquired a majority equity stake in Elara Comunicaciones, a Mexico-based provider of satellite connectivity and other teleport telecom solutions to Latin America. Northgate will invest upwards of $38 million in in both primary and secondary transactions. www.elara.com.mx

 Raben Tire, an Evansville, Ind.-based portfolio company of Palladium Equity Partners, has acquired the inventory and other non-real estate assets Shelby’s Wheel and Tires, a Paducah, Ky.-based seller of consumer and light truck tires to its local retail consumer market. No financial terms were disclosed. www.rabentire.com


 Conifer Holdings Inc., a Birmingham, Mich.-based insurance holding company, has cut its proposed IPO terms from 4.6 million shares being offered to 3.1 million shares. Its proposed $11-$13 price range remains the company. The company plans to trade on the Nasdaq under ticker symbol CNFR, with BMO Capital Markets and Raymond James serving as lead underwriters. Strength Capital Partners holds a 21.9% pre-IPO stake. www.coniferinsurance.com

 Expro Oilfield Services LLC, a London-based provider of well flow management services to the oil and gas industry, has withdrawn registration for a $100 million IPO, due to “market conditions.” The company originally filed for the offering in July 2014, and reported $1.38 billion in 2013 revenue. Shareholders include Arle Capital Partners, AlpInvest and Goldman Sachs Capital Partners. www.exprogroup.com

 Houlihan Lokey Inc., a Los Angeles-based boutique investment bank, raised $221 million in its IPO. The company priced 10.5 million shares at $21 per share (below $22-$24 range), and will trade on the NYSE under ticker symbol HLI. BofA Merrill Lynch and Goldman Sachs servedas lead underwriters. Houlihan Lokey reports $80 million of net income on nearly $681 million in revenue for 2014, compared to $61 million in net income on $592 million in revenue for 2013. Shareholders include ORIX USA (47.9% pre-IPO stake). www.hl.com


 Levine Leichtman Capital Partners has sold its stake in Magnolia Bluffs, a 16,000 square foot casino and two restaurants in Natchez, Mississippi. No financial terms nor buyer were disclosed. www.llcp.com

 Nomad Foods (LSE: NHL), a special purpose acquisition company founded last year to buy food businesses, has agreed to acquire the continental Europe business of Findus Group Ltd. for £500 million. Sellers include Lion Capital, Highbridge Capital, Sankaty Advisors and JPMP Capital. Read more. www.nomadholdingslimited.com

 Roche Holding AG has agreed to acquire GeneWeave BioSciences Inc., a Los Gatos, Calif.-based microbiology diagnostics company, for upwards of $425 million (including $190m upfront payment). GeneWeave had raised around $24 million in VC funding from firms like Decheng Capital, Claremont Creek Ventures and XSeed Capital. www.geneweavebio.com

 Zealot Networks, a Los Angeles-based digital media company for multi-platform revenue and distribution services, has acquired AllScreen, a Culver City, Calif.-based video syndication company. No financial terms were disclosed. Zealot backers include ITV PLC, while AllScreen had been seeded by Y Combinator, Mark Cuban, Skip Paul and Jonathan Kraft. www.zealotnetworks.com


 News Corp. (Nasdaq: NEWS) is in “advanced” talks to sell off education unit Amplify, and also said that it would take an overall $371 million write-down on its entire education division. Read more.


Excellere Partners, a Denver-based private equity firm, has raised $595 million for its third fund, according to a regulatory filing. www.excellerepartners.com

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