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Term Sheet — Friday, April 7

April 7, 2017, 2:20 PM UTC
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Not-IPO: Spotify is planning to go public, but rather than go through the whole media-circus-road-show ordeal, the company is considering something called a direct listing, according to the Wall Street Journal and Mergermarket. It’s an unusual move among high profile tech companies, who see their public market debuts as a bit of a coming out moment – a time to capture the attention of the business press, investors, potential customers and maybe even potential employees.

In such a deal, Spotify would likely issue no new shares. It wouldn’t have to hire an underwriter. Existing shareholders won’t pre-sell any of their shares to new investors. No lock-up periods or dilution for shareholders.  Rather, shares will simply begin trading at their current levels.

If an IPO is like a wedding, a direct listing is running off to elope. A faster, easier, cheaper route to the same result. On Twitter, venture investors applauded the deal: Albert Wenger of Union Square Ventures said “Great to see, we are long overdue for some innovation in the IPO process.” Howard Lindzon of Stocktwits said “Love this from Spotify- more companies should do this and end the lame game of investment bank robbery.”

But the move carries a lot of risk: First-day trading performance is particularly crucial for high-profile listings of consumer tech brands like Spotify, and a direct listing leaves the share performance entirely to chance. There’s no “deal support,” i.e. no guarantee of a nice, healthy first-day pop engineered by careful banker maneuvers. No CNBC commentators gushing that the deal was “priced to perfection.”

Moreover, the IPO process is designed to make it easier for big, long-hold funds to buy into the stock. Companies want their stocks in "safe hands"--- the funds that have a long term view and “won't puke it” at the first earnings miss, an IPO banker explained to me. Big funds like to invest in IPOs because they can get a “starter position” via share allocation and then buy in the open market to get to a full position size. Beyond that, a banker explained, “building a full position from zero takes a long time, especially if 25 of your biggest competitors are doing the same thing. Some funds will just buy the stock like a jerk and push it up, some will just pass completely.”

And lastly, with a direct listing there likely won’t be a “greenshoe” option that allows underwriters to dampen volatility. (Remember how Facebook’s stocks tanked on their first day and its bankers kept the price at the IPO level?)

So why take the risk? Perhaps one ugly day or week of trading is worth the savings on the underwriter fees to Spotify. Perhaps this is simply the fastest way to do it, and Spotify is in a hurry: The interest rate on its debt apparently rises by 1% every six months it doesn’t go public. Perhaps the company doesn’t want to be diluted by issuing more shares.

One (unlikely?) theory floating around is that by avoiding a traditional IPO, Spotify can avoid having to issue shares at a discount to its convertible debt holders. The company signed that onerous arrangement last year with TPG and Dragoneer Investment Group. If it never technically holds an IPO, does that mean it TPG and Dragoneer’s debt never converts to equity? The Journal article notes that in such a deal, those terms would have to be renegotiated.

A number of Spotify’s equity holders were dismayed by the debt deal when it happened. But one posited yesterday, “Maybe this was their plan the whole time.”

Elevate: Yesterday’s Term Sheet accidentally included an old version of our blurb on Elevate Credit’s IPO. It should have noted that at the last minute the company slashed its plans to sell 7.7 million shares at a range of $12 to $14 per share, to a sale of 12.4 million shares at $6.50 a share.

But that’s old news now. After such a dramatic price cut (while issuing more shares, but not enough to fully make up for it) the IPO performed well, with shares rising 19% on its first day.

Okta: The second enterprise tech IPO of the year debuts today. Demand for such offerings remains strong: Okta raised its price range last night from its initial range of $13 to $15 per share to $17 per share, valuing the company at $1.54 billion.

My colleague Barb Darrow spoke with CEO Todd McKinnon this morning, who compared Okta to his last two employers, PeopleSoft and Salesforce:

"PeopleSoft did a great job making the company feel like it was the employees' company. That was super powerful. And the thing about Salesforce was it was fun to be part of inventing totally new. That attracted a certain kind of person with a certain amount of swagger. At Okta we're trying to do both," McKinnon told Fortune a few hours before he was slated to ring in trading on Friday morning.

Asked why he didn’t sell (as reports have noted in the run-up to the IPO), he said:

Okta "has got to be neutral, there's a lot of value in independence, so our path is to be large important independent software provider." Read the rest here.

Notable: This is a double-IPO week for Sequoia Capital, which is an investor in both Elevate and Okta. More on Okta’s investors below.

Purses: Apparel company Coach is gearing up for a potential acquisition spree, according to Fortune’s Phil Wahba. Since 2014, when CEO Victor Luis joined to turn the company around, Coach has been on the hunt for acquisitions. The company is reportedly in talked to buy Kate Spade, and last year considered buying Burberry.

Now, an executive shuffling sets the company up for further expansion. The company hired Joshua Schulman to lead its Coach brand and put its head of international in charge of business development. Here’s Phil:

Whatever brands are in Coach's crosshairs, the company is making no secret of its intentions to become more akin to European luxury conglomerates like LVMH, Kering, and Richemont, in contrast to the U.S. where luxury names like Coach, Tiffany & Co., Ralph Lauren and Michael Kors , are one-brand companies.

Brainstorm: Last night in San Francisco, Fortune held one of its regular Brainstorm Tech dinners. Our featured guest, Yoki Matsuoka, the CTO of Nest, discussed AI, the future of smart homes, bionic limbs, and tennis. You can watch the video and read some highlights here.

Have a great weekend!


 Larry Fink says he is not replacing humans with robots at BlackRock.

 America can’t get enough of Mexican beer.

 Meet Yumi, the baby food subscription startup co-founded by former tech reporter Evelyn Rusli.

 Unemployment drops but job growth disappoints in March.


What Would Jesus Disrupt? Business schools are courting founders of failed startups.  Arianna’s got a lot riding on this Uber investigation. Neel Kashkari disagrees with Jamie Dimon. Gary Cohn wants to Wall Street to split lending and investment banks. The Tesla story.


Lyft a San Francisco-based on-demand ride company, is close to raising more than $500 in funding at a $7.5 billion post-money valuation. Read more at Fortune.

Upgrade, a San Francisco lending company founded by Renaud Laplanche, the ousted CEO of Lending Club, raised $60 million in funding. Investors include Union Square Ventures, Ribbit Capital, Vy Capital, and Silicon Valley Bank. Read more at Fortune.

Uptake, a Chicago-based predictive analytics platform, raised $50 million in funding from unnamed investors, closing its latest round at $90 million.

Otonomo, an Israeli exchange platform and marketplace for the automotive industry, raised $25 million in Series B funding. Delphi Automotive PLC led the round, and was joined by Bessemer Venture Partners, StageOne Ventures, and Maniv Mobility.

Vera Whole Health, a Seattle provider of employer-funded onsite primary care, raised $24 million in Series D funding. Leerink Transformation Partners led the round, and was joined by Archimedes Health Investors.

Crunchbase, a San Francisco crowdsourced database that tracks startup funding, raised $18 million in Series B funding. Mayfield led the round.

Mic, a New York City-based media company aimed at millennials, raised $21 million in Series C funding. Lightspeed Venture Partners led the round, and was joined by Time Warner Investments, kyu Collective, and You & Mr. Jones.

Drchrono, a Mountain View, Calif.-based provider of electronic medical records, raised $12 million in Series A funding. Runa Capital led the round, and was joined by Maxfield Capital, Eric Dunn, and FundersClub.

KONUX, a Munich industrial IoT startup, raised an additional $9 million in Series A funding, closing the round at $16 million, according to New Enterprise Associates led the new funding, and was joined by MIG, Upbeat Ventures, Andy Bechtolsheim, Michael Baum, UnternehmerTUM, Warren Weiss, and Lothar Stein. Read more.

SOCi, a San Diego, Calif. social media management company, raised $8.5 million in Series A funding. Vertical Venture Partners and Grayhawk Capital led the round.

Meniga, an Iceland-based digital banking startup, raised €7.5 million ($8 million) in funding, according to Investors include Industrifonden,Velocity Capital, Frumtak Ventures, and Kjolfesta. Read more.

Intelivideo, a Denver cloud-based video platform, raised $5.6 million in funding from existing investors.

AeroMobil, a Bratislava, Slovakia company working to develop flying cars, raised €3 million ($3.2 million) in funding from angel investor Patrick Hessel, according to TechCrunch. Read more.

Remesh, a New York City AI software company, raised $2.25 million in seed funding. LionBird Ventures led the round, and was joined by Reimagine Holdings Group and angel investors.

Blendle, a Dutch technology company that allows media organizations to sell individual articles on an individual basis, raised an undisclosed amount in funding from INKEF Capital and Nikkei.


Clayton Dubilier & Rice is in talks to acquire Carestream Dental, Carestream Health’s digital dental-equipment unit, from Onex (TSX:ONEX) for about $1 billion, according to Bloomberg. Read more.

Rue21, a Warrendale, Pa.-based teen retailer owned by Apax Partners, is preparing to file for bankruptcy. Apax Partners acquired the company for $1 billion in 2013. Read more at Fortune.

Ardian SAS and Predica, the owners of Indigo, are looking to sell the French parking lot operator, according to Bloomberg. The private equity firms have hired Morgan Stanley and Rothschild & Co. to facilitate the sale, which they hope will value the business at €4 billion ($4.3 billion). Read more.

ChartCo, a UK-based global supplier of maritime digital data and compliance services backed by Equistone Partners Europe, acquired Docmap, an Oslo-headquartered global leader in digital document management. Financial terms weren’t disclosed.

Graycliff Partners invested in Oberfields, a Columbus, Ohio manufacturer and distributor of concrete masonry and hardscape products. As part of the deal, The Anderson Group is exiting its investment in Oberfields.

Keais Records Service, a Houston records retrieval services company owned by The CapStreet Group, acquired National Legal Services, a provider of medical records and summary services to insurance carriers and law firms. Financial terms weren’t disclosed.

Sphera Solutions, a Chicago software company backed by Genstar Capital, acquired Rivo Software, a provider of cloud-based environmental, health, safety, and risk management software.

Francisco Partners invested $140 million in R2Net, the parent company of, a Frederick, Md.-based online retailer of engagement rings and loose diamonds.


Elevate Credit, a Fort Worth, Texas-based provider of online credit to non-prime consumers, raised $80.6 million in its initial public offering by selling 12.4 million shares at $6.50 a share, significantly lower than its expected range of $12 to $14 a share. Backers include Sequoia Capital (27.2% pre-IPO stake) and Technology Crossover Ventures (22.2% stake).

Okta, a San Francisco provider of identity access management apps and devices, raised $187 million in its initial public offering, selling 11 million shares at $17 per share, the high end of its range. The company, which is backed by Sequoia Capital (19% post-IPO stake), Andreessen Horowitz (17%), Greylock (15%), Khosla Ventures (7.1%) and McKinnon (9.1%), plans to trade on the Nasdaq under the ticker symbol OKTA. Read more at Fortune.

MBK Partners is working to take ING Life Korea, a Seoul-based provider of annuity and corporate pension plans, public in a deal that could value the company at $3 billion, according to the Wall Street Journal. MBK acquired ING Life Korea for $1.6 billion in 2013. Read more.


Belcan, a Cincinnati-based provider of engineering, technical recruiting, and information technology services owned by AE Industrial Partners, agreed to acquire Schafer Corporation, an Arlington, Va.-based provider of IT services to the aerospace, national security and private sectors, from Metalmark Capital Partners.

TakeLessons, a San Diego, Calif. online marketplace that connects performing arts students with tutors, agreed to acquire Chromatik, a Long Beach, Calif. developer of apps for learning music. Chromatik raised $7.7 million in venture funding from backers including 500 Startups, Plus Capital, and Rustic Canyon Partners.

Temasun, a Beijing-based IT service provider, acquired Grid Dynamics, a Menlo Park, Calif.-based provider of ecommerce technology to the retail industry. Grid Dynamics raised $1.5 million in venture funding from Benhamou Global Ventures.

Swander Pace Capital acquired Passport Food Group, an Ontario, Calif. manufacturer and distributor of internationally-flavored foods, from Wedbush Capital Partners.

Accel-KKR sold Abila, an Austin, Texas-based provider of fundraising and grant management tools, to Community Brands.


Boeing (NYSE:BA) announced the launch of HorizonX, its venture capital arm that has already invested in Upskill, a provider of software for industrial augmented reality wearables, and Zunum Aero, an electric-hybrid aircraft manufacturer. Read more.

Cerberus Capital Management, a New York City-based private equity firm, raised $4 billion for its sixth multi-strategy fund, Cerberus Institutional Partners VI.

Cairngorm Capital Partners, a London-based private equity firm, raised £107.5 million ($133.5 million) for its second fund, Cairngorm Capital II.

Baird Capital, the Chicago-based private equity arm of Baird Capital, raised more than $300 million for its latest global buyout fund, according to Private Equity News. Read more (subscription required).

Pacific Lake Partners, a San Mateo, Calif. private equity firm focused on small cap buyouts, raised $151.1 million for its third fund, according to an SEC filing.

HarbourVest Partners, a Boston-based private equity firm, raised $375 million for its first mezzanine-focused co-investment fund at $375 million, and $366 million for its third real assets.


Roland Lescure is stepping down as chief investment officer of the Caisse de dépôt et placement du Québec to run for public office. Read more.


William R. Kraus joined Arlington Capital Advisors as a managing director. Previously Kraus was a managing director at Antares Capital.


Derek Handley joined Human Ventures as chief innovation officer.


Roger Chen joined Silverton Partners as a principal. Chen was most recently a principal at Genacast Ventures.




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Term Sheet is produced by Laura Entis. Submit deal items here