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Term Sheet — Thursday, March 24

Random Ramblings

When on-demand grocery delivery company Instacart raised $8.5 million in its first round of venture capital funding three years ago, it wasn’t terribly surprising. After all, nearly every vertical was getting its own version of Uber. What turned heads, however, was the participation of Sequoia Capital partner Michael Moritz, who had once invested in grocery delivery flame-out Webvan (where he also sat on the board).

Moritz felt that Instacart was different from Webvan not only because it used in-store shoppers rather than expensive warehouses, but also because it had several secret “levers” it could eventually pull in order to achieve profitability.

At the time, it felt a bit like someone trying to justify why he hadn’t learned from past mistakes. But Moritz appears to have known what he was talking about.

Instacart is now gross margin positive, meaning that it makes money on its average orders, according to on-the-record conversations with senior executives and a recent board document obtained by Fortune. This includes per order profits in 10 of its markets, including its two largest.

To be sure, this is different from the company generating net income, but it is a major development given the conventional wisdom that on-demand startups like Instacart are doomed to burn cash until their VCs run out of patience.

For more data and an in-depth explanation of how Instacart has flipped its script, please go here.

• Deal scoop: Earlier this year we discussed the formation of CAVU Venture Partners, a high-powered new firm focused on consumer packaged goods (which a particular emphasis on food and beverage). Now we’ve learned that the firm has invested at least $7 million into Health-Aide LLC, a Los Angeles-based maker of bottled Kombucha (for the uninitiated, it’s a fermented tea product that is becoming very popular in the U.S.).

I’ll have more about this deal soon on the website, but I wanted to share the founding story: Daina Trout was a nutritionist who, along with her husband and best friend, decided that they wanted to launch a startup. So they began hanging out in an LA-area entrepreneurs club to brainstorm ideas. As that was going on Daina kept making Kombucha from her own recipe, so they had something to drink while coming up with their business. Someone suggested that it was good enough to sell at a local farmer’s market. It didn’t take too many sold-out visits before the trio realized that their idea was right under their nose (kind of literally).

Health-Aide, which previously raised capital from First Beverage Group, now has product in over 3,000 stores in 42 states, including around half of the Whole Foods regional markets. But it basically can’t keep up with demand, which is why the new money will be used to build a new manufacturing facility in Torrance, California.

“They’re basically out of stock wherever they go, and could probably sell five times more if they had enough capacity,” says CAVU partner Rohan Oza.

• Hey founders: There is one spot remaining to pitch at the VCIC Finals, which take place on April 8-9 in Chapel Hill. This is a global competition in which teams of biz schoolers form “VC partnerships.” They get pitched by real entrepreneurs, conduct due diligence, draw up term sheets for their desired investment, negotiate and then get grilled by judges (most of whom are real-life VCs, plus yours truly).

I cannot stress enough how valuable an opportunity this is for entrepreneurs who don’t have much experience marketing your startup to VCs. No pressure, but tons of feedback and practice due diligence. Plus a chance to mingle with VCs from such firms as DFJ, Foundry Group, Jump Capital, Citi Ventures, Silver Lake Kraftwerk, etc. If you’d like that last spot, please email UNC’s Patrick Vernon.


• Yum Brands Inc. (NYSE: YUM) has held talks to sell a minority stake in its Chinese operations ahead of a spin-out of the unit, which could be valued at around $10 billion, according to Reuters. Suitors include KKR and Hopu Investments. Read more.


• Mesosphere, a San Francisco-based provider of data center software, has raised $73.5 million in new VC funding. HP Enterprise led the round, and was joined by Microsoft, A Capital, Triangle Peak Partners and return backers Andreessen Horowitz, Khosla Ventures, and Fuel Capital. Read more.

• Iterum Therapeutics Ltd., an Ireland-based developer of anti-infectives, has been formed via $40 million in Series A funding. Frazier Healthcare Ventures led the round, and was joined by Canaan Partners, Sofinnova Ventures and New Leaf Venture Partners.

• LifeBEAM, a New York-based developer of biosensor-enabled wearables, has raised $16 million in new VC funding. Squarepeg Capital led the round, and was joined by Wellborn VC, Cerca Partners, Atomic14 VC and Triventures VC.

• HG Data, a Santa Barbara, Calif.-based provider for “competitive intelligence on installed technologies,” has raised $12 million in Series B funding. Updata Partners led the round, and was joined by return backers Rincon Venture Partners and Epic Ventures.

• Visionary VR, a Los Angeles-based developer of VR story creation software, has raised $6 million in Series A funding. DFJ led the round, and was joined by Greycroft Partners, The Venture Reality Fund, BDMI, Vayner-RSE, End Cue and individual angels.

• Zodiac, a New York-based developer of predictive analytics for forecasting individual customer lifetime value, has raised $3 million in seed funding. First Round Capital led the round, and was joined by Metamorphic Ventures.


• ACG Capital has agreed to acquire H-VMI, a European auto connectivity business, from H.I.G. Capital. No financial terms were disclosed. H-VMI was formed in 2009 following H.I.G.’s partial acquisition of Molex Group’s auto connectivity group.

• Apax Partners has agreed to acquire InfoVista SA, a French provider of network management software, from Thoma Bravo. No financial terms were disclosed.

• Black Diamond Capital Management has agreed to acquire three U.S. long carbon steel mills and related facilities from ArcelorMittal. No financial terms were disclosed.

• The Carlyle Group has agreed to acquire a majority stake in New York-based wholesale insurance broker JenCap Holdings LLC and the assets of San Francisco-based Wholesale Trading Co-Op Insurance Services, which will be re-named Wholesale Trading Insurance Services. No financial terms were disclosed.

• LakePharma Inc., a Belmont, Calif.-based provider of biologics contract research organization solutions, has acquired Blue Sky BioServices, a Worcester, Mass.-based CRO focused on protein and antibody production and assay services. No financial terms were disclosed, except that existing Blue Sky backer Ampersand Capital Partners made a new investment into LakeStar.

• Metasource, a Bristol, Penn.-based portfolio company of LaSalle Capital, has acquired Titan Lenders Corp., a Denver-based provider of tech-enabled mortgage compliance services. No financial terms were disclosed.

• Oak Hill Capital Partners has agreed to acquire a majority stake in FirstLight Fiber, a provider of fiber-optic bandwidth infrastructure services in New York and northern New England, from Riverside Partners (which will retain a minority position). No financial terms were disclosed.

• Trivergance LLC, Falcon Investment Advisors and Landon Capital Partners have partnered to acquire Clarus Commerce, a Rocky Hill, Conn.-based provider of a membership and benefit management technology, from Norwest Venture Partners. No financial terms were disclosed.


• Chinh Chu, the longtime Blackstone Group deal-maker who left the firm last year, is prepping a blank check acquisition company that could seek upwards of $1 billion in an IPO, according to Reuters. Read more.

• Wayne Farms Inc., an Oakwood, Ga.-based producer and processor of broiler chickens, has formally withdrawn registration for an IPO that was designed to raise around $250 million at a $1 billion valuation. It had filed for the offering in March 2015, but postponed the offering last summer. Citigroup and BMO Capital Markets had been serving as lead underwriters. Wayne Farms is currently owned by Continental Grain


• ENN (HK: 2688) has agreed to acquire a A$750 million stake in Australian gas producer Santos (ASX: STO) from private equity firm Hony Capital, which would make China’s ENN the largest shareholder in Santos. Read more.

• The Riverside Company has agreed to sell Diatron Group, a Budapest-based maker of compact hematology analyzers for the human medical and veterinary markets, to Germany’s Stratec Biomedical AG. No financial terms were disclosed.


• Softbank Corp. (Tokyo: 9984) has agreed to invest $250 million for a 5% stake in talent agency WME/IMG, a portfolio company of Silver Lake. Read more.

• TransCanada Corp. (TSX: TRP) has retained JPMorgan Chase to seek buyers for more than $7 billion in assets, including its U.S. northeast merchant power plants and a minority stake in its Mexican natural gas pipelines, according to Bloomberg. The move is designed to help finance TransCanada’s planned acquisition of Columbia Pipeline Group. Read more.


• Endeavour Vision, a Swiss venture capital and growth equity firm, has closed a new medtech-focused fund with €250 million in capital commitments.

• Falfurrias Capital Partners, a Charlotte-based private equity firm focused on the lower middle-markets, is targeting upwards of $225 million for its third fund, according to a regulatory filing. It already has secured more than $93 million.

• Frazier Healthcare Partners, a Seattle-based VC and private equity firm focused on life sciences, has raised $525 million for its first dedicated growth buyout fund.

• Merit Capital Partners of Chicago is targeting upwards of $600 million for its sixth mezzanine fund, according to an SEC filing.

• True Ventures is targeting upwards of $295 million for its fifth fund, according to a regulatory filing. It had closed its fourth fund with $290 million in 2014.


• Cotton Creek Capital has promoted Lee Rash to director. He joined the Texas-based private equity firm in 2012 from The Blackstone Group.

• David Zwiener, the former interim CEO of PartnerRe, has joined The Carlyle Group as an operating partner in the firm’s global financial services team.

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