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Term Sheet — Thursday, April 14

Random Ramblings

Some notes to kick off your Thursday:

• Academia: A lot of you have questioned Yale University’s claim that its venture capital portfolio has generated a 92.7% per annum return over the past 20 years. So we’ve gotten some more clarification from David Swensen, Yale’s chief investment officer.

As we suspected, this is a dollar-weighted IRR rather than time-weighted. Were it to have been time-weighted, the figure would have dropped to 32.2%. And, of course, no compounding at the 92.7% rate as “such a calculation assumes reinvestment of all proceeds from the portfolio during the period at the same rate of return for the remainder of the period.”

For the record, Yale does use time-weighting for assessing performance of its marketable securities (i.e., assets that the school can choose when to buy and sell).

More context from Swensen:

“The Internet boom comprises the beginning of the 20-year period in question, during which Yale’s venture capital portfolio generated triple-digit single-year IRRs in three of its first five years, culminating in a 701.0% IRR in fiscal year 2000. Given the mathematics of the IRR calculation, a spectacular first five years of performance will have significant influence over the IRR of any longer term period. An anomalous period such as the Internet boom highlights this limitation of the use of IRRs, which is why we use several metrics to analyze the portfolio’s performance. In addition to the IRR, we consider net multiples of invested capital, dollar gains, and various other metrics. That said, we believe that dollar-weighted IRRs, though imperfect, are more appropriate than traditional time-weighted returns for the performance analysis of illiquid portfolios. Furthermore, utilizing dollar-weighted IRRs allows Yale to benchmark its performance in an apples-to-apples fashion using data services such those provided by Cambridge Associates, which generally report pooled IRRs.”

• New firm alert: Align Capital Partners has been launched as a small-cap private equity firm by a trio of Riverside Company investors: Chris Jones and Steve Dyke, both Cleveland-based Riverside partners who have been with the firm for more than a decade, and Dallas-based Riverside principal Rob Langley.

Jones says that the split with Riverside is amicable, with all three agreeing to continue working on certain existing portfolio company obligations (in fact, two of them worked on a bolt-on that was announced just last week). Their departure, he adds, is mostly based on the trio’s desire to do small acquisitions ― companies with between $3 million and $10 million of EBITDA ― that now fall below the typical threshold of Riverside, whose latest small cap fund is coming in at well over $500 million.

No word on Align’s debut fund size target (Capstone Partners is serving as placement agent), but Align does have verbal equity and debt commitments that would enable it to do some pre-fund purchases.

• Today in Theranos: Elizabeth Holmes may go from being criticized by federal regulators to being banned by them. That’s according to the WSJ, which reports that the Centers for Medicare and Medicaid Services sent Theranos a letter on March 18, which said it plans to revoke a federal license for the company’s flagship California lab, and also prevent Holmes and Theranos president Sunny Balwani from owning or running any lab for at least two years (including its Arizona facility).

Theranos, per usual, is saying that this will blow over as it has addressed regulator concerns. Then again, the company has been wrong about that in the past.

As we wait for the latest bad blood to drip, three questions spring to mind: (1) Can Theranos survive without Holmes? Leaving aside the operational issues, she is believed to own over half the company — could she just put it in some sort of passive trust? And just how passive? Would she really just spend two years at the beach, or would she be like an ejected baseball manager, still barking orders from behind the dugout door? (2) How much cash does Theranos still have on hand? We have no record of it raising new capital in the seven months or so since regulators honed in, and it’s hard to imagine that investors are lining up right now. (3) Why hasn’t CMS closed its leaks to the WSJ? I don’t know the paper’s primary source, but this is now looking like the regulators want these private letters out in the open. Unless it’s a disgruntled Theranos employee, in which case the same general question applies…

• Update: One of today’s largest VC deals is a $40 million round for Quartet Health, led by Google Ventures. This is the New York-based startup that is seeking to integrate mental and physical healthcare, which I wrote about back in February. Here is that original story.

• Game Time: Want to play softball at Fenway Park on June 28, as part of a charity event to benefit a nonprofit that provides summer jobs and tutoring for low-income teenagers in Boston? Please let me know via email, as we’re putting together a Term Sheet team. It’s not cheap, but it should be an amazing experience. Also please let me know if you work at a firm that would like to sponsor players…


• McDonald’s Corp. (NYSE: MCD) is in talks to sell its 2,800 North Asia restaurants to a private equity firm, according to Reuters. Possible suitors reportedly include Bain Capital, MBK Partners, China Resources (Holdings) and TPG Capital. Read more.


• Nexthink, a UK-based provider of end-user IT analytics, has raised $40 million in new VC funding. Highland Europe led the round, and was joined by Waypoint Capital and return backers Auriga Partners and Galeo Ventures.

• Quartet Health, a New York-based tech startup focused on integrating behavioral and physical healthcare, has raised $40 million in Series B funding. Google Ventures led the round, and was joined by return backers Oak HC/FT Partners, F-Prime Capital Partners, and Polaris Partners. Read more.

• Poshmark, a Redwood City, Calif.-based community marketplace for fashion, has raised $25 million in new VC funding. GGV Capital led the round, and was joined by return backers Mayfield, Menlo Ventures, Inventus Capital, Union Grove Venture Partners, Shea Ventures, Angellist and SoftTech VC.

• OnShift, a Cleveland-based provider of human capital management software for post-acute care and senior living, has raised $18 million in Series D funding. Health Velocity Capital led the round, and was joined by return backers Draper Triangle Ventures, Early Stage Partners, Fifth Third Capital, HLM Venture Partners, North Coast Venture Fund and West Capital Advisors.

• EdCast, a Mountain View, Calif.-based platform for distributing business and personal educational content from industry experts, has raised $16 million in new VC funding led by GE Asset Management. Read more.

• Jolata Inc., a San Jose, Calif.-based big data company designed to help large network operators visualize and optimize their global networks, has raised $7 million in second-round funding from Spirent Communications, Ericsson and return backer ATA Ventures.

• HookLogic, a New York-based provider of performance marketing solutions for brands, has raised an undisclosed amount of VC funding from LUMA Capital Partners.


• ATC Group Services LLC, a Sioux Falls, S.D.-based environmental consulting and industrial hygiene company, has acquired Dexter Field Services LP, an Austin, Texas-based provider of leak detection and repair and monitoring services. No financial terms were disclosed. ATC is a portfolio company of Bernhard Capital Partners.

• Energy Services Group LLC, a Rockland, Mass.-based provider of transaction management, billing and wholesale energy services to the retail energy industry, as secured an undisclosed amount of growth equity funding from Accel-KKR.

• Flipp Corp., a Toronto-based mobile consumer marketplace, has raised US$61 million in growth equity funding from General Atlantic.

• Industrial Opportunity Partners has sponsored a recapitalization of Moulure Alexandria Moulding Inc., an Ontario-based manufacturer and distributor of wood moldings and related millwork products for the Canadian and Northern U.S. residential housing markets. No financial terms were disclosed.

• Shape Technologies Group Inc., a New York-based provider of waterjet technology and manufacturing process solutions, has acquired Tops Co. Ltd., a South Korean provider of waterjet-based solutions in the Asia-Pacific region. No financial terms were disclosed. Shape Technologies is a portfolio company of American Industrial Partners.

• Vestmark, a Boston-based provider of wealth management SaaS solutions for financial advisors and institutions, has raised $30 million in private equity funding from Summit Partners.

• Warburg Pincus has agreed to acquire a majority stake in Reiss Holdings, a UK-based men’s and women’s fashion and accessories brand, at a £230 million enterprise value.


• BATS Global Markets, a Lenexa, Kansas-based securities exchange operator, has increased the number of shares being offered in its IPO from 11.2 million to 13.3 million. It still plans to price between $17 and $19 per share. The company will list on the BATS Exchange under ticker symbol BATS, with Morgan Stanley and Citigroup serving as lead underwriters. Shareholders include TA Associates (17.1% pre-IPO stake) and a group of investment banks.

• Bavarian Nordic, a Denmark-based developer of vaccines for the prevention of life-threatening infectious diseases and the treatment of cancer, has withdrawn registration for its $86 million U.S. float, citing market conditions. The company currently is traded on the OTC BB and Nasdaq Copenhagen, with a market cap in excess of $1 billion.

• Optiv Security LLC, a Denver-based cybersecurity company backed by The Blackstone Group, has hired Goldman Sachs and Morgan Stanley to lead an IPO that could occur in the second half of 2016, according to Bloomberg. Read more.


• Gryphon Investors has hired Wells Fargo to find a buyer for SynteractHCR Inc., a Carlsbad, Calif.-based contract research organization, according to Reuters. The deal could be valued at around $1.5 billion (including debt). Read more.

• Scout24 AG (DB: G24), a German online advertising company, said that existing shareholders plan to sell 12 million shares via a secondary public offering. This represents around 11.2% of the company’s outstanding stock, and will be unloaded by Hellman & Friedman, The Blackstone Group, Deutsche Telekom and German GMEP Ord.

• Vente-Privee, a French fashion e-commerce site, has acquired Spanish rival Privalia. No financial terms were disclosed, although some reports peg the price-tag at around €500 million. Vente-Privee backers include Summit Partners, while Privalia had raised around €158 million from firms like Highland Capital Partners, General Atlantic, Insight Venture Partners, La Caixa Capital Risc, Index Ventures, Nauta Capital and Sofina. Read more.


• Energy XXI (Nasdaq: EXXI), an oil and gas company with operations in Louisiana, Texas and the Gulf of Mexico, has filed for Chapter 11 bankruptcy protection. Read more.

• J.P. Morgan Asset Management has acquired a minority equity stake in Global X Management Co., a New York-based provider of exchange-traded funds. No financial terms were disclosed.

• Opus Bank (Nasdaq: OPB) has acquired PENSCO Services LLC, a tech-enabled alternative asset IRA custodian. The deal is valued at around $103 million, including $46.4 million in cash.


• Alinda Capital Partners is raising its third private equity infrastructure fund, according to a regulatory filing. No target information was provided, but PitchBook puts the figure at $5 billion.

• Phoenix Equity Partners, a UK-based mid-market private equity firm, is raising around £500 million for a new fund, according to Private Equity International.

• Portfolio Advisors has closed its eighth private equity fund-of-funds with $1.22 billion in capital commitments.

• Macquarie Group this month laid off around 15% of its U.S. investment banking staff, according to Reuters. Read more.


• Aaron Rosenson has joined Israel-based Aleph Venture Capital as a partner. He previously was an associate with Insight Venture Partners.

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