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Term Sheet — Monday, April 10

April 10, 2017, 1:50 PM UTC
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Good morning. Here’s a grab-bag of observations based on a week’s worth of meetings in the Bay area…

Health care: Investors don’t think this is the last we’ll hear of health care reform; the uncertainty means it is not a great time for health care startups to be raising money. It is “very important to have a good answer” to the ACA / ACHA question, but since nobody can predict what will happen, it’s hard to believe startups when they proclaim themselves “ACA and ACHA neutral.”

Consumer: The Snapchat effect means VCs no longer feel able identify the next big hit based on their own instincts. (That’s how you get teenage consultants like the one that worked on Houseparty.) Beyond that, plenty feel that the “last eight years have been easy” for investors, who could simply scroll the App Store charts and fire off a term sheet. The days of backing hit apps are done, and investors desperately waiting for a new platform or macro-trend as massive as mobile to arrive.

Real estate: A number of investors named this category as the next area prime for disruption. Opendoor, a company that essentially flips houses, raised a hot round of funding at a valuation above $1 billion, but investors believe the opportunity goes beyond merely injecting software into the buying and selling process. With retail stores closing at a record pace, Airbnb cutting into the demand for hotel rooms, and self-driving cars potentially extending peoples’ commutes further from city centers, investors believe there is an opportunity to repurpose these soon-to-be empty buildings, “rethink housing,” “redefine cities,” and make them more affordable.

Hype: Every person I spoke with agreed that AI and autonomous technology are at the peak of the hype curve… and it isn’t stopping most of them from pouring money into each category. Some believe the Internet of Things – another hype victim which has spent the last year in Gartner’s “Trough of Disillusionment” -- is ready to enter the “Plateau of Productivity” as a security play.

Market: For over a year now, the venture community has been waiting for a downturn – a pronounced correction to the hype and inflated valuations of 2015. They thought maybe the Theranos scandal would trigger a market collapse. Or the Chinese market crash would. At the very least, surely the election would do it?

Nope. The early stage investing market remains hot. A number of investors pointed to the volume of companies graduating from the latest Y Combinator class that asked for for (and got) $20 million to $30 million pre-money valuations as evidence.

Meanwhile many overvalued later stage companies raised so much money on warnings that “winter was coming” that they haven’t had to raise capital in several years. When they do, they might find that the “new money” from mutual funds, hedge funds, sovereign wealth funds and family offices that was abundant during their last funding round is now only interested in backing “iconic” top-tier companies with brand names (Airbnb, Palantir, etc.), not lesser-known startups.

That means investors expect a lot of companies stuck in zombie mode. They’re “surviving,” but growth is slowing, which means the options for finding a good exit dwindle each day. Increasingly, private equity firms see this as an opportunity, as Vista Equity Partners did when it paid $600 million for Ping Identity in 2016.

Enterprise startups are taking advantage of the open IPO window. Consumer-facing startups whose names are not Snap might have a more difficult time.

Snap: Is going to be fine (for reasons I’ll get into in another column), investors say.

Snap: Is trading at a take-out valuation (for reasons you can probably surmise yourself), other investors say.

Lyft: Is going to be fine (for the simple reason that, unlike other new markets, where the dominant players eventually merge -- Elance/ODesk, Dogvacay/Rover, FanDuel/DraftKings, Sirius/XM, for example – the ride-hail market is big enough for at least two players).

Uber: Is… probably going to feel the ramifications of its HR mess for some time. There’s a bit of disgust over the “virtue signaling contest” that news like this creates, where investors compete to condemn the wrongdoing the loudest. (Excluding Mitch and Freada Kapor, who clearly have been privately making their concerns about Uber known for years.)

There’s also a sense of resignation that once a company’s culture turns rotten, it’s very difficult to fix it. But it’s not too late to make sure young companies don’t set themselves up to repeat Uber’s mistakes. The earlier the investor, the more hands-on they tend to be with the company on things like key hires and helping management set the company’s values and mission. Recruiting firms and consultants are now hyper-aware of the need for more diverse candidates. And yet, this is nothing new. The Valley has been grappling with this issue since the Ellen Pao trial brought a national spotlight to it two years ago.

***Where are they now? Reporting on Robinhood fundraise reminded me of another deal I first heard about in November: What ever happened to the Wish fundraise? At the time Term Sheet, Recode and others reported that Wish was raising a $500 million round of funding at a flat valuation ($3.5 billion). Temasek was floated as an investor.

Maybe they’re doing that thing where they closed the round but never officially confirmed it. Snap did this on a few of its big rounds, and investors tell me its increasingly popular for early stage companies to not announce their funding. Or, maybe the deal fell apart…

***Where are they now?, Pt. II: Update on the potential merger between India’s e-commerce “unicorns,” Snapdeal and Flipkart, noted by Term Sheet last week: It’s happening, the Financial Times reports. But the terms are brutal: Snapdeal, last valued at $6.5 billion, is looking to sell to its larger competitor for around $1 billion. Surprisingly, it’s not the company’s largest, latest investor, SoftBank, that’s pushing back on price – it’s the company’s early investors.

This morning news comes that EBay, Tencent and Microsoft announced they have invested $1.4 billion into FlipKart. As part of the deal, EBay India and Flipkart will merge.


Italy bans Uber.

What happens in a cyber war?

Jay Z pulls his albums from Spotify, Apple Music.

The latest episode of the Fortune Unfiltered podcast features Melissa Lora, President of Taco Bell International.


America’s retailers are closing stores faster than ever, but the demand for warehouse workers by online retailers is higher than ever. Sleep is the new status symbol. The models’ accountant. China now controls the solar market, and a coal museum in Kentucky has installed solar panels to save on electricity bills. The tech world’s latest high-stakes arms race is for data centers. Porkchopping. A city’s tornado siren got hacked. A nasty, hilarious restaurant review. Beware the “mini IPO.” Google pays female employees less than their male counterparts. Uber responds to Waymo lawsuit: “Demonstrably false.” JPMorgan’s 125-year courtship of GE. A profile of Dawn Fitzpatrick, the chief investment officer at Soros Fund Management. How Goldman Sachs made more than $1 billion you’re your credit score.


HR Path, a Paris-based provider of HR services, raised €30 million ($31.7 million) in funding from Activa Capital, Ardian and Société Générale Capital Partenaires.

Neural Analytics, a Los Angeles medical device company developing and commercializing technology for brain health, raised $10 million in funding. Reimagined Ventures led the round.

Fnatic, a London-based esports brand, raised about $7 million in funding. Investors include Raptor Group, Joi Ito, Hannes Wallin, and the Hersh Interactive Group. [This item has been updated. A previous version misidentified where Fnatic is headquartered.]

MetroResidences, a Singapore-based online platform for renting furnished apartments, raised SG$4 million ($2.8 million) from Rakuten, according to TechCrunch. Read more.


Aspen Skiing Company and KSL Capital Partners agreed to acquire Intrawest Resorts Holdings (NYSE: SNOW) for $1.5 billion, including debt. Per the deal, Intrawest stockholders will receive $23.75 in cash for each share, a 40% premium to the stock’s close on January 12 (the day before media reports broke that Intrawest was exploring a sale). Read more.

Stada (DB:SAZ) agreed to be acquired by Bain Capital and Cinven for €66 ($70) per share, which values the company at €5.32 billion ($5.6 billion). Read more at Fortune.

TSG Consumer acquired a 22.3% stake in BrewDog, a U.K.-based craft brewer, for £213 million ($264 million). The deal values the company at more than £1 billion ($1.2 billion).

Resource Label Group, a Franklin, Tenn.-based packaging label manufacturer owned by First Atlantic Capital, acquired Gintzler International, a full-service provider of labeling and packaging services.

Genstar Capital invested in Blue Star Sports, a Frisco, Texas provider of sports management software.

Alpha Source, a Milwaukee distributor of biomedical supplies owned by Baird Capital Partners, invested in Medical Optics, a Milwaukee provider of repair and maintenance services for medical devices. Financial terms weren’t disclosed.

ChartCo, a U.K. provider of marine data software backed by Equistone Partners Europe, acquired Docmap, an Oslo, Norway developer of digital document management software. Financial terms weren’t disclosed.

ProAmpac, a portfolio company of Pritzker Group Private Capital, acquired Trinity Packaging Corporation, an Armonk, N.Y.-based plastic packaging products manufacturer. Financial terms weren’t announced.

Anvil International, a portfolio company of One Equity Partners, acquired AFCON, a provider of patented fire protection pipe hangers and seismic bracing products. Financial terms weren't disclosed.


hhgregg (OTCPK:HGGG.Q) is shutting down all of its 220 stores. The furniture, electronics, and appliance retailer failed to find a buyer after filing for bankruptcy in March. Read more at Fortune.

TaskRabbit, a San Francisco, Calif.-based mobile freelancer marketplace, is looking to be acquired by a strategic buyer, according to Recode. The company hired Bank of America Merrill Lynch to advise on a possible sale. Read more at Fortune.

HNA Holding Group (SEHK:521) said it will offer to acquire CWT Limited (CWTD.SI) for $1 billion. Read more.

Ciber (NYSE:CBR) has filed for bankruptcy. Read more.

Swift Transportation (NYSE:SWFT) and Knight Transportation (NYSE:KNX), two of the largest trucking operators in the U.S., are merging via a share swap. Together the two companies are worth north of $5 billion, according to the Wall Street Journal. Read more.

AT&T (NYSE:T) agreed to acquire Straight Path Communications (AMEX:STRP) for $95.63 per share in an all-stock deal. The transaction values the company at $1.6 billion, including liabilities.


SVPGlobal will combine two of its portfolio companies. Kloeckner Pentaplast, a German packaging manufacturer, will merge with Linpac, a plastic packaging developer, ahead of Kloeckner's planned IPO. The new business will have a valuation of $2.8 billion, according to Reuters. Read more.


Prospect Partners sold its interest in Velvac, a New Berlin, Wisc.-based manufacturer of proprietary vision technology for commercial vehicles, to The Eastern Company (Nasdaq: EML).


Norway's finance ministry said its $914 billion sovereign wealth fund would consider expanding its investment mandate to include alternative assets and private equity, according to the Wall Street Journal. Read more.

The Engine, MIT’s startup accelerator, raised more than $150 million for its inaugural fund.

BV Investment Partners, a Boston-based private equity firm, raised $750 million for BV Investment Partners Fund IX.

Felix Capital, a London-based venture capital firm, raised $55 million for its second fund, according to an SEC filing.

Prudential Investment Management Japan will change its name to PGIM Japan, effective Oct. 2017.


Paul Reading joined EY as an executive director within the company's private equity sector. Reading was previously chief financial officer at Antler.


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