Term Sheet — Friday, October 9

October 9, 2015, 11:50 AM UTC

Fear and Sadness in Silicon Valley

Every couple of months I leave my small Massachusetts town -- where most people still shop for their own groceries and drive their own cars -- and head for the Bay Area. Suddenly, all of my cynicism and bubble worries are drowned out by the kind of unfettered optimism that only $1 billion valuations (on $0.00 earnings) can buy.

But not today. Not this time.

Since landing in San Francisco on Wednesday afternoon, I've met with an assortment of senior venture capitalists, bankers, entrepreneurs and crossover investors. All of them have, in one way or another, been involved with so-called 'unicorn' companies. As in the past, they are nearly unanimous in sentiment. The difference now is that their sentiment is fear.

The past several years of raising too much, too high, too soon has run smack into a much more conservative investor ethos. Later-stage tech startups can still raise growth equity -- and still lots of it -- but not necessarily at the terms they were receiving just two months ago.

"This shift is only five or six weeks old, so most companies haven't felt it yet," a senior tech banker explains. "But I know of many companies who raised money at $1 billion valuations last year that are now being told that, to raise money now, they need to take around $700 million or $800 million. Probably with some serious structure that protects investors, like ratchets, on top of it."

The reality is that record-high private market valuations have been driven by two things: Wall Street's lust for growth at all costs, and relatively high tech multiples in the public markets (and, more specifically, applying the former to the latter). But a variety of macro economics factors (China, the inscrutable Fed, etc.) have cut public equity prices and moved the spotlight to unit economics, which means some pretty large biz model disruption for the disruptors.

Moreover, many of the crossover investors fueling these big deals were playing primarily for IPO optionality, and the successful VC-backed tech IPO has become few and far between. No longer are they willing to have terms dictated to them when the endgame seems so much less certain, and particularly not based on ambitious internal growth projections that would never be provided to the public in filings or on earnings calls.

To be clear, I don't have data backing any of this up. As the banker said, it's too new a phenomena and, of course, there will be notable exceptions. Moreover, this isn't to say that the bubble is popping so much as to argue that the ever-rising valuation peak is in the rear-view mirror for later-stage companies (it hasn't yet trickled down to the seed-Series C world yet).

What should be very interesting, of course, is how such companies do react once they need to fundraise. Do they accept the lower valuations in the private market and, if so, will they publicize their 'new' valuations as they publicized their old ones? Will they take the public plunge under this lower valuation regime -- both for financing and future capital markets access -- given that the easy money in private markets has slowed? Or will all of this eventually get corporate acquirers off the sidelines, after several years of griping that everything is too expensive to buy?

Chances are that we'll see all of the above. But that's for later. For now, all I see is wistful sadness, like children at the end of summer vacation. All anyone really knows for sure is that hard work and more than a little uncertainty lies ahead.

 #GetLiquid: It was great seeing so many of you last night at our Liquidity Event in San Francisco. I'm also very pleased to announce that the evening raised more than $13,400 for ROCK, a nonprofit that provides in-school, afterschool and outdoor learning for underserved kids in San Francisco's Visitacion Valley.

 Have a great weekend... Go Pats!


 TA Associates has agreed to acquire Russell Investments, a London-based asset management business with $266 billion in AUM, from the London Stock Exchange Group PLC (LSE: L) for $1.15 billion. Reverence Capital Partners is participating as a minority equity buyer. www.ta.com


 Segment, a San Francisco-based “customer data hub,” has raised $27 million in Series B funding. Thrive Capital led the round, and was joined by return backers Accel Partners, Kleiner Perkins Caufield & Byers, and Jon Winkelried. www.segment.com

 Glamsquad,, has raised $15 million in new VC funding led by New Enterprise Associateswww.glamsquad.com

 Procyrion, a Houston-based developer of a device to treat chronic heart failure, has raised $10 million in new VC funding from Scientific Health Development and Fannin Innovation Studio. Read more.

 Opsonix Inc., a Cambridge, Mass.-based developer of pathogen-extracting therapies for the treatment of blood-borne infectious diseases like sepsis, has raised $8 million in Series A funding led by Baxter Ventures. www.opsonixbio.com

 Clue, a Berlin-based fertility and menstrual cycle tracker, has raised $7 million in Series A funding from Union Square Ventures and Mosaic Ventures. Read more.

 CardFlight, a New York-based provider of mobile point of sale technology, has raised $4.2 million in Series A funding co-led by MATH Venture Partners and Dan Henry (former CEO of NetSpend). www.cardflight.com


 Apax Partners has agreed to acquire a 23% stake in Zensar Technologies Ltd., a listed Indian IT services business, from Electra Private Equity for approximately £84 million. www.apax.com

 Canada Pension Plan Investment Board and Broe Group have agreed to acquire 51,000 net acres of oil and gas assets in Colorado’s Denver Julesburg Basin for $900 million from Encana Corp. (TSX: ECA). Read more.

 H.I.G. Capital has completed its previously-announced acquisition of HelpSystems, an Eden Prairie, Minn.-based provider of IT management software, from Summit Partners. No financial terms were disclosed, although an earlier Reuters report suggested the purchase price could exceed $700 million (including debt). www.helpsystems.com

 Morgan Stanley Global Private Equity has acquired a majority stake in CoAdvantage Inc., a Tampa, Fla.-based provider of HR resources for small and mid-sized businesses. No financial terms were disclosed. www.coadvantage.com

 Stagwell Group, a private equity firm led by ex-Microsoft CEO Steve Ballmer, has acquired public relations firm SKDKnickerbocker. No financial terms were disclosed. Read more.

 TorQuest Partners has acquired Spinrite LP, a Canadian consumer craft yarn company. No financial terms were disclosed. Sellers include Sentinel Capital Partners. www.spinriteyarns.com


 Allegiance Bancshares Inc., a Houston, Texas-based commercial bank for small and mid-sized businesses, raised $55 million in its IPO. The company priced 2.6 million shares at $21 per share (below $22-$24 range), and will trade on the Nasdaq under ticker symbol ABTX. Baird and Stephens Inc. served as lead underwriters. www.allegiancebanktexas.com

 LoanDepot, a Foothill Ranch, Calif.-based consumer lending platform owned by Parthenon Capital, has filed for a $100 million IPO. It plans to trade on the NYSE under ticker symbol LDI, with Morgan Stanley serving as left lead underwriter. The company reports $69 million of net income on $490 million in revenue for the first half of 2015. www.loandepot.com


 CVC Capital Partners has verbally agreed on a deal to sell its stake in auto racing group Formula One to a US-Qatari investor consortium led by Miami Dolphins owner Stephen Ross, according to the FT. The deal could value Formula One at around $8.5 billion. Read more.


 DSV Group, a Danish transportation and logistics firm, has agreed to acquire Long Beach, Calif.-based UTi Worldwide (Nasdaq: UTIW), for $1.35 billion in cash. The $7.10 per share price represents around a 50% premium to yesterday’s closing price. Read more.

 FilmTrack, a Studio City, Calif.-based provider of content and rights management for the media and entertainment markets, has raised $10 million in new venture debt financing from Wellington Financial and Silicon Valley Bank. www.filmtrack.com


 AEA Investors, a New York-based private equity firm focused on the mid-markets, is raising upwards of $2.5 billion for its sixth fund, according to a regulatory filing. www.aeainvestors.com

 Arsenal Capital Partners, a New York-based private equity firm focused on the mid-markets, is raising upwards of $1.25 billion for its fourth private equity fund, according to a regulatory filing. www.arsenalcapital.com


 Ben Mathias has joined Singapore-based Vertex Ventures as a managing director and head of India operations. He previously was an India-based partner with New Enterprise Associates. www.vertexventures.com

 Cliff Meijer has joined Headway Capital Partners, a UK-based private equity secondaries firm, as a strategic advisor. He previously was managing partner of Stifel’s private equity fund management practice. www.headwaycap.com

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