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Term Sheet — Wednesday, February 22

February 22, 2017, 3:06 PM UTC
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Whippersnapper: Snap pitched NYC investors yesterday on its road show, touting 26-year-old CEO Evan Spiegel as a “once in a generation” founder. Reuters quotes an investor saying, “They could have been in their underwear up there and no one would have cared." Investors were apparently scared to ask about Snap’s no-vote shares because they didn’t want the company to cut their share allocation. In other words, that initial investor reaction – "I'm willing to risk losing 50% if there's a chance this is like Facebook and I can get 10x" – hasn’t changed much after a few weeks of picking over Snap’s financials. This isn’t a rational investment.

Aside from pent-up IPO demand, Snap’s selling point is its ability to repeatedly tap into the next trend before its competitors. Ben Thompson calls this the “Gingerbread Man strategy.” (As in “Run, run, as fast as you can, you’ll never catch me, I’m the gingerbread man!”) By the time competitors start ripping them off (ahem, Facebook…), it doesn’t matter. They’re already working on the next thing.

One investor expressed frustration to Reuters that Snap’s execs couldn’t outline where the company would be in five years from now. But that’s the point -- they likely don’t know, and they’re fine with that. Savvy media companies are aware they’re on a treadmill of novelties. As BuzzFeed CEO Jonah Peretti told me in 2014, “We don’t have to know how its all going to be worked out in the future, we just have to have a team that continually learns.”

The Big D: My colleague Shawn Tully warns that, while it’s easier to bask in the excitement of an IPO like Snap than be convinced by the numbers, investors should be wary of dilution from Snap’s “extreme generosity to employees,” heavily skewed to reward top management. He explains:

Over five years, its stock would need to gain 61%, or rise from $16 to almost $26, to deliver a 10% annualized return. But its market cap will need to grow much faster than 10% a year, because far more shares will be outstanding.

As the prospectus reveals, 250 million new shares are about to swell the float (that's excluding part of the shares going to the foundation over an extended period). So by March of 2022, Snap will have at least 1.44 billion shares outstanding. That means its market cap would need to rise from $18.5 billion to $38 billion, or more than double. To justify that kind of market cap, at a towering P/E of 40, Snap would need to earn around $950 million in 2022. At a Google-sized margin of net income to revenues of 33%, it would need sales of almost $3 billion. That means growing sales 48% a year from the current level of $404 million in 2016.

All of this assumes that the projected dilution stops at 250 million new shares. If Snap is successful, the count is likely to reach far higher, since (according to its prospectus) it has reserved an additional 355 million shares for possible equity grants in the future that will be awarded and vest if the stock price rises and management hits benchmarks for performance. And don't forget that this glamor stock could surge past the underwriters' price of $16, handing big gains to their institutional customers, a favorite Wall Street tactic. If that happens, members of the investing public who buy at a higher price on the post-IPO market will be starting their adventure in an even deeper valley. Read more.

Uber’s lady problem: At an all-hands meeting yesterday, CEO Travis Kalanick apologized for his company’s cultural shortcomings. Recode reports that he was responsible for the company not collecting or sharing diversity data, as many tech companies do to hold themselves accountable for improving. My colleague Claire Zillman notes that the company’s percentage of women in technical roles (15%) is appalling, “even by the tech industry’s excruciatingly low standards.” Airbnb reports 26% of its technical roles are filled by women. Apple and Intel are also above 20%. (Enable images to view chart.)

uber women chart

Verihoo: Yahoo and Verizon are actually, really, finally, please god just do it already, merging. After a year of nonsense banker leaks, neverending auctions, massive hacks, and bad Altaba jokes, my colleague Mathew Ingram asks an entirely reasonable question: Why? Well, Verizon doesn't really have a choice. He notes:

If it wants to build a mobile-first digital advertising business that can go head-to-head with Facebook and Google—and it very much wants to do that, because its core telecom business is in decline—Yahoo is just about the only option. … Much like AOL, which Verizon also acquired in 2015 for $4.4 billion, Yahoo has been trying to build a mobile and digital ad marketplace that can use the data it has accumulated about all of those users. It hasn't been able to build it quickly enough to save the company, but that data and those ad platforms are still worth something. Read more.

Quotable: Brad Feld of Foundry Group has some thoughts on the hype around non-tech companies and their eye-popping startup acquisitions, courtesy TechCrunch’s Connie Loizos. Short version: He’s skeptical.

If you are an entrepreneur and you’re trying to time that, you will get f*cked. And if you’re an investor and you’re relying on that from an investment perspective, it won’t work. You’ll either get lucky or you won’t. If you get lucky, you’ll start to believe that that’s an extrapolated trend, and then the cycle will change on you again. Read more.

Blockchain: Private equity record keeping is highly manual, but blockchain could change that. Northern Trust and IBM have teamed up to deploy a blockchain-based system that records documents and information connected to transactions. The first fund to use it is Swiss asset manager Unigestion. Reuters notes that the system provides a central record for GPs, LPs and fund admins. It also allows regulators to easily access the information they need. Read more.


 Starboard takes a stake in Tribune Media.

 A $25,000 physical for wealthy hypochondriacs.

 Bristol-Myers Squibb shares spike on reports of a Carl Icahn stake.

 Oh hey, CEOs like lower taxes.

 Fortune feature story: The Hunt for the Perfect Sugar.

 Trump’s Mar-a-Lago trips have already cost taxpayers $10 million.


Terrorists are building drones and the French are using eagles to destroy them. A university course on bulls***. The problem with all-female digital assistants. The SEC is investigating whether private tech companies are sharing enough financial information with their employees. Private equity’s return to mining after a 2016 slump. How an upstart private equity firm makes 40% a year on gourmet jerky and vegan makeup.

VENTURE DEALS, a video-streaming service owned by Baidu (Nasdaq:BIDU), raised $1.53 billion in convertible bonds from investors including Baidu, Hillhouse Capital, IDG Capital, and Sequoia Capital. Read more.

Mailgun, an email delivery service for developers, which was acquired by Rackspace in 2012, raised $50 million in funding and is being spun out as an independent company. Turn/River Capital led the round, and was joined by Scaleworks and Rackspace.

Makeblock, a Chinese platform for making DIY robotics kits, is raising around $30 million in Series B funding at a $200 million valuation, according to Bloomberg. Read more.

Prospa, a Sydney-based online lender for small business owners, raised $25 million in funding. AirTree Ventures led the round.

TactoTek, a Finland-based manufacturer of injection molded structural electronics, raised $20 million in funding from investors including Faurecia Ventures.

Vatbox, an Israeli-based recovery company for value-added taxes, raised $20 million in funding, according to Globes. Target Global Fund led the round, and was joined by Viola Private Equity and other private investors. Read more.

Creditas Soluções Financeiras, a Brazilian financial technology firm, raised $19 million in Series B funding, according to Reuters. Investors include the World Bank's International Finance Corp, Naspers’ fintech arm, and Redpoint eventures. Read more., an Austin, Texas-based developer of an open data platform, raised $18.7 million in funding. Pat Ryan’s family investment group led the round, and was joined by Chicago Ventures, Fyrfly Venture Partners, Hunt Technology Ventures LP, LiveOak Venture Partners, Shasta Ventures, and Sherpa Asset Management AG.

Diamanti, a San Jose, Calif.-based datacenter infrastructure company, raised $18 million in Series B funding. Northgate Capital led the round, and was joined by CRV, DFJ, Translink, and GSR Ventures.

Ecrebo, a U.K.-based developer of a point of sale marketing platform, raised £12 million ($15 million) in funding from Sir Keith Mills and Joseph Schull.

UNICAF, an online platform in sub-saharan Africa offering higher education degrees, raised $12 million from CDC Group, University Ventures, and Savannah.

Skurt, a Los Angeles-based rental car delivery startup, raised $10 million in Series A funding, according to TechCrunch. Upfront Ventures led the round, and was joined by BMW, Cross Culture Ventures, Expansion VC, Greycroft, and Magic Johnson. Read more.

Voysis, a voice technology company, raised $8 million in Series A funding. Polaris Partners led the round. Read more at Fortune.

Clinc, an Ann Arbor, Mich.-based artificial intelligence startup, raised $6.3 million in Series A funding. Drive Capital led the round, and was joined by Hyde Park Venture Partners, Cahoots Holdings, and Stuart Porter.

Bonify, a German fintech platform, raised €5.5 million ($5.8 million) in Series A funding, according to Mosaic Ventures and Ribbit Capital led the round, with participation from Index Ventures, DN Capital, and HW Capital. Read more.

Sofdesk, a Montreal-based software company, raised $3 million in Series A funding. EnerTech Capital and BDC Venture Capital led the round.

Outdoor Project, a Portland, Ore.-based online community for campers and hikers, raised $2 million in funding, according to The Portland Business Journal. The Oregon Angel Fund led the round. Read more.

Cloud Lending Solutions, a San Mateo, Calif.-based financial services company, raised an undisclosed amount in funding. Cota Capital led the round.

DMT Development Systems Group, a Winnipeg, Canada-based lead management software provider for the auto industry, raised an undisclosed amount in funding. Sageview Capital led the round.


Affigen, a St. Louis-based biotechnology company that develops therapeutics targeting cell lineage-specific tumor proteins, raised $17 million in Series A funding. Black Beret Life Sciences led the round.

GE Ventures and Northwell Health’s Feinstein Institute for Medical Research have agreed to invest up to $200 million over seven years in the Center for Bioelectronic Medicine, which is working to develop diagnostic and therapeutic solutions for Alzheimer’s, cancer, diabetes, and other diseases.


New Heritage Capital invested in Continental Services, a Troy, Mich.-based food-service provider.

Accella Polyurethane Systems, which is backed by Arsenal Capital,agreed to purchase certain assets of a Spring, Texas spray polyurethane foam facility, from Covestro.

Post Oak Energy Capital led a $200 million investment round in Moriah Henry Partners, a Midland, Texas-based oil and gas exploration and production company.

Maple Media, a Los Angeles-based mobile media, advertising and technology company, raised $30 million from Shamrock Capital.

Abacus Next, which is backed by Providence Equity, acquired Cloudnine Realtime, a San Diego-based cloud-services provider. Financial terms weren’t disclosed.

CLS, a French satellite provider backed by Ardian, acquired Woods Hole Group, a Falmouth, Mass.-based provider of environmental, scientific, and engineering consulting services. Financial terms weren’t disclosed.

PANOS Holdings, a portfolio company of Hammond, Kennedy, Whitney & Company, acquired Walden Farms, a Linden, N.J.-based provider of branded calorie-free foods, including salad dressings, syrups, and sauces.

Nordson (Nasdaq: NDSN) agreed to acquire Vention Medical’s advanced technologies business, for $705 million in cash. Vention Medical is backed by KRG Capital.

Bestige Holdings invested $15 million in three waste management businesses to create National Waste Partners, which will provide compactor and baler rentals, repair, and waste coordination services.

Norican, a Danish manufacturing company backed by Altor Equity Partners, agreed to acquire Auctus’ stake in Light Metal Casting Solutions, a German manufacturer of light metal casings. Financial terms weren’t disclosed.

L Catterton has made a growth investment in Rapsodia, a Buenos Aires, Argentina-based women’s apparel brand. Terms weren’t disclosed.


Arris (Nasdaq:ARRS) is close to reaching a deal to purchase Brocade Communications Systems' (Nasdaq:BRCD) networking equipment business for around $1 billion, according to Reuters. Read more at Fortune.

EQT Infrastructure, a unit of the investment firm EQT, agreed to acquire Lumos Networks (NASDAQ: LMOS) for $950 million. At $18 per share, EQT’s offer represents an 18% premium on Lumos’ close Friday.

MacDonald Dettwiler & Associates (TSX: MDA) is in advanced talks to purchase DigitalGlobe (NYSE: DGI) for between $2 billion to $3 billion, according to Dow Jones. Read more.


Mid Europa Partners sold Zabska Polska SA, a Polish operator of convenience stores, to CVC Capital Partners for an enterprise value north of €1 billion ($1.05 billion), according to the Wall Street Journal. Mid Europa Partners bought Zabka Polska for about €400 million in 2011. Read more (subscription required).

Maple Leaf Foods (TSX:MFI) agreed to acquire Lightlife Foods, a Turners Falls, Mass.-based producer of vegetarian meat substitutes, for $140 million from Brynwood Partners.


TrueBridge Capital Partners, a Chapel Hill, N.C.-based investment firm, raised $125 million for its first direct investment fund.


Spencer Bogart has joined Blockchain Capital as managing director and head of research. Previously Spencer was a fintech research analyst at Needham & Co.

Greenbriar Equity Group has promoted Niall McComiskey to managing director. Prior to joining the firm in 2006, McComiskey was a vice president at HSH Nordbank AG.

Jonathan Roosevelt and Kemper Ahl have joined Industry Ventures as a venture partner and a business development associate, respectively. In addition, the firm has promoted Robert May to managing director, chief operating/compliance officer, Aaron Hinz to VP of finance, Lena McNulty to manager of investor relations, and Brian Langner to senior associate.

Corsair Capital has promoted James E. Kirk from principal to managing director.

Todd Rainville has joined JMC Capital Partners as a partner. Previously he was a partner at Symmetric Capital.


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