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Term Sheet — Friday, May 5


Last week a very confusing press release crossed my radar. It read: “The Argon Group is working on the first secondary market raise by ICO. The company, Storj had one of the most successful ICOs several years ago, returning ~20x to investors in that round.”

Those two sentences apparently make perfect sense to people who know about ICOs, which stands for Initial Coin Offerings.

ICOs are the hot new thing in the blockchain community, I’m told. They are an alternative to crowdfunding, and have the potential to transform the way companies capitalize themselves. They are also of dubious legal status.

As such, I have recruited my colleague Robert Hackett to crypto-spain what an ICO is and why Term Sheet readers should care.

Term Sheet: Bob, What is an ICO?

Hackett: Can we do a little later in the day? I’m reporting on this hack of Medium.

Term Sheet: Fine.

[Waits three hours, then 24 hours, then four days.]

Term Sheet: Bob, what is an ICO?

BH: It’s basically a way for blockchain startups to raise money outside the traditional VC world.

TS: Only blockchain startups?

BH: Indeed. It’s sort of like an IPO, except for early stage blockchain projects. It’s effectively a Kickstarter campaign that uses blockchain-based “tokens” (aka app coins, cryptocurrencies, digital assets) to raise money.

TS: So startups raise tokens. How does that translate to money they can use to write paychecks and buy office snacks?

BH: Let’s try the socratic method. What is money, Erin?

TS: Money is the system societies use to assign value and pay for things, Bob.

BH: So, cryptocurrencies are a kind of money, so long as people ascribe value to them and use them to pay for things. The main benefit is the blockchain (aka distributed ledger) on which they’re based. Blockchains let you transact without needing the blessing of a third party or banker middleman. (Picture Uncle Pennybags.)

Bitcoin was the first successful implementation of a blockchain, and it’s optimized almost entirely for transferring value securely over the Internet. People like to call it “digital gold.” Then came another blockchain called Ethereum, which is a more flexible twist that aims to create a whole decentralized network on top of which people can build their own decentralized apps and tokens.

TS: And the paychecks and office snacks?

BH: People can get paid in ether and then cash out into fiat currency whenever they fancy (assuming the market keeps up).

TS: And if the market tanks…? This is a huge risk for the companies using it, right? Startups are already risky enough. Now they have to worry about wild fluctuations in currency on top of everything else.

BH: Some companies are justifying the creation of their own tokens as an insulator against the price movements of bitcoin and ether. How that fares in practice remains to be seen.

TS: So, why would a company want its stock to be made up of cryptocurrency rather than real money currency?


TS: Okay! Why would a company want its stock to be made up of cryptocurrency rather than fiat currency?

BH: This gets to the heart of the philosophy behind blockchains. From a founder’s perspective, you might like the idea of setting your own terms—or rather, letting the network, the community of users, set its own terms. Why give equity stakes to a small cohort of moneymen when instead you can let the people who will be using the network, the ones creating the value, have stakes in the project? This way, every participant is incentivized—especially, those who have bought in early—to increase the project’s value.

TS: Sure…

BH: What you’ve identified as a liability (currency fluctuations), others might view as an advantage. The crypto markets are highly liquid. No more waiting, waiting, waiting for an IPO or other exit to recoup funds. People can pull out money whenever they wish (assuming they haven’t agreed to some lockup period in the terms of a token sale). So the price tends to move, a lot. Speculators are having a field day while the world figures out how to price these weird assets. In the meantime, if you’re a company or “investor” you can cash out of your ether or bitcoin or whatever reserves and hold fiat whenever you like. Or you can play the game and take a gamble.

TS: And who can invest? Anyone?

BH: Ya, anyone. It’s a crowdsale!

TS: How would I buy tokens of, say, Storj, the company that recently held a secondary sale?

BH: You would go to an online exchange where it’s traded and make your purchase.

TS: It sounds like I’m just buying equity in a company in a different currency.

BH: Well, equity is one way to think about it. It’s not really an equity stake (although it sort of operates that way in practice). This is important for legal reasons! The SEC would not be pleased if startups were selling unregistered securities. Another way of conceiving of tokens is as licenses that give people the ability to use a particular application, or participate in a particular network.

TS: That gets to my biggest question. Which is, how is this legal?

BH: ¯\_(ツ)_/¯ #yolo

TS: Let me ask another way. Is some unsuspecting person who doesn’t know what they’re doing going to get fleeced by this, thus leading to an outrage followed by overly onerous regulation?

BH: That’s the billion bitcoin question.

TS: Are lots of companies using ICOs?

BH: One of the first projects to host an ICO was Mastercoin in 2013 (called OMNI since 2015). Ethereum had a particularly successful token sale in 2014, raising ~$18 million in bitcoin—although the project lost millions when the price of bitcoin crashed that year. The DAO, a decentralized venture capital firm built atop the ethereum network, became infamous after it raised something like $160 million in the summer of 2016 and soon after got hacked to the tune of $50 million. The number of token sales has been ticking up since the latter half of last year. Smith & Crown, crypto-market research firm, maintains a curated list of upcoming and recent token sales that you can check out here.

TS: Does this have ramifications outside the cryptocurrency world? Why should investors care?

BH: In my world, this is a big thing, yes. It’s how the most exciting blockchain projects are getting funded. Some VC firms, like Andreessen Horowitz and Union Square Ventures, have already gotten involved by funding cryptocurrency hedge funds to buy up tokens when they go on sale. A lot of crypto boosters compare the present time to the early days of the internet. There will be gold and there will be ghost towns. If you buy into the church of blockchain, then you’ll want to pay attention.

Have more cryptocurrency questions or observations? Email Bob and I and we will attempt to answer in a follow-up column.


Scoop: ClassPass, the fitness subscription company, is close to closing a new round of funding from Temasek and M13. Read more about that deal here.



• Big food’s slow start to the year.

• Joe Biden’s passion in the fight against cancer.

• Trump team has big holes to fill among financial regulators.

• Instacart: No plans to go public.

• Why Chipotle may never make a big comeback.

• Why investors have big doubts about the future of iHeartMedia.


Alex Jones will never stop being Alex Jones. Media companies line up to make shows for Snap TV. Puerto Rican bankruptcy. How Wellington Management’s Nick Adams chased Silicon Valley riches and embarrassed himself. Rape is a pre-existing condition and an accused assaulter in the State Department. Wal-Mart vs Amazon. Airbnb magazine.


Signifyd, a San Jose, Calif.-based e-commerce fraud technology solutions provider raised $56 million in Series C funding. Bain Capital Ventures led the round. Investors including Menlo Ventures and American Express Ventures participated.

Soylent, a Los Angeles-based food replacement products company, raised $50 million in funding, according to Bloomberg. Investors include Andreessen Horowitz and Lerer Hippeau Ventures. Read more.

DeepMap, a Palo Alto, Calif.-based autonomous vehicle mapping service provider, raised $25 million in Series A funding. Accel led the round. Existing investors Andreessen Horowitz and GSR Ventures participated.

Crew, a San Francisco-based mobile team communications platform, raised $25 million across two previously unannounced funding rounds. Investors include Sequoia Capital and Greylock Partners.

Cornershop, a San Francisco, Calif.-based Latin American-focused online grocery delivery service, raised $21 million in a funding round. Accel led the round, and was joined by Creandum, ALLVP, and Jackson Square Ventures.

Foodspring, a Berlin-based online superfood seller, has raised €6 million ($6.6 million), according to B-to-v led the round, and was joined by Ringier, Deutsche Handelsbank, and Econa. Read more., a Santa Monica, Calif.-based real-time stream processing company, raised $1.5 million in funding from investors including NVIDIA.

Symbiont, a New York-based smart contracts platform, raised an undisclosed amount in Series A-1 funding from Hundsun Technologies.

PubGuard, a London-based advertising tech company, raised an undisclosed amount in funding from Mercia Fund Management.


• A Goldman Sachs Group fund has agreed to acquire a 12% stake in Riverstone Holdings, a New York-based private equity firm specializing in energy investments. The $500 million-deal would value the company at more than $4 billion. Read more.

New Mountain Capital has taken a minority stake in Legends Hospitality, a New York-based stadium management company. The deal values the company at $700 million, according to Bloomberg. Read more.

Golden Gate Capital has agreed to acquire a majority stake in G.A.L. Manufacturing Corporation, a New York-based elevator components and systems distributor. Financial terms weren’t disclosed.


ChemChina has won more than enough support from Syngenta (SWX:SYNN) shareholders to clinch its $43 billion takeover of the Switzerland-based agribusiness company. Read more at Fortune.

Heineken (ENXTAM:HEIA) completed a deal to take full control of Lagunitas Brewing Company, a Petaluma, Calif.-based craft brewer. Financial terms weren’t disclosed. Read more at Fortune.

ORIX Corp (TSE:8591) will acquire a 22.1% stake in Ormat Technologies (NYSE:ORA), a Reno, Nevada-based geothermal energy producer, for $627 million from a group led by the FIMI private equity fund, according to Reuters. ORIX will purchase 11 million shares at $57 apiece. Read more.

eviCore, a Bluffton, S.C.-based specialty healthcare benefits manager, is considering a sale or an initial public offering, hoping for a valuation of over $4 billion, according to Reuters. Read more.


TPG Pace Energy Holdings, a Fort Worth, Texas-based SPAC, or “blank check” company, will debut in the NYSE Friday under ticker symbol “TPGE.U.” The company was formed by private equity firm TPG, and will be helmed by former Occidental Petroleum CEO Stephen Chazen. The $600 million IPO offered 60 million units at $10 a piece. Each unit is then equal to one common share and one-third of a warrant. One whole warrant then allows the holder to purchase a share for $11.50. Warrants and common shares will later list separately. Deutsche Bank, Goldman Sachs, Citigroup, and Citi are listed as lead underwriters.

Liberty Oilfield Services, a Denver, Colo.-based fracking equipment maker postponed its $250 million IPO Thursday. The company lowered its price range and share offering to $12-$13 and 20 million respectively earlier this week amid weak demand. Morgan Stanley, Goldman Sachs, and Wells Fargo are lead underwriters, while Riverstone and Oakmont are major shareholders. The company was originally expected to list sometime this week under ticker symbol “BDFC.”

Advantage Solutions, an Irvine, Calif.-based sales and marketing firm filed for an IPO late Thursday, saying that at least for now, it plans to raise $100 million. Advantage, now backed by Karman Topco, also plans to go public on the NYSE under ticker symbol “ADV.” Goldman Sachs and Morgan Stanley are lead underwriters in the deal. Pricing terms have yet to be disclosed.

Ovid Therapeutics, a New York City-based, early stage biotech company raised $75 million in a 5 million share offering priced at $15 a piece. The company previously set a range of $15 to $17. Ovid will debut on the Nasdaq under “OVID” Thursday with Citigroup and Cowen and Company as lead underwriters.

Biohaven Pharmaceuticals Holdings, a New Haven, Conn.-based biopharmaceutical company closed trading on the NYSE Thursday up 3.8% at $17.50. The company is now trading under ticker symbol “BHVN” with Morgan Stanley as lead underwriter.

Antero Midstream GP, Denver-based energy company ended its first trading day 6.4% lower than its IPO price, shares closing at $22 a piece.

UroGen Pharma, an Israel-based biopharmaceutical company that focuses on urological cancer ended its trading day on the Nasdaq up roughly 7% from its IPO price, closing at $13.98.


Webster Capital acquired Matilda Jane Clothing, a Fort Wayne, Ind.-based specialty apparel company, from CID Capital. Financial terms weren’t disclosed.


Samena Capital, a Dubai-based private equity firm, raised $375 million for its third special situations fund, Samena Special Situations Fund III. The fund’s target is $700 million.


CION Investments has hired Robert Nicholson and Andre Hatibi as senior vice presidents. Previously, Nicholson was at Commerce Group, and Hatibi was at S2K Financial.

Maggie Littlefield Sahlman joined BearTooth Advisors as a managing director. Previously, Sahlman was at Advent International and Goldman Sachs.


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Polina Marinova produces Term Sheet, and Lucinda Shen compiles the IPO news. Send deal announcements to Polina here and IPO news to Lucinda here.