Term Sheet — Friday, August 14

August 14, 2015, 1:29 PM UTC

Random Ramblings

Ryan Keating knew why I had called.

“Yes, I’m the interim CFO in question.”

Keating is founder and managing partner of Keating Consulting Group, a 14-year-old Silicon Valley firm that has provided outsourced CFO and accounting services to such companies as Marketo, Nest and Snapchat. Also on that list is Zirtual, the on-demand virtual assistant company that collapsed on Sunday night, laying off more than 400 employees without a word of warning.

Yesterday we discussed how Zirtual founder and CEO Maren Kate Donovan told Fortune that her company had been severely damaged by a outsourced CFO firm that had worked with Zirtual until this past April. She wouldn’t name the firm, but said that it had provided “burn rate” projections that did not take into account how the company would have three pay periods (rather than two) in May and October due to calendar anomalies. Or, in Donovan’s words: “The numbers were just completely f@#$d.”

A source provided us with Keating’s identity, and he readily acknowledged his involvement. In fact, Zirtual even remains listed as a client on his firm’s website.

Keating says he “feels horrible about what happened to Zirtual and its employees,” and that he’s been stunned by the past week’s events. He also expressed fondness for Donovan, but added that he had not spoken with her in weeks.

As to those burn rate projections, Keating expressed surprise that Donovan is using them to explain the company’s collapse. Yes, he created Excel spreadsheets that only had two pay periods per month (i.e., 24 pay periods rather than 26). But he insists that the cash projection in each pay period was artificially higher (on a sliding scale) to make up the difference, thus meaning that Zirtual shouldn’t have suddenly had to come up with hundreds of thousands of unexpected dollars.

“These are projections and they’re never right on the nose but I can’t imagine that this had a big impact in them getting through August 15,” Keating says.

To Keating, the real culprit here might have been a business model that no longer made sense. First, Donovan chose to transition the company’s employees over from independent contractors (i.e., the Uber model) to fulltime employees (complete with benefits). At the same time, however, she continued to insist that each of the virtual assistants — or ZAs, as Zirtual called them — be U.S.-based and college-educated, so as to provide a superior service to clients.

“In hindsight it was a much bigger change financially than was originally anticipated,” Keating explains. “Maren had all the right intentions, but it really cut into margins and the benefits meant that we could only pay the ZAs $11 or $12 per hour. That created a huge amount of turnover among a U.S.-based, college-educated employee base, with lots of people dropping out even during the training program. And what that meant was that Zirtual had to project hiring 20-30% more people than it actually needed, so that it wouldn’t be caught short-staffed.

Keating adds that the company always knew that it would need to raise money in the summer of 2015. But he had not readily kept up with the funding’s progress since his firm stopped working with the company.

What seems to have happened next is that Donovan was too trusting of what she thought was a bird in the hand.

Multiple sources say that Zirtual tried raising a $3 million funding round at a $38 million pre-money valuation, with Donovan telling Fortune that the new capital would be used to cover payroll and to increase ZA pay to $16 per hour (thus reducing employee churn). What proved more difficult was finding the remainder. One venture capitalist tells me that he was contacted a few weeks back, but that the dwindling cash reserves raised too many red flags. Other venture capitalists who invest in on-demand startups say they were never called.

By this past Sunday night, it was over. And now the company, which is in the process of being acquired by Startups.co, is facing a class action lawsuit, accusing it of violating the federal WARN act by laying off its 400 or so employees without advance notice. It is unclear if the lawsuit will scuttle the acquisition, or how Startups.co would handle liability obligations.

As for Ryan Keating, he continues to support Donovan. “She was a great CEO. It just became very hard to get on top of the business model.”

Reminder: If you want to drop me an anonymous tip, you can do so by going here.

Have a great weekend...


 TPG Capital and Leonard Green Partners have agreed to acquire Ellucian, a Fairfax, Va.-based provider of software to higher education institutions. No financial terms were disclosed, but an earlier Reuters report suggested the deal could be for $3.5 billion (including debt assumption). Sellers are Hellman & Friedman and JMI Equity. www.ellucian.com


 GrabTaxi, a Singapore-based ride-hailing app, is preparing to close its new funding round at nearly $400 million, according to the WSJ. GrabTaxi previously held a $200 million first close led by Coatue Management, while this new deal is expected to include China Investment Corp. (which also has stakes in Uber and Didi Kuaidi). GrabTaxi would be valued at upwards of $1.8 billion following the new investments. Read more.

 Intelex Technologies Inc., a Toronto-based provider of environmental, health, safety and quality management software, has raised C$160 million in new growth equity funding. JMI Equity led the round, and was joined by HarbourVest. www.intelex.com

 Honest Co., the maker of natural baby and kid products co-founder by Jessica Alba and Brian Lee, has raised $100 million in new VC funding at a $1.7 billion valuation, according to the WSJ. No investors were identified. The company previously raised over $220 million (last valuation just shy of $1b), from firms like Lightspeed Venture Partners. General Catalyst, IVP, Fidelity, AllianceBernstein, Glade Brook Capital Partners and Wellington Management. Read more.

 Payoneer Inc., a New York-based provider of online solutions for cross-border payments, has raised $50 million from Wellington Management Co. and return backer Susquehanna Growth Equity. All of the shares were purchased from existing investors, while “all major shareholders in Payoneer retained the majority of their holdings.” The company previously raised more than $40 million from Susquehanna, Ping An Group, Carmel Ventures, Greylock IL and Vintage Venture Partners. www.payoneer.com

 Massdrop, a San Francisco-based community for enthusiasts, has raised $40 million in Series B funding. August Capital led the round, and was joined by return backers First Round Capital, Mayfield Fund, and Cowboy Ventures. www.massdrop.com

 ChatID, a New York-based SaaS platform that “facilitates the conversation between retailers, brands and consumers,” has raised $12 million in Series B funding led by Costanoa Venture Capital. The company previously raised $8 million from FirstMark Capital and Mack Capital. www.chatid.com

 Sir Kensington's, a New York-based all-natural condiment company, has raised $8.5 million in Series A funding led by Verlinvest. www.sirkensingtons.com

 Icebreaker Health, a San Francisco-based telemedicine platform, has raised around $6.6 million in VC funding, according to a regulatory filing. No investors were disclosed. www.icebreakerhealth.com


 The Abraaj Group has acquired a majority stake in Urbano Express, a courier and light logistics solutions company with operations in Peru, Ecuador and El Salvador. No financial terms were disclosed. www.abraaj.com

 Equistone Partners Europe has sponsored a £50m management buyout of Wealth at Work, a UK-based provider of financial education and wealth management services for the workplace, from Palatine Private Equity. www.wealthatwork.co.uk

 LaSalle Capital has recapitalized portfolio company Westminster Cracker Co., a Rutland, Vt.-based maker of oyster and snack cracker products. No financial terms were disclosed. The firm also acquired Gold Pure Food Products Co., a Hempstead, N.Y.-based maker of fresh horseradish products and specialty mustards, cocktail sauces and other condiments and sauces. www.lasallecapital.com



 Conifer Holdings Inc., a Birmingham, Mich.-based insurance holding company, raised $33 million in its IPO. The company priced 3.1 million shares at $10.50 per share (below $11-$13 offering range), and will trade on the Nasdaq under ticker symbol CNFR. BMO Capital Markets and Raymond James served as lead underwriters. Strength Capital Partners holds a 21.9% pre-IPO stake. www.coniferinsurance.com

 Double Eagle Acquisitions Corp., a Los Angeles-based blank check company seeking to acquire and operate media or entertainment businesses, has filed for a $460 million IPO. Deutsche Bank and BofA Merrill Lynch are serving as lead underwriters.

Pace Holdings Corp., a Ft. Worth, Texas-based blank check acquisition company, has filed for a $460 million IPO. It is led by TPG Capital senior partner Karl Peterson, who previously led by Hotwire.com. Deutsche Bank and Citigroup are serving as lead underwriters.

 Poseidon Containers, a Greece-based operator of 18 container ships, has withdrawn registration for a $231 million IPO, due to “market conditions.” The company originally filed for the offering in June, with Morgan Stanley, Deutsche Bank and UBS serving as lead underwriters. It had planned to trade on the NYSE. Company backers include private equity firm Kelso & Co.

 Tinder, the dating app maker, announced that co-founder and president Sean Rad is returning to the CEO slot, which he had given up in March to former eBay exec Chris Payne. Tinder is part of The Match Group, which IAC/InterActiveCorp (Nasdaq: IACI) is planning to spin off via an IPO. Read more.


 Bison Capital has agreed to sell Ease Entertainment Services, a Beverly Hills, Calif.-based provider of payroll and other technology solutions for the entertainment industry, to Entertainment Partners. No financial terms were disclosed. www.easeentertainment.com

 The Blackstone Group has agreed to sell two office buildings in Boston for around $1.3 billion to J.P. Morgan Chase and Oxford Properties Group, according to Bloomberg. The buildings -- 500 Boylston St. and 222 Berkeley St. -- were acquired by Blackstone as part of its Equity Office purchase. Read more.

 Welsh, Carson, Anderson & Stowe and Hyde Park Holdings are nearing a deal to sell Ozburn-Hessey Logistics LLC, a Brentwood, Tenn.-based contract shipping company, to France’s Geodis SA for nearly $800 million, according to Reuters. Read more.

 Yuanta Financial Holding (TSEC: 2885) has offered to acquire Ta Chong Bank (TSEC: 2847), a Taiwanese lender backed by The Carlyle Group, for approximately $1.7 billion. Shares of both companies climbed sharply on the news. Read more.


 Goldman Sachs (NYSE: GS), via its GS Bank unit, has agreed to acquire approximately $16 billion of deposits from GE Capital Bank. GS Bank will not acquire any financial assets other than cash associated with the deposit liabilities. Read more.


 Elephant Partners is seeking $125 million for its debut fund, according to Dow Jones. This is the growth equity firm launched earlier this year by former Highland Capital Partners investors Andy Hunt and Jeremiah Daly.

 Jungle Ventures, a Singapore-based VC firm, is raising upwards of $100 million for its second fund, according to a regulatory filing. www.jungle-ventures.com


Paula Bosco has stepped down as a managing director and chief compliance officer and counsel at New Mountain Capital, according to peHUB. No word yet on a replacement or her future plans. Read more.

Ren Riley has joined Robertson Stephens Partners, a new alternative asset platform of Robertson Stephens that will include a branded VC fund, a series of co-branded private equity funds and separate pooled asset vehicles. Riley previously was a partner with Oak Investment Partners.

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