“BAD APPLE” ETHICS
Happy New Year, Term Sheet readers! During the break, Fortune published my latest feature story, “The Ugly Unethical Underside of Silicon Valley." It argues that 2016’s string of startup scandals -- from Zenefits and Theranos to a myriad of smaller, lesser-known blow-ups -- aren’t necessarily exceptions, or as many investors have described them, “bad apples.” Rather, they represent a growing problem with Silicon Valley’s “move fast and break things” culture. As 500 Startups founding partner Dave McClure put it, “We hope that entrepreneurs bend the rules but don’t break them. You know the saying ‘There’s a fine line between genius and insanity’? There’s probably a fine line between entrepreneurship and criminality.”
Here is an excerpt from the introduction:
No industry is immune to fraud, and the hotter the business, the more hucksters flock to it. But Silicon Valley has always seen itself as the virtuous outlier, a place where altruistic nerds tolerate capitalism in order to make the world a better place. Suddenly the Valley looks as crooked and greedy as the rest of the business world. And the growing roster of scandal-tainted startups share a theme. Faking it, from marketing exaggerations to outright fraud, feels more prevalent than ever—so much so that it’s time to ask whether startup culture itself is becoming a problem.
Fraud is not new in tech, of course. Longtime investors remember when MiniScribe shipped actual bricks inside its hard-disk boxes in an inventory accounting scam in the 1980s. The ’90s and early aughts brought WorldCom, Enron, and the dot-bombs. But today more money is sloshing around ($73 billion in venture capital invested in U.S. startups in 2016, compared with $45 billion at the peak of the dotcom boom, according to PitchBook), there’s less transparency as companies stay private longer (174 private companies are each worth $1 billion or more), and there’s an endless supply of legal gray areas to exploit as technology invades every sector, from fintech and med-tech to auto-tech and ed-tech.
The drama has some investors predicting more disasters. “What if Theranos is the canary in the coal mine?” says Roger McNamee, a 40-year VC veteran and managing director at Elevation Partners. “Everyone is looking at Theranos as an outlier. We may discover it’s not an outlier at all.” That would be bad news, because without trust, the tech industry’s intertwined ecosystem of money, products, and people can’t function. Investors may find the full version of the old proverb is more accurate: “One bad apple spoils the whole barrel.”
You can read the full article here.
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VENTURE DEALS
• Proterra, a Greenville, S.C.-based designer and manufacturer of zero-emission vehicles, raised $140 million in equity funding. The round was led by an undisclosed investor, who contributed $40 million. Tao Capital Partners, Kleiner Perkins, GM Ventures, Constellation Technology Ventures, 88 Green Ventures, and Edison Energy also participated. Read more at Fortune.
• Rent the Runway, a New York City-based designer clothing company, raised $60 million in Series E funding. Fidelity led the round, and was joined by Technology Crossover Ventures, Bain Capital Ventures, Highland Capital Partners, and Advance Publications. Read more at Fortune.
• NA-KD, a Swedish fashion ecommerce company, raised €14 million ($14.5 million) in a funding, according to Tech.eu. Northzone led the round, and was joined by eEquity. Read more.
• Monese, a London-based mobile banking app designed for immigrants and expats, raised $10 million in Series A funding, according to TechCrunch. Investors include Anthemis Exponential Ventures, STE Capital, Korea Investment Partners, Smartcap and Seecamp. Read more.
• Flytrex, an Israeli drone startup, raised $3 million in funding, according to TechCrunch. Armada VC led the round, and was joined by angel investors Daniel Gutenberg and Joey Low. Read more.
PRIVATE EQUITY DEALS
• The Carlyle Group (NasdaqGS:CG) has acquired a majority stake in Gastronomía & Negocios S.A, a Santiago, Chile-based fast food restaurant franchisor, from the Duch and Fuenzalida families, both of whom will retain a minority stake in the company. Financial terms were not disclosed.
• Clearlake Capital and Vector Capital have made a bid to purchase Tangoe, Inc. (NasdaqGS:TNGO), offering $7 for each issued and outstanding share of the company’s common stock.
• KKR & Co. (NYSE:KKR) is still interested in acquiring Depomed (NasdaqGS:DEPO), according to the New York Post. The opioid maker is in the process of accepting bids. Read more.
• Sentinel Capital Partners, a New York City-based private equity firm, has invested in Altima Dental Centres, a Toronto-based dental care provider. Terms were not disclosed.
• Confie, a Huntington Beach, Calif.-based personal and commercial insurance provider backed by ABRY Partners, has acquired Auto Insurance America from Western National Mutual Insurance Company. (Correction: This item has been updated to fix a misspelling of the name of ABRY Partners.)
• Summit Park, a Charlotte, N.C.-based private equity firm, has acquired certain assets from Iron Mountain Incorporated (NYSE:IRM) for $50 million that will be used to create Arkive, an Atlanta-based provider of document storage software.
OTHER DEALS
• Euronext (ENXTPA:ENX) has agreed to acquire London Stock Exchange Group’s (LSE:LSE) French clearing business for €510 million ($534 million), according to Reuters. The London Stock Exchange Group is seeking regulatory approval to merge with Deutsche Boerse (XTRA:DB1). Read more.
•Australia and New Zealand Banking Group (ASX:ANZ) has agreed to sell its 20% stake in Shanghai Rural Commercial Bank Co to China Cosco Shipping Corp. and Shanghai Sino-Poland Enterprise Management Development Corp. for A$1.8 billion ($1.3 billion), according to Reuters. Read more.
IPOS
• AppDynamics Inc., a San Francisco-based company that develops software for businesses to monitor applications, has filed for an initial public offering. The company raised funding at a reported $1.9 billion in November 2015.
EXITS
• Matrix Capital Markets Group has sold Massillon, Ohio-based Campbell Oil Company's residential heating, oil and commercial fuels business to Lykins Energy Solutions. Terms were not disclosed.
• Snap Inc., the parent company of Snapchat, has acquired Cimagine Media, an augmented reality startup based in Israel, for $30 million to $40 million. The company had raised funding from 2b Angels, iVentures Asia, OurCrowd, Plus Ventures, and Titanium Investments.
• Facebook subsidiary Oculus VR has acquired The Eye Tribe, a Copenhagen-based startup focused on tracking eye movements, for an undisclosed amount. The Eye Tribe has raised $3 million in funding from investors including Startup Bootcamp.
• ThreeSixty Group Inc, a Hong Kong-based consumer products manufacturer and distributor backed by AEA Investors LP, has acquired home electronics and high-tech lifestyle products provider The Sharper Image from Iconix Brand Group Inc. (NasdaqGS:ICON). Financial terms were not disclosed.
• Clearlake Capital Group has agreed to acquire Landesk, a South Jordan, Utah-based developer of IT management software, from Thoma Bravo. Financial terms were not disclosed.
• Huawei, a Shenzhen, China-based smartphone manufacturer, is negotiating a deal to acquire HexaTier, an Israeli database security company, according to Reuters. HexaTier has raised $14.5 million from Israeli venture capital funds JVP, Magma and Rhodium. Read more.
• 3i (LSE:III) is considering selling Agent Provocateur, a London-based high-end lingerie retailer, according to the Financial Times. Read more (subscription required).
• Blackstone (NYSE:BX) has agreed to acquire Tradesmen International, a Macedonia, Ohio-based provider of craftsmen to non-residential construction and industrial contractors, from Wellspring Capital Management. Financial terms were not disclosed.
• OpenGate Capital, a Los Angeles-based private equity firm, has sold Getronics LATAM, an integrated ICT products and services provider, to the Latin American private investment firm Southern Cross Group.
FIRMS + FUNDS
• Clayton Dubilier & Rice, a New York City-based private equity firm, is close to raising $6 billion (of a $8.5 million target) for Fund X, its latest private equity fund, according to a report by Reuters. Read more.
• Acon, a private equity firm based in Washington, D.C., Los Angeles, Mexico City, Sao Paulo and Bogota, raised $965 million for its fourth fund, according to an SEC filing
• J.C. Flowers & Co., a New York City-based private equity firm, raised $628.1 million for its fourth fund, according to an SEC filing.
• Data Collective, a Palo Alto and San Francisco venture capital firm focused on big data startups, has raised $212 million for its fourth venture capital fund, according to an SEC filing.
• Core Innovation Capital, a Los Angeles-based private equity and venture capital firm, raised $71.5 million for its second fund, according to an SEC filing.
• Flyover Capital, a Leawood, Kan.-based venture capital firm, has raised $46 million for its first fund, according to an SEC filing.
NEW JOBS
• Todd Edebohls has joined Clear, a New York City-based biometrics startup, as SVP of Corporate Development. He was previously VP of business development at Zocdoc and director of business development at Amazon.
• Anshu Jain has joined the investment bank Cantor Fitzgerald as president. Jain was previously the co-chief executive of Deutsche Bank. He resigned from the post 18 months ago. Read more at Fortune.
• John Kissick, a co-founder, director and partner at Ares Management, is retiring after nearly 20 years with the firm, according to the Financial News. Read more (subscription required).
• Kevin Imhoff and Jeff Hypes have joined the Greenwich, Conn.-based financial advisory services firm Atlantic-Pacific Capital, Inc. as principals.
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