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Term Sheet — Thursday, March 23


Term Sheet readers may remember a time several years ago (when I was merely filling in as your daily columnist), we analyzed how hard it would be for an investor to short the startup market. We concluded, in short: It’s really hard.

Nonetheless, shorting startups has looked increasingly appealing over the last month, as Silicon Valley’s biggest, most valuable startup has faced a never-ending string of scandals. Efforts to figure out how to create a market for shorting Uber and its unicorn peers have become increasingly serious. Financial trading startup Mirror worked on it for a year. Alas the company concluded it was too hard:

And though we have in fact made it possible to do so, there are so many structural obstacles to overcome, that long-term success — measured by market scalability — becomes highly unlikely.

The efforts add to a growing anxiety in startup-land, caused by the Uber drama, combined with Snap’s soft post-IPO performance (or as Fortune’s Shawn Tully called it, “one of Wall Street’s biggest flops”). If Uber goes down, could it tank confidence in the entire market? If a company as hot as Snap could flop, how will others get out the door? Could this entire house of cards collapse?!?!!

Breathe, everybody.

It will not be easy for Uber to fix its many, many issues, especially if CEO Travis Kalanick remains in that role, but investors continue to point me to the scoreboard: Despite #DeleteUber, despite the systemic sexism, despite the Waymo lawsuit, despite the driver video, despite Greyball, Uber just had its best week ever for sales. This mess is disturbing for observers, and a huge distraction for the company, but it hasn’t bothered riders and it hasn’t hurt business.

Meanwhile, Lyft is out shopping a new round of funding with a pitch I can only assume goes something like “Check out our competitor’s dumpster fire!” The issue there is that any investor Lyft is pitching has likely had numerous chances to invest at lower valuations over the years. I have to wonder if a competitor’s month of bad headlines is a compelling enough investment thesis to justify the valuation bump from $5.5 billion to, according to reports, as high as $7 billion.

Debt bashing: Yesterday’s column about Visible Measures noted the danger of startups using debt. On top of recent commentary from Fred Wilson and Dan Primack about the same issue with ModCloth, it might seem like startup debt is a dangerous, risky drug to be avoided at all costs. Several of Term Sheet’s debt-providing readers predicted more debt-related collapses – there are “ticking time bombs” out there. But they’re worried that startups will get the wrong impression about their product. (They’re not drug dealers!) The gist:

The best time for startups to raise debt are: (1) when the company is growing, but not fast enough to get a bunch of new equity investors interested, (2) when unit economics actually work but there is a valuation gap or management does not want to be diluted further, (3) when the company is close to profitable and equity is too expensive or will take too long to raise, (4) the company is more than ten years old and equity investors are tapped out in their older funds.

The exact wrong time to raise debt is when you’re in a situation like Visible Measures or ModCloth — revenue is stalled or declining and you’re in the middle of a business model shift or pivot. “In that case, a lot of the lenders are saying, ‘I’m relying on the equity to come in to save my butt here,’” one debt provider said. Often debt providers only make the loan on faith that the startup’s well-connected venture investor will pull strings to get the next round done.

In his blog post, Wilson named Foursquare as an example of a startup that had success using debt. (It raised $41 million from buyout firm Silver Lake in 2013.) He’s right, but it’s worth noting that Foursquare raised debt at the riskiest possible time: It had little to no revenue, and it was embarking on a big pivot. Again, it worked out well for the company, but as one debt provider cautioned, “it easily could have gone the other way.”


• Investors don’t expect Trump to deliver tax cuts.

• Why Airbnb’s China push could actually work.

• Koch Network is spending billions to stop the GOP healthcare bill.

Fortune unveils its list of the World’s 50 Greatest Leaders.

• Microsoft’s plan to dominate connected cars.

• Apple responds to hacker’s threat to wipe hundreds of millions of iPhones.

• The bond market is losing faith in Trump.

• Tech employees are blind to the diversity problems at their own companies.

• The activist fund started by former colleagues of Yoshiaki Murakami has taken a stake in Toshiba.


In Dean Foods insider trading case, an “extraordinary admission of malfeasance.” Failure to lunch. Cyberheists are the new bank robberies. China’s investments in AI and autonomous startups is worrying the government


Flipkart, an Indian ecommerce site, raised $1 billion in funding at around a $10 billion valuation (down from its $15.5 million valuation when it raised money in 2015), according to Bloomberg. Investors include eBay (Nasdaq:EBAY), Microsoft (Nasdaq:MSFT), and Tencent (SEHK:700). Read more.

MarketsandMarkets, an India-based research and consulting company, raised $56 million in funding. FTV Capital led the round.

DataRobot, a Boston-based developer of machine-learning automation software, raised $54 million in Series C funding. New Enterprise Associates led the round.

Dig Inn, a New York City-based operator of fast-casual restaurants, raised $30 million in Series D funding. AVALT led the round.

WayUp, a New York City online portal that helps students and recent grads find jobs, raised $18.5 million in a Series B funding. Trinity Ventures led the round, and was joined by General Catalyst, BoxGroup, Lerer-Hippeau Ventures, Index Ventures, SV Angel, Female Founders Fund, Axel Springer, CAA Ventures, and OurCrowd. Read more at Fortune.

Casetext, a Sunnyvale, Calif. provider of artificial intelligence-based legal research technology for lawyers, raised $12 million in Series B funding. Canvas Ventures led the round, and was joined by Union Square Ventures, 8VC, and Red Sea Ventures.

Carro, a Singapore-based marketplace for used cars, raised $12 million in funding, according to TechCrunch. Investors include Venturra Capital, Singtel Innov8, Golden Gate Ventures, Alpha JWC Ventures, Skystar Capital, and GMO. Read more.

Lystable, a San Francisco freelancer collaboration app, raised $10 million in additional Series A funding. Valar Ventures led the round, and was joined by SciFi VC, Kindred Capital, Goldcrest Capital, Glynn Capital, and Wilmont Ventures.

MotorK, an Italian developer of digital products for the automotive industry, raised $10 million in Series A funding. 83North led the round, and was joined by Zobito.

Ripcord, a Hayward, Calif. robotic digitization company, raised $9.5 million in Series A funding. Kleiner Perkins Caufield & Byers led the round, and was joined by Lux Capital, Legend Star, and Steve Wozniak.

Mythic, an Austin, Texas-based AI hardware and software platform that turns devices into virtual assistants, raised $9 million in Series A funding. DFJ led the round, and was joined by Lux Capital, Data Collective, and AME Cloud Ventures.

Drivemode, a San Jose, Calif. mobile automotive technology company, raised $6.5 million in Series A funding. Panasonic Corporation led the round, and was joined by Miyako Capital, Mitsui Sumitomo Insurance Venture Capital, and Innovative Venture Fund Investment.

TVPage, a San Diego, Calif. provider of cloud-based video commerce technologies, raised $3 million in funding.

Lynkos, a Nyack, N.Y. network for businesses to find leads, customers, and partners, raised $2.5 million in seed funding. Investors include Richard Rogers, Michele Santo, and Sam Ross-Skinner.

Dosh, an Austin, Texas app that rewards consumers when they make purchases with their credit and debit cards, raised $2 million in seed funding.

MPOWER Financing, a Washington, D.C.  provider of educational loans to international students, raised an undisclosed amount in funding from VARIV Capital and Chilango Ventures.

• Kuaishou, a Chinese live-streaming social media platform, raised an undisclosed amount in funding from  Tencent Holdings (SEHK:700), according to Bloomberg. Read more.


Upside Biotechnologies, a New Zealand developer of regenerative medicine treatments for severe burns, raised NZ$2.3 million ($1.6 million) in Series A funding. ICE Angels Nominees led the round, and was joined by The University of Auckland Inventors Fund, Cure Kids Ventures, and New Zealand Venture Investment Fund.

Semma Therapeutics, a Boston biopharmaceutical company developing cell therapy for Type 1 diabetes, raised an undisclosed amount in funding from JDRF T1D Fund.


• Warburg Pincus acquired a 35% stake in Avaloq, a Swiss banking software and services provider, for $300 million in a deal that values the company at more than 1 billion swiss francs ($1 billion). Read more.

• CSF Corporation, an Alpine Investors portfolio company, acquired Aerialink, a Bettendorf, Iowa SaaS provider of mobile messaging services. Financial terms weren’t disclosed.

• Dynatronics Corporation (Nasdaq:DYNT), backed by Prettybrook Partners, agreed to acquire the assets of Hausmann Industries, a Northvale, N.J. maker of branded physical therapy and athletic training products, for around $10 million.



• Amazon (Nasdaq:AMZN) agreed to acquire, a Dubai-based online retailer. Read more at Fortune.

• Toyota Industries Corp (TSE:6201) agreed to buy Vanderlande Industries, a Dutch designer and provider of automated material handling systems, for around €1.2 billion ($1.3 billion).

• De Beers, Anglo American’s (LSE:AAL) diamond specialist unit, acquired the 50% stake in De Beers Diamond Jewellers it does not already own from LVMH (ENXTPA:MC). Financial terms weren’t disclosed. Read more.


• Nordic Capital is preparing to take Munters, its air treatment unit, public in a deal that could value the business at more than 10 billion Swedish crowns ($1.1 billion) including debt, according to Reuters. Read more.

Stitch Fix, a San Francisco online personal-styling service backed by VCs including Benchmark, Baseline, and Lightspeed Ventures, is considering an IPO, according to Bloomberg. Read more.


• Oak Hill Capital agreed to acquire Checkers Drive-In Restaurants, a Tampa, Fla.-based operator of a drive thru restaurant chain, from Sentinel Capital Partners for $525 million.


Fengate Real Asset Investments, a real estate investment firm, raised $100 million for a private equity fund.

SAP SE (DB:SAP) raised $35 million for its SAP.iO Fund, which will make early-stage investments in software startups.



Osage University Partners promoted Manny Stockman from associate to senior associate. In addition, Anurag Agarwal joined the firm as an associate on the life science investment team.

Pritzker Group Asset Management promoted Terra Fuller from director of research to chief investment officer.

The Riverside Company promoted Joe Manning and Steven Spiteri to partner.

• Jack Surma joined Tecum Capital Partners as an associate. Previously he worked at Lockheed Martin (NYSE:LMT).

Garrett Ryan joined Twin Brook Capital Partners, the middle-market direct lending subsidiary of Angelo, Gordon & Co., as head of capital markets. Ryan was previously managing director at Fifth Third Bank.


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