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Term Sheet — Friday, October 16

Bad Blood?

Theranos, the blood-testing startup that has been valued at around $9 billion by private investors, is under fire after The Wall Street Journal reported yesterday that the company often doesn’t use its own proprietary lab equipment, instead employing more conventional machines from companies like Siemens. Even worse were allegations that the Silicon Valley company tried to cheat on lab proficiency tests, and that some of its procedures could produce less accurate results.

Finally, there are new reports this morning that the FDA quietly suspended Theranos from using its “revolutionary” collection technology — in which it requires just one drop of flood via a finger stick, rather than substantially more blood via larger needles in the arm — for all but one of its tests.

Not surprisingly, Theranos has a different point of view. It provided a fairly weak response on its website, after which its general counsel responded to more pointed questions via an email conversation with Roger Parloff, the Fortune senior editor who wrote our cover story on Theranos in June 2014.

Theranos CEO Elizabeth Holmes also appeared last night on Jim Cramer’s CNBC program, in which she asserted that the WSJ only gave her three days to be interviewed, and that the paper knew she wouldn’t be available during that particular window. Holmes also wasn’t made available to Fortune yesterday, due to a prior engagement. I’m sure Holmes takes her time commitments seriously, but why would a CEO not change her schedule when her company’s entire reputation is hanging in the balance? Hubris? Inexperience? Avoidance?

It also is worth noting that news about the FDA action came after both Fortune‘s interview with the Theranos general counsel and Holmes appearing on CNBC — and raises new questions about the sincerity of answers given in both.

One story line that has emerged from this is that Theranos could prove emblematic of how many tech startups are valued more on hype than fundamentals. And, more to the point, that the company could become one of what many expect to be a parade of “unicorpses.”

But I don’t think so. Win or lose, Theranos will not be a proxy for most other startups that have received extraordinarily high valuations from their venture capitalists.

Out of the 138 “unicorns” we’re currently tracking, Theranos is one of just five biotech companies. Almost all of the others are consumer or enterprise tech, with a small smattering of energy, retail and transportation companies mixed in. For most of these startups, there is little question that their products work, at least to some degree. More in doubt — at least from a valuation standpoint — are things like product/market fit, customer adoption at scale and paths to profitability.

For the biotechs, however, it’s almost all about if the technology works. Biotech success isn’t completely binary, but it’s much closer than it is for something like Uber or Dropbox. The WSJ is suggesting not that Theranos might be overvalued at $9 billion, so much as it’s arguing about the company’s very validity.

Moreover, Theranos even stands apart a bit from other biotech unicorns, and not only because a big part of its business is healthcare services. Few of its known investors have any biotech experience whatsoever, which is a far cry from the shareholder bases of big-valued medical upstarts like Moderna Therapeutics, 23andMe or Intarcia Therapeutics. And, as Fortune‘s Jennifer Reingold reported yesterday, its board also lacks healthcare chops.

Theranos may be part of this billion-dollar boom, but it is not representative of it. And that will be true whether it ultimately proves to be a unicorn or a unicorpse.

• Publishing note: Monday’s edition will be written and sent from aboard a cross-country flight, so preemptive apologies if it’s delayed.

• Have a great weekend… Go Pats!


• Occidental Petroleum Corp. (NYSE: OXY) has agreed to sell all of its North Dakota shale oil acreage and assets to Lime Rock Resources for around $500 million, according to Reuters. It is the first total exit by a major oil company from the Bakken shale formation. Read more.


• Quip, a San Francisco-based productivity startup that seeks to rival both Google Docs and Microsoft Office, has raised $30 million in Series B funding. Greylock Partners led the round, and was joined by return backer Benchmark. Read more.

• FollowAnalytics, a San Francisco-based provider of mobile marketing analytics and automation for enterprise applications, has raised $10 million in Series A funding. Aspect Ventures led the round, and was joined by Salesforce Ventures and return backers Sapphire Ventures and Zetta Venture Partners.

• MycoTechnology, an Aurora, Colo.-based food-tech company that uses mushrooms to improve the taste of foods and beverages, has raised $9.2 million in Series A funding from Seed 2 Growth Ventures, Seventure Partners and Middleland Capital.

• Mast, a New York-based mobile business communications platform, has raised $7 million in new VC funding. FirstMark Capital led the round, and was joined by DFJ, Eniac Ventures, Harrison Metal, HMM Investors and Initialized Ventures.

• 17hats, a Pasadena, Calif.-based business management solution for solo entrepreneurs, has raised $4 million in Series A funding led by Wavemaker Partners.


• BC Partners has agreed to acquire a majority stake in Dümmen Orange, a Dutch flower breeding company, from H2 Equity Partners and the Dümmen family. No financial terms were disclosed.

• HGGC has merged two portfolio companies: Selligent, a Brussels-based provider of marketing automation and data management solutions; and StrongView, a Redwood City, Calif.-based provider of contextual marketing solutions.

• Outward Hound, a Centennial, Colo.-based portfolio company of The Riverside Company, has acquired Petstages, a Northbrook, Ill.-based maker and distributor of pet products. No financial terms were disclosed.

• National Technologies, a Chicago-based provider of specialized fiber optic technical services, has secured an undisclosed amount of funding from O2 Investment Partners.

• Salt Creek Capital has acquired King Tester Corp., a King of Prussia, Penn.-based maker of metallurgical testing equipment. No financial terms were disclosed.


• Cerecor Inc., a Baltimore-based developer of drugs to treat neurological and psychiatric disorders, raised $26 million in its IPO. The company priced 4 million shares at $6 per share, compared to plans to offer 4.23 million shares at between $6 and $7 each. The pre-revenue company will trade on the Nasdaq under ticker symbol CERC, while The Maxim Group served as sole underwriter. Shareholders include New Enterprise Associates (12.9% pre-IPO stake), Apple Tree Partners (12.9%) and MPM Capital (12.9%).


• Dyson, a British maker of vacuums, has agreed to acquire Ann Arbor, Mich.-based battery startup Sakti3 for $90 million in cash, according to Quartz. Sakti3 has raised around $50 million in VC funding from Dyson, Beringea, GM Ventures, ITOCHU Corp. and Khosla Ventures. Read more.

• EQT Partners has sold Vertu Corporation Ltd., a British maker of luxury mobile phones and related accessories, to a group of unidentified “international private investors.”

• LNK Partners has completed its previously-announced sale of Niman Ranch, an Alameda, Calif.-based maker of all-natural fresh and prepared protein products, to Perdue Farms for an undisclosed amount.

• NorthStar Asset Management Group Inc. (NYSE: NSAM) has agreed to acquire around an 85% interest in The Townsend Group, a Cleveland-based provider of investment management and advisory services focused on real assets, from GTCR. The deal is valued at around $380 million.

• Punch Powertrain, a Belgian car parts group, has retained Rothschild to find a buyer, according to Reuters. A sale could value Punch at around €400 million. The company currently is owned by private equity firms New Horizon Capital, LRM, GIMV and Capricorn Venture Partners.  Read more.

• Red Hat (NYSE: RHT) has agreed to acquire Ansible, a Montecito, Calif.-based provider of IT automation solutions. TechCrunch reports the price-tag is around $100 million. Ansible backers include Menlo Ventures. Read more.

• Singapore Post (STI: S08) has agreed to acquire TradeGlobal, a Cincinnati-based provider of e-commerce fulfillment services, from private equity firm Bregal Sagemount for an undisclosed amount.

• Wynnchurch Capital has sold Wolverine Advanced Materials, a Dearborn, Mich.-based maker of products for automotive braking systems and sealing solutions for “harsh operating environments,” to ITT Corp. (NYSE: ITT) for around $300 million.


• American International Group (NYSE: AIG) has agreed to sell its operations in Panama, El Salvador, Guatemala and Honduras to Assa Compañía de Seguros for an undisclosed amount. Read more.

• Deutsche Bank (DB: DBK) is in talks to sell its U.S. private client brokerage to Raymond James Financial (NYSE: RJF), according to Bloomberg. Read more.


• Clayton Dubilier & Rice is preparing to add a technology piece to its investment strategy, according to peHUB. Read more.

• Y Combinator has raised $700 million for its first later-stage investment fund, which will be led by YC partner (and former Twitter and Pixar CFO Ali Rowghani). Limited partners include Stanford University and Willett Advisors. According to the WSJ, the “Continuity” fund will “put money into each funding round raised by every YC company valued at up to $300 million, and then make discretionary bets on companies worth more than that amount.” Read more.


• Ellen Blix has joined Commonfund as a San Francisco-based managing director. She previously was a VP in the global client group of BlackRock.

• Jim Head has stepped down as co-head of Morgan Stanley’s M&A team in the Americas, in order to join Byron Trott’s BDT & Co. Read more.

• Yemi Lalude has joined TPG Capital as managing partner for TPG Africa and head of TPG Growth’s investments in Africa. He previously founded Adlevo Capital, a private equity firm focused on sub-Saharan Africa.

• Stephan Leithner reportedly is leaving Deutsche Bank, where he is a board member and CEO of Europe (excluding Germany and the UK). His next stop will be as a Munich-based partner with private equity firm EQT Partners. Read more.

• Jordan Tongalson has joined private equity firm Littlejohn & Co. as a principal and head of business development. Her previously was with Morgan Stanley as an executive director of global industrials.

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