F8 and Out
What really happened and what's next?
Those are the two questions I've gotten a lot over the past week from venture capitalists and readers (no, not mutually exclusive), ever since Formation 8 said it would not be raising a third fund. In fact, no one can remember a VC firm choosing to effectively disband without having first faced some sort of performance problems, succession questions or macro headwinds. For all of the innovation that venture capital helps to foster, the market players themselves tend to follow a pretty well-worn playbook. Formation 8 is a notable exception.
Since the original announcement, I've spoken with nearly a dozen people either employed by, or affiliated with, Formation 8. Almost all of it was on background, as no one wants to publicly burn bridges -- particularly given that, at the present time, the firm's three founding partners are "getting along" and in the midst of what one source called a "peaceful detente that benefits everyone."
But here is what I heard (almost) universally: The firm's official explanation about the founding partners having different investment strategies and interests is legitimate. Joe Lonsdale, for example, is mostly interested in building a broad portfolio of early-stage Silicon Valley tech companies. Brian Koo, on the other hand, is more interested in creating a concentrated group of growth-stage private companies in Asia. And their future plans, which we'll get to in a moment, reflect that divergence.
That said, the real fissure at Formation 8 was more about personality clashes than it was about strategy disagreement. In short, the founding partners grew apart -- creating a tense atmosphere that virtually necessitated divorce. And the sexual assault lawsuit brought earlier this year against Lonsdale -- which was dropped early last week, along with Lonsdale's countersuit against the accuser -- only exacerbated existing strains.
"I don't know that it was so much the lawsuit as the fact that the partners found out just before the public did, and the same thing with the fact that Stanford had banned Joe from its campus," says a source close to the situation. "Joe swore to everyone that he also was unaware an actual suit would be filed until nearly the last minute -- and there is no reason to think he's lying about that -- but it certainly made people more suspicious of each other."
Or, as another source put it: "Of course it caused stress internally. How could it not?"
Within the past few months, all sides concluded that raising a third fund wouldn't be fair either to investors or to themselves. Not a simple decision, particularly given the enormous fee streams being passed up.
"It would have been easy to raise another one given the performance of Funds I and II," a limited partner explains. "They just would have had to ask."
What's important to note here is that while the co-founders -- and their various factions within F8 -- didn't get along for quite some time, they have come together to do right by their investors. For starters, they've reduced the size of Fund II by 10% (and likely will expand that to 15%, depending on follow-on needs) -- rather than continuing to suck up fees for capital that will never be committed by the 'team.' Second, they will continue to manage out the existing portfolio -- with companies split up among the co-founders, each of whom will receive a budget to hire advisors, etc. Thirdly, the whole crew will appear tomorrow at the firm's annual LP meeting, in order to better explain the situation and answer questions.
So what's next?
As has been previously reported, Joe Lonsdale will raise a new fund called Eight Ventures ($400m target). He has held informal conversations with certain LPs, but there isn't yet a data room or any fund documents printed up yet. Expect that to occur sometime in 2016, alongside certain F8 team members like Drew Oetting (who was leading F8's seed investing efforts). He's also working to close a special purpose vehicle called Eight SPV.
Brian Koo also is launching a new firm called Formation Group (see what they did there with the names?), according to a memo he sent over the weekend to existing investors in a separate special purpose vehicle launched over the summer by F8 to pursue Asian growth equity deals. Word is that he's closed on over half of the $400 million he's seeking (at least via verbal commitments), and that the SPV now will now "evolve" into the first Formation Group fund. He will be joined by existing F8 staffers Gideon Yu (senior advisor to F8), Joel Sng (managing partner at F8) and Chee Cheong Gay (senior advisor to F8).
From Koo's memo: "I will lead Formation Group as CEO, while Gideon, Joel and Chee Cheong will spend 100% of their time and energy focused on our companies, either at the CEO level or in senior advisor and board member roles."
Co-founder Jim Kim has not yet disclosed his future plans, although don't be surprised if he ends up launching some sort of new investment platform with F8 partner Shirish Sathaye (who joined last year from Khosla Ventures).
Finally there is the F8 Hardware Fund, which has rebranded as Eclipse Ventures. As has been previouly reported, F8 partner Lior Susan will continue to lead the strategy (F8 COO/CFO Brett Cummings also is listed on regulatory filings). What was undisclosed until now, however, is that F8 senior advisor -- and longtime Sequoia Capital partner -- Pierre Lamond will join Eclipse Ventures as a fulltime partner.
I also must note for the record that Lonsdale disputes my narrative of personal "animosity" driving the F8 split. He points out, for example, that he is among those investing in a Korean restaurant that Brian Koo plans to open in the old Apple Store on University Ave in Palo Alto. One other F8 insider also downplayed the personal and upsold the strategic. And perhaps the post-divorce distance has soothed frayed nerves enough that things now don't seem as bad in retrospect as most others believe they once did. But I heard the same story from too many people not to give it credence.
• New fund alert: 500 Startups is raising $15 million for a new seed-stage fund focused on the Nordic region. It will be led by Sean Percival, a onetime MySpace exec who began spending serious time in the Nordics last year.
Percival will continue to live in California, but spend a majority of his time overseas. He also plans to hire at least one venture partner in each of the major Nordic startup markets (Stockholm, Copenhagen and Oslo).
"I have a bit of Norway in my DNA, but for me this is really about my interest in early-stage startup ecosystems," Percival explains. "I did this in Los Angeles before moving up to Silicon Valley two years ago. The Valley is interesting and exciting but it's almost at the point of saturation. Here in the Nordics, the foundation has been laid and I want to help build on it."
Worth noting that Percival can discuss the fundraising because 500 Statrtups is one of precious few VC firms that utilizes general solicitation provisions of the JOBS Act.
THE BIG DEAL
• Atlassian Corp., a provider of cloud-based workplace collaboration software, has filed for a $250 million IPO. It plans to trade on the Nasdaq under ticker symbol TEAM, with Goldman Sachs and Morgan Stanley serving as lead underwriters.
The company reports nearly $7 million of net income on $319.5 million in revenue for the year ending June 30, 2015 -- compared to $19 million of net income on $177 million in revenue for the year-earlier period. Shareholders include Accel (12.5% pre-IPO stake). Read more.
VENTURE CAPITAL DEALS
• Tenable Network Security Inc., a Columbia, Md.-based provider of cyber security software, has raised $250 million in Series B funding co-led by Insight Venture Partners and return backer Accel (which had invested $50m in late 2012). www.tenable.com
• miRagen Therapeutics, a Boulder, Colo.-based developer of microRNA-based therapeutics, has raised $41 million in Series C funding. MRL Ventures and JAFCO co-led the round, and were joined by Brace Pharma Capital, MP Healthcare Venture Management and return backers Atlas Venture, Boulder Ventures, Remeditex Ventures and Amgen Ventures. www.miragenrx.com
• NightstaRx Ltd., a London-based developer of gene therapies for inherited retinal dystrophies, has raised $35 million in Series B funding. New Enterprise Associates led the round, and was joined by existing backer Syncona (an independent subsidiary of Wellcome Trust). www.nightstarx.com
• Schoology, a New York-based collaborative learning platform for K-20 classrooms, has raised $32 million in new funding. JMI Equity led the round, and was joined by return backers FirstMark Capital, Intel Capital and Great Road Holdings. www.schoology.com
• VictorOps, a Boulder, Colo.-based real-time incident management company, has raised $10.6 million in VC funding co-led by Foundry Group and Costanoa Venture Capital. www.victorops.com
• Transfix, a New York-based mobile and software-enabled trucking brokerage, has raised $12 million in Series A funding. Canvas Ventures led the round, and was joined by Lerer Hippeau Ventures, Founder Collective and Bowery Capital. www.transfix.io
• Hullabalu, a developer of interactive digital stories for children, has raised $2.5 million in new VC funding. Rothenberg Ventures, Vayner RSE, Technicolor Ventures and SparkLabs Global were joined by return backers like Great Oaks VC and SV Angel. Read more.
• Oppex, a Finnish provider of an online tool for companies to find cross-border sales opportunities in the public bidding contents, has raised $2.3 million in new VC funding. Initial Capital led the round, and was joined by Open Ocean Capital. www.oppex.com
• Spiro, a San Francisco-based “personal sales assistant” app for salespeople, has raised $1.5 million in seed funding from individuals like Rob Wadsworth (HarbourVest), Vijay Balan (Facebook), Christopher Lockhead (Play Bigger Advisors) and Omar Hussain (Imprivata). www.spirohq.com
• Frichti, a French meal delivery service, has raised €1 million in VC funding from Alven Capital. Read more.
PRIVATE EQUITY DEALS
• Balmoral Funds has acquired Enesco LLC, an Itasca, Ill.-based provider of consumer products to specialty card and gift retailers. No financial terms were disclosed. www.enesco.com
• Blue Coat Systems Inc., a Sunnyvale, Calif.-based security software company owned by Bain Capital, has agreed to acquire Elastica Inc., a San Jose, Calif.-based provider of “data science-powered” cloud application security solutions, for $280 million. Elastica had raised around $36 million in VC funding from Mayfield, Third Point Ventures and Pelion Venture Partners. www.elastica.net
• Calera Capital has acquired an unspecified stake in Transaction Services Group Ltd., a New Zealand-based provider of payment solutions. No financial terms were disclosed. www.transactionservices.co.nz
• The Carlyle Group has acquired a 51% stake (on a fully-diluted basis) in Tempo Participações, a Brazilian provider of auto, home and personal assistance services to the insurance, automaker and affinity markets. The deal is valued at US$84 million. www.carlyle.com
• General Atlantic and Warburg Pincus have agreed to acquire a 49% stake in UAE-based payments company Network International from the Abraaj Group, according to Reuters. Moelis & Co. has been managing the process, with a formal announcement expected later this week. Read more.
• Geritrex, a Mt. Vernon, N.Y.-based maker of generic over-the-counter products and drugs, has acquired PurinePharma, a Massena, N.Y.-based private label manufacturer and distributor of OTC generic products. No financial terms were disclosed. Geritrex is a portfolio company of BelHealth Investment Partners. www.geritrex.com
• Resonetics, a Nashua, N.H.-based portfolio company of Sverica Capital Management and Five Points Capital, has acquired Mound Laser and Photonics Center Inc., a Miamisburg, Ohio-based laser micro manufacturer of metal components for the medical device and defense industry. No financial terms were disclosed. www.resonetics.com
• Sun Capital Partners has acquired Flexitech, a Bloomington, Ind.-based provider of brake hose products for the auto industry, from Mitsubishi Corp. No financial terms were disclosed. www.flexitech.com
• Triton Container International Ltd., a portfolio company of Warburg Pincus and Vestar Capital, has agreed to an all-stock merger with TAL International Group Inc. (NYSE: TAL), following which Triton backers will own 55% of the combined lessor of intermodal freight containers (which will be domiciled in Bermuda and plans to list on the NYSE). www.tritoncontainer.com
• York Capital has agreed to acquire HRI, a Leawood, Kansas-based parent company of restaurant chains like Houlihan’s, from Goldner Hawn Johnson & Morrison. No financial terms were disclosed. www.houlihans.com
IPOs
• Ameriquest Inc., a Cherry Hill, N.J.-based provider of business process outsourcing solutions, has filed for a $100 million IPO. It plans to trade on the Nasdaq under ticker symbol AMQ, with Raymond James and Stephens serving as lead underwriters. The company reports $4.2 million of net income on $65 million in revenue for the first nine months of 2015. www.ameriquestcorp.com
• Elevate Credit Inc., a Fort Worth, Texas-based provider of online credit solutions to non-prime consumers, has filed for a $100 million IPO. It plans to trade on the NYSE under ticker symbol ELVT, with UBS, Jefferies and Stifel serving as lead underwriters. The company reports a $20 million net loss on $300 million in revenue for the first nine months of 2015, compared to a $44 million net loss on $180 million in revenue for the year-earlier period. Shareholders include Sequoia Capital (27.5% pre-IPO stake) and Technology Crossover Ventures (22.4%). www.elevate.com
• Truck Hero Inc., an Ann Arbor, Mich.-based maker of branded consumer accessories for pickup trucks, has set its IPO terms to 11.11 million shares being offered at between $17 and $19 per share. It would have an initial market cap of around $710 million, were it to price in the middle of its range. The company plans to trade on the NYSE under ticker symbol TRUK, with J.P. Morgan, Baird and BofA Merrill Lynch serving as lead underwriters. The company reports $7.4 million of net income on $189 million in revenue for the first six months of 2015. Shareholders include TA Associates. www.truck-hero.com
EXITS
• Deliv, a Palo Alto, Calif.-based same-day delivery startup for mall-based retailers, has acquired Zipments, a New York-based same-day delivery company. No financial terms were disclosed. Deliv has raised over $11 million in VC funding from Upfront Ventures, RPM Ventures, Macerich General Growth Properties, Simon Property Group and Westfield. Zipments raised more than $2 million from firms like FirstMark Capital and Huron River Ventures. www.deliv.co
• KPS Capital Partners has agreed to sell Motor Coach Industries International Inc., a Des Plains, Ill.-based maker of intercity coaches, to New Flyer Industries Inc. (TSX: NFI) for approximately US$480 million. www.mcicoach.com
OTHER DEALS
• Anbang Insurance Group has agreed to acquire Iowa-based Fidelity & Guaranty Life (NYSE: FGL) for approximately $1.6 billion in cash. Read more.
• Access Infra Africa has agreed to invest $100 million into a Nigerian solar energy project called the ABIBA Solar Project, in partnership with Quaint Global Energy Solutions. www.access-power.com
• Astellas Pharma Inc. (Tokyo: 4503) has agreed to acquire Ocata Therapeutics Inc. (Nasdaq: OCAT), a Marlborough, Mass.-based regenerative medicine company. The deal is valued at around $360 million, or $8.50 per share (79% premium to Friday’s closing price). www.ocata.com
• Canadian Pacific (TSX: CP) reportedly has held preliminary talks with Norfolk Southern (NYSE: NCS) about a massive railroad merger. The two companies have a combined market cap of more than $44 billion. Read more.
• Clear Channel Outdoor (NYSE: CCO) has hired Moelis & Co. to advise on a potential sale of upwards of $800 million worth of billboard assets in markets like Las Vegas and Seattle, according to Reuters. Read more.
• Home24, a Berlin-based online furniture retailer backed by Rocket Internet and REWE Group, has raised acquired German rival Fashion For Home. No financial terms were disclosed. www.home24.de
FIRMS & FUNDS
• The Riverside Company has secured over $207 million for its fifth micro-cap private equity fund, according to a regulatory filing. The new fund is designed to raise upwards of $500 million in total.
MOVING IN, UP, ON & OUT
• Colleen Gurda has joined Comvest Partners as a vice president in the firm’s direct lending group. She previously was with Alcentra Capital Corp. www.comvest.com
• Anne-Laure Meynier has joined London-based private equity firm Apposite Capital as an investment manager. She previously was CFO of French tech startup Nuage Labs. www.appositecapital.com
• Michael Wildish has joined Cowen & Co. as managing director of M&A. He previously was a managing partner with Corporate Partners. www.cowen.com
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