Term Sheet — Tuesday, July 11

July 11, 2017, 1:52 PM UTC


Good morning. Today we have more reader feedback. This edition is focused on everything not related to the sexual harassment scandal: Startup failure rates, Blue Apron, and corporate innovation.

I’m trying something new by including the Twitter handles or email addresses of the responders that were interested in keeping the conversation going. Remember, all feedback you send me is anonymous unless you say otherwise. (PS. Find me on Twitter, too: @eringriffith.)

On the myth that 90% of startups fail:

Lots of positive feedback on this column, but the most common criticism went something like, “Actually, you’re not including startups that failed before they could raise venture capital! If you count those, the number is much higher!”

Yep. I looked at a lot of data sources for this article and used Cambridge Associates because their data was robust, first-party, went back two decades, and included specific return thresholds. I found no data sources that specifically track the number of tech startups formed. Defining what constitutes company and what is two college kids with an idea is as difficult as defining what is a startup and what is a regular “lifestyle” business. The only data I found that includes pre-venture companies was from the Census Bureau, but includes all small businesses, and obviously does not track investor returns.

The second-most common feedback revolved around my definition of what constitutes a failure. “Actually, 1x is a bad return!” Or “Actually, many companies that return 1x or more to investors make no money for their founders or employees! That feels like a failure!” Indeed! I had to draw the line somewhere. That’s the threshold I chose. ¯\_(ツ)_/¯  Also, thank you to the reader who offered to nominate me for a Pulitzer for this article. (Ha!) Onto the rest of the feedback.

Simeon Simeonov writes: The big change that happened in the aftermath of the 2008 crash was that the shape of the investment funnel changed rapidly. The seed-to-A death rate shot up as seed money increased and Series A money (and firms) decreased. (Further, lean startup techniques have increased the total number of zombie companies that are barely subsisting: Not growing but not dying. If you consider those, the failure rate would be even higher.)

Zach writes: I was shocked at some of the practices of funded start-ups when I was exploring acquisitions of them. I saw their cavalier attitudes in the wake of thousands of customers negatively impacted, dozens upon dozens of employees let go and tens of millions of dollars burned through. They were unapologetic for their mismanagement (my word, not theirs), and seemed to indicate they were just following their marching orders as a start-up (i.e. change the world or fail fast).

Sean Browne writes: You will see that the 60%-70% failure rate matches what most VC's are aiming for in their portfolio in way of a .300+ batting average on investments.  My guess is that over time that number will continue to go down as VC’s get smarter in providing resources above and beyond capital.

Doug writes: If up to 6 or 7 out of every 10 ‘venture funded’ startups fail as the Cambridge Associates research suggests, that sure is news, and a crazy high number that founders should be really weary of.

Will writes: So true that Silicon Valley asks one to be skeptical of all establishments except the Valley establishment. The irony is lost on most.

On Uber:

Steve writes: If I were a large investor or board member of Uber, I would worry about the downside to the company and liability to the board if/when the government decides to come after the company. Every decade has its villains: Milliken in the 80s, Quattrone or Martha Stewart in the 90’s, Greg Reyes in the 2000s, or Martin Shkrelli of today. I would worry that the government needs to make an example out of someone or some company given all the greed and excesses that Silicon Valley has come to represent. And to me it's likely more a someone than a some company since no one went to jail for the banking failure of 2008 and there continues to be public outcry.

I'd be scared that Travis is the perfect foil for the government to hold up. Who could find a better posterchild? The government could easily make it nearly impossible for Uber to succeed and for that reason I believe Travis had to go. And since adversity tends to lead to opportunity more than it leads to more adversity (Uber's business continues to kill it even in light of all the bad actions and press), I believe it made sense for the board to clean house and then find a kinder. gentler CEO who the government would not want to go after.

Nate writes: The Uber business model is ready to be disrupted, probably by one of the auto companies, if they get their act together (a big if). A monthly subscription that's less than a car payment (apparently average in the US is $489) offering Zipcar-style car access and on-demand rides with a lower per-mile rate is really compelling, and makes it much easier to insert the autonomous vehicles these companies are working on anyways. Uber is an incumbent in the quickly changing "mobility" marketplace.

On Corporations and startups (part three of this series is still coming, by the way):

Jake writes: Companies want to appear to be forward thinking by associating with startups through accelerators and innovation teams but in reality, nothing changes when it comes to empowerment and getting anything meaningful done. To your point about these companies and their business models being disrupted, I have now started to refer to this as "Innovation Dialysis", because the companies are clearly not long for this world.

Michal Kauffman writes: By Stage 4, in addition to the panic the company may be feeling as a whole, all sorts of competing interests come out of the woodwork when it comes time to actually move forward with significant investments and real money: from the European tech team that is jazzed about the acquisition, to the U.S. tech team that’s threatened by it, to the corporate VC team that hates it because it will undermine a competing investment in their portfolio, to the Services Division as a whole worried about their jobs if the acquisition goes through and much of their work gets automated, etc….

And these competing interests help explain why even with a Stage 6 new CEO, failure rates are still pretty high. When we get asked to help post-acquisition with the integration/implementation phase, those competing low-level and mid-level interests are still there, still undermining the acquisition, even if the deal was and is the right move for the company overall.  It’s a hard problem for incumbents solve (even with a new CEO), and almost always the problems are cultural and run much deeper than any single particular technology investment or pivot.

Andrew Olsen writes: I was struck by the contrast between how established biotech and pharmaceutical companies have dealt with this problem vs. what you described in your 6 step process. Big biotech and pharma companies are absolutely dependent on being able to successfully innovate by partnering with and acquiring disruptive startups because of the nature of the patent cliff in pharmaceuticals.

Jonathan Lehr writes: I disagree about portfolio approach and that more meetings and points-of-contact is better. I think that's where classic "Innovation" teams go wrong and spend too much time with accelerators and demo days. Key is really starting from within, figuring out some business pain points -- big or small, across front and back office -- and then taking a curated approach to meeting relevant companies. These meetings end up being more focused, the startups can be properly evaluated against business needs, and when alignment is found, there is business support on the enterprise side to help push along the proper testing and contract signing when the startup successfully addresses the need.

On the failure of Hello, the sleep tracking hardware startup that shut down. (And newly relevant with the news of Jawbone’s liquidation.):

Idan Cohen writes: As the founder of two hardware companies, I agree that building hardware is hard. It introduces a layer of complexity, which any physical item brings. There's firmware on top of software, there are manufacturing and supply chain and fulfillment challenges. And of course, it requires a longer time to market and much more financing to do it right.

But, how easy is it to build consumer software/apps these days? What's the last company that made it? Musical.ly? How much money is being poured into consumer software just because of the fear of losing the next Snapchat but eventually investing in another failing social app that ends up shutting down or getting "acquired." How much money was poured into Path?

Building consumer products is hard, be it software or hardware. There is a unique difference in the pain of a defunct $200 object on your shelf vs. an app that you need to delete from your home screen.

On Jawbone:

Mark writes: It’s a morality tale be re-told hundreds of times in Silicon Valley right now.  Here’s how it works:

  1. Founder creates something cool
  2. Founder raises money at inflated valuations
  3. Crazy valuations ensure lots of $$$ without the forfeiture of more than 50% of voting power
  4. Founders stay in control, regardless
  5. Company begins to fail – founder holds on harder
  6. Investors beg/plead founder to allow a real CEO to be hired
  7. Founder holds on harder
  8. Company tries to sell itself while failing
  9. Company fails
  10. Founder still in charge

Examples are legion – Zynga, Snap, GoPro.  Founders would rather have 100% control of a dead company than 20% control of a winning company.  Hosain Rahman is just another founder who couldn’t and wouldn’t let go. If Jawbone had hired a great CEO (Dave DeWalt, Carl Bass, Meg Whitman) 14 years ago, would we be doing a post-mortem on another dead unicorn?

On Blue Apron’s IPO:

Frank writes: I would suspect that the Blue Apron IPO outcome will be the "first of many" former unicorns whose IPO price is basically a "down round.” Now some will go and grow up, producing a decent return for the Final Private Round Guy's (any of whom should not be involved in venture capital) but the rest will slowly sink beneath the weight of expectations and public market scrutiny, and be acquired by Amazon at pennies on the dollar.

Many, many deals below…


How Google wants to humanize AI.

How tech employees really feel about their bosses.

U.S. financial firms now exposed to class-action consumer lawsuits.

TripAdvisor partners with Deliveroo.

U.S. denies Afghan girls robotics team again as it pledges millions to empower women abroad.

Drug market AlphaBay remains dark a week later.

The 100 companies responsible for most of the world’s carbon emissions.

Faraday Future scraps plans for electric car factory.


Umbrella-sharing startup loses nearly all of its 300,000 umbrellas in a matter of weeks. What really killed America’s steel industry? American Airlines seems to be gaslighting its employees over fashion. The super-rich are sitting on too much cash.


Darktrace, a U.K.-based cybersecurity startup that uses artificial intelligence to identify and block digital attacks, raised $75 million in Series D funding at a post-money valuation of $825 million. Insight Venture Partners led the round. Existing investors including Summit Partners, KKR, and TenEleven Ventures participated. Read more at Fortune.

Movile, a Brazil-based mobile content and commerce platform developer, raised $53 million in funding, according to TechCrunch. Investors include Naspers and Innova Capital. Read more.

HyTrust, Inc, a Mountain View, Calif.-based workload security provider, raised $36 million in funding. Advance Venture Partners led the round.

Advanced Microgrid Solutions, a San Francisco-based provider of distributed energy resources and energy storage assets, raised more than $34 million in Series B funding. Energy Impact Partners, Southern Company and DBL Partners led the round, and were joined by investors including GE Ventures, AGL Energy Limited, and Macquarie Capital.

Lastline, a Redwood City, Calif.-based malware protection platform developer, raised $28.5 million in Series C funding. Thomvest Ventures led the round.

Allurion Technologies, a Wellesley, Mass.-based developer of an intragastric balloon for weight loss, raised $27 million in Series C funding. Romulus Capital led the round, and was joined by Cogepa Investments and IDO Investments.

NewLeaf Symbiotics, a St. Louis, Mo.-based agricultural biotech company, raised $24 million in Series C funding. Monsanto Growth Ventures and Otter Capital led the round, and were joined by Lewis & Clark Ventures, Rockport Capital, Pangaea Ventures and Open Prairie Ventures.

Inpria, a Corvallis, Ore.-based provider of high-resolution photoresists, raised $23.5 million in funding. Samsung Ventures led the round, and was joined by investors including ALIAD, Applied Ventures, Intel Capital and JSR Corp.

AutoLotto, a San Francisco-based mobile lottery ticket management service, raised $17 million in Series A funding. Investors include Jason Port, Bruce Gibney and Ben Narasin, and Aurum Partners.

Ephesoft Inc, a Laguna Hills, Calif.-based developer of document capture and analytics solutions, raised $15 million in Series A funding. Mercato Partners led the round.

Intuition Robotics, an Israel-based developer of social companion technologies, raised $14 million in Series A funding. The Toyota Research Institute led the round. Other investors include OurCrowd, iRobot, Maniv Mobility, Terra Venture Partners, and Bloomberg Beta.

Engage3, a competitive intelligence and consumer engagement company with offices in Davis, Calif. and Scottsdale, Ariz., raised $12 million in Series B funding. Kayne NewRoad Ventures Fund II led the round, and was joined by Pereg Ventures, Moneta Ventures and Dale Carlsen.

CellTrak Technologies, a Schaumburg, Ill.-based provider of care delivery management solutions, raised over $11 million in funding. Investors include Boathouse Capital and MK Capital.

Buoyant, a San Francisco-based developer of open source software for cloud-native applications, raised $10.5 million in Series A funding. Benchmark Capital led the round, and was joined by Twitter Angels, A Capital Ventures, Data Collective, Fuel Capital, SV Angel, and the Webb Investment Network.

Yamibuy, a City of Industry, Calif.-based e-commerce site for Asian snacks, beauty products, health supplements and home appliances, raised $10 million in Series A funding. GGV Capital led the round, and was joined by New Oriental Education & Technology Group, Inc and K2VC.

Agricool, a France-based company that grows food products in shipping containers, raised $9.1 million (€8 million) in funding round from Jacques-Antoine Granjon, Thibault Elziere, Henri Seydoux and Daphni, according to TechCrunch. Read more.

Velan Studios, a Troy, N.Y.-based game studio, raised $7 million in funding from Velan Ventures, according to VentureBeat. Read more.

Telestax, an Austin, Texas-based provider of real-time communications, raised $4.7 million in funding. LiveOak Venture Partners led the round.

Universal Beauty Group, a France-based provider of natural beauty products, raised 1.5 million euros ($1.7 million) in funding from Audacia.

Gencove, a New York-based genome sequencing technology developer, raised $1 million in seed funding. Investors include Third Kind Venture Capital, Version One Ventures, Refactor Capital, and SV Angel.

Evy Tea, a Boston, Mass.-based maker of all-natural cold brew teas, raised $1 million in seed funding. Notudis Ventures and Campitor Investments co-led the round. The funding was raised on CircleUp.


Genoox, a genomic analysis company with offices in Palo Alto, Calif. and New York City, raised $6 million in funding. Inimiti Capital Partners and Glilot Capital Partners led the round.


Vocus Group Ltd (ASX:VOC) received a A$2.2 billion ($1.7 billion) takeover approach from Affinity Equity Partners, matching a similar offer from KKR & Co LP, according to Reuters. Read more.

Vintage Capital made an offer to buy Rent-A-Center Inc (Nasdaq:RCII) for approximately $800 million, according to Reuters. Read more.

Innovation Network Corporation of Japan and UMC Capital invested 800 million yen (over $7 million) in CerebrEX, a Japan-based developer of display technologies for the flat panel display industry.

China International Capital Corporation Limited agreed to acquire a majority stake in Krane Funds Advisors LLC, a New York-based asset management firm. Financial terms weren’t disclosed.

M/C Partners is combining two DAS and small cell providers 5 Bars and DAS Communications into a single company called Neutral Connect Networks. M/C Partners is investing $30 million in the new company.

Salt Creek Capital has acquired Carefree Hearing Inc, a Miracle-Ear franchisee. Miracle-Ear is a Minneapolis-based provider of hearing aids. Financial terms weren’t disclosed.

Convergint Technologies, a portfolio company of KRG Capital Partners, acquired SigNet Technologies, a Beltsville, Md.-based security systems provider. Financial terms weren’t disclosed.

WILsquare Capital acquired Walcro, a Bloomington, Minn.-based provider of flooring installation products. Financial terms weren’t disclosed.

Grand Coast Capital Group has acquired Ireland-based Skerries Point Town Centre, a retail and office property. No financial terms were disclosed.

WestView Capital Partners made an investment of an undisclosed amount in English Color & Supply, LLC, a Richardson, Texas-based distributor of automotive paint, equipment and supplies to the collision repair industry.

Nexcore Technology, a portfolio company of Kidd & Company, acquired Phase 2 Medical Manufacturing, a manufacturer of medical devices with locations in Rochester, N.H., Lafayette, Colo., and Tijuana, Mexico.  Financial terms weren’t disclosed.

Galen Partners recapitalized CDx Diagnostics, Inc, a Suffern, N.Y.-based specialized anatomic pathology laboratory with a focus on detecting the precancerous precursors of esophageal and oral cancer. Financial terms weren’t disclosed.


Elliott Management Corp, is making an offer of $18.5 billion for Oncor Electric Delivery Company, a Dallas, Texas-based regulated electricity transmission and distribution company, according to Reuters. Read more.

Pearson (LSE:PSON) is set to raise $1 billion from the sale of a 22% stake in Penguin Random House, a U.K.-based book publishing company, to majority owner Bertelsmann. Read more at Fortune.

Sanofi (ENXTPA:SAN) will buy Protein Sciences, a Meriden, Conn.-based vaccines biotech company, for an initial amount of $650 million, according to Reuters. Under the terms of the deal, Sanofi will make an upfront payment of $650 million, and pay up to $100 million upon the achievement of certain milestones. Read more.

EnCap Flatrock Midstream invested $300 million in Greenfield Midstream, LLC, a Houston, Texas-based energy company focused on the organic development of midstream infrastructure across North America.

Samsung has acquired Innoetics, a Greece-based developer of voice-to-speech technology, for under $50 million, according to TechCrunch. Read more.

HyTrust, Inc acquired DataGravity, a Nashua, N.H.-based data visibility and security company. Financial terms weren’t disclosed.

Givaudan will acquire Vika B.V., a Netherlands-based producer of cheese powder, processed cheese, and other dairy products. Financial terms weren’t disclosed. Read more.

CPA Global made an investment of an undisclosed amount in Markpro, a Seoul-based provider of patent renewals, trademark renewals and IP software.

Premise Health acquired eHealthScreenings, a San Antonio, Texas-based biometric screenings company. Financial terms weren’t disclosed.

Horizon Services acquired Gold Medal Service, a Sewell, N.J.-based waste and recycling services company, and Casteel Heating & Cooling, a Marietta, Ga.-based heating and air conditioning company. Financial terms weren’t disclosed.


Torrid, a plus-sized women retailer based out of City of Industry, Calif., filed for an IPO to raise $100 million Friday. The company which spun off of Hot Topic posted loss of $29.1 million for the fiscal year ending January 2017 on sales of $640.2 million. Sycamore Partners backs the company. Merrill Lynch, Pierce, Fenner & Smith alongside Morgan Stanley are leading the underwriters in the deal. The company plans to file on the NYSE as “CURV.”

Abu Dhabi National Oil Company, the United Arab Emirates’ state-owned oil company, said it plans to seek an IPO for part of its business, CNBC reports. But the company is only considering an IPO of minority stakes in some of its services businesses, rather than the main holding company. It’s unclear how much the company hopes to raise.


Arsenal Capital Partners agreed to sell its portfolio company, Certara, a Princeton, N.J.-based provider of technology-driven decision support solutions for drug development, to EQT VII Fund for an enterprise value of $850 million.  As part of the deal, Arsenal Capital Partners will retain a minority ownership stake in Certara.

Grapevine acquired the SocMetrics Influencer Platform, a Cambridge, Mass.-based topical influence scoring platform, which was backed by GV and Converge Venture Partners. Financial terms weren’t disclosed.

Evolution Midstream, which is backed by EnCap Flatrock Midstream, acquired Rowdy Gas Gathering System, a Wyoming-based company serving oil and gas producers in the area. The seller was Lucid Energy Group. Financial terms weren’t disclosed.

RLJ Equity sold its ownership stake in EnviroVac, a Savannah, Ga.-based provider of cleaning and maintenance services, to Audax Private Equity. Financial terms weren’t disclosed.

Edison Partners sold OptionsCity Software, a Chicago-based provider of global electronic trading solutions provider, to Vela Trading Technologies. Financial terms weren’t disclosed.

Axum Capital Partners acquired a controlling stake in Back Yard Burgers, a Nashville, Tenn.-based burger franchise. The seller was Pharos Capital Group. Financial terms weren’t disclosed.


CRV, a Cambridge, Mass.-based venture capital firm, filed to raise $450 million for a new main fund, CRV XVII. It also filed to raise $400 million for its first growth fund, CRV Growth I.

Industrial Opportunity Partners, an Evanston, Ill.-based private equity firm, raised $450 million for its third fund, Industrial Opportunity Partners III, L.P.

Initialized Capital, a New York-based venture capital firm, raised $125 million for its third fund, Initialized III.

E&I Ventures, a new Chandler, Ariz.-based venture firm focused on tech businesses, has formed. The firm will focus on making individual investments between $100,000 and $1 million.


Demi Obayomi joined FirstMark Capital as an associate. Previously, Obayomi was at Goldman Sachs.

Fairview Capital promoted Cynthia Tseng to partner. Prior to joining Fairview, Tsent was at JPMorgan.

Scott Koenig joined Neuberger Berman as managing director to lead a real estate secondary effort. Previously, Koenig was at DB Private Equity.

Joel Gragg  has been promoted to managing director of ORIX Growth Capital’s West Coast investment team. Prior to joining ORIX USA,  Gragg was at Bridge Bank.

TSG Consumer Partners promoted Edward Wong to principal and Erik Johnson to senior vice president. Prior to joining TSG, Wong was at Falconhead Capital and Johnson was at Sawaya Segalas.


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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.

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