Term Sheet — Tuesday, August 15

ON MUTUAL FUND MARKDOWNS:

Andrew says: Fidelity lost 50% of its investment in 2 years after offering more than 2x the next highest bidder. For a manager, they sound pretty ineffective in their jobs. In most businesses, a person or company with that kind of performance is certainly likely to lose their job.

Dylan writes: You make the claim that mutual fund markdown processes are more complicated then people sitting around the table, spit-balling numbers. But if funds can just decide to not markdown investments based on just optics, then all those "cross-disciplinary" processes don't really matter.

ON ICOs and CRYPTOMANIA:

Anon writes: Why do you keep promoting this ICO pump and dump garbage? It’s a total scam and journalists like you are promoting it and stupid people will lose a lot of money and you will talk about how Wall Street scammed them when its actually the press causing it.

Z writes: I've had founders tell me they're raising an ICO for a concept company only because otherwise venture investors wouldn't touch the actual concept of the company. Sounds like a scam to bamboozle retail investors. Unfortunately many will lose money, and even worse - it will likely be amongst the more vulnerable of us - unsophisticated and under informed retail investors looking to cash out in Silicon Valley fashion.

Vik writes: The ongoing argument about this being the new internet to the grandest pyramid scheme is perplexing and similar to the current debate between Elon vs. Zuck on AI. Are super smart people seriously incapable of thoughts that co-exist with one another?

The crypto-craze and "decentralized revolution" is not necessarily doomed to binary outcomes. The Internet transformed how we live our lives, but also made it easier for pedophiles to convene and illicit drugs to be delivered. If we could go back in time and prevent the Internet from forming or severely curtail its power in order to save us from Craigslist killers, would we?

Another fundamental misunderstanding is that cryptocurrencies/ICOs/tokens are not disrupting venture capital, they're democratizing it. We all know that venture is a game of deal flow, and consequently, fortune favors the well-connected. Well guess what, it turns out you don't have to be at a Tier 1 firm with a numeronym or named after an evil Greek God to get access anymore. Does that mean Sequoia and Kleiner are going to close up shop? Obviously not. The vast majority of startups will still require traditional venture financing/expertise/networks, but this just adds a new dimension to raising capital for startups.

Lastly, people should stop pretending that they give a damn about Main St. being swindled in this brave new crypto world when traditional lenders and society stick it to them every day...and who knows, maybe having a more diverse crowd look at deals will be a good thing. After all, would Joe the Plumber really have invested in Juicero?

(Editor’s note: Gold star for Vik ⭐ Long live reasonableness, nuance and a tad of cynicism!)

ON SCREWING UP THE CAP TABLE:

Joe writes: When we look at the over-funded deals that keep blowing up in SV… funded by you know who, to call the others “dumb” is nuts.

The traditional VC model is finally going through a long overdue improvement. So many have been 'rent seekers' simply due to the inefficient flow of information available to other investors. It has been a club at best, and a cottage industry at worst. Time for it to become more professional.

It should start with transparency of partner-level track records and performance metrics applied to money managers in the public markets. The 'alpha' produced by most VC’s is less than the Russell 2000 over comparable windows, so to call them 'smart money' is just wrong.

A writes: Like everyone, they're talking their book. If other investors have come in, funded competitors, and screwed up the cap table, why aren't their own portfolio companies navigating the changing landscape better?

Sure, it's harder to stand out if there seem to be three others just like you; but, numbers don't lie, and if their numbers were still superior, they wouldn't have trouble getting noticed. Just because they're not wrong, doesn't make them right.

ON ANTITRUST AND THE FAILED FANDUEL / DRAFTKINGS MERGER:

Chris writes: One aspect I think you overlooked when comparing the FanDuel/ Draft Kings merger with Sirus/XM and others was that this truly is a novel market, not just a novel product/technology. There is no traditional market for fantasy sports betting in the US so the combination of these companies would truly create a monopoly. When there are multiple disrupters in an established industry, the largest disrupters are usually allowed to merge because they argue that they are fighting the incumbents and likely only own a small portion of the total market.

The Sirus/XM and Zillow/Trulia mergers were allowed happen in part because although the combinations created dominate players for the new technology offerings, the overall market was much larger than just the new technologies. For Sirus/XM, traditional radio was still huge and streaming was becoming increasing popular. For Zillow/Trulia, traditional real estate brokerages and agents still controlled the market for residential real estate sales/marketing. It is much easier for the regulators to justify combinations in those situations.

I even think that if Lyft and Uber wanted to merge right now they might be able to given the size of the traditional taxi/livery industry (although in 5 years I think it would be a different question).

ON AMAZON’S EFFECT ON BLUE APRON’S IPO:

Frank writes: While I agree with your comments that everyone is blaming the

Amazon/Whole Foods deal for way too many adverse outcomes, the

announcement  of that deal should have caused a pause/rethink on the

pricing of Blue Apron. The lead managers are responsible for talking with

all the potential buyers and determining what they really think, and doing

everything in their collective experience/wisdom to insure a positive

outcome (defined as the stock trading to a modest 10-15% premium in the

30-90 days following the deal). This has all the earmarks of, “Let's put

it in the hands of our hedge fund clients @$10 a share and see if it sticks,”

then walking away in the aftermarket. This is investment banking

"malpractice" and should be called out for what it is.

Dominic writes: It is interesting that virtually everyone I have spoken to about the Amazon-Whole Foods deal seems to have no doubt that this alliance will be a success, and by virtue of that annihilate all the other grocers. When probed, however, most commentators cannot lay out a concrete strategy that they think Amazon is uniquely capable of implementing that could result in a truly non-cosmetic shift in how Americans buy groceries.

They believe that being Amazon, it sure will come up with a way of doing things differently that might actually create significant change. In my view, part of the success that Amazon enjoys today stems from (in addition to impeccable customer service) being able to create new platform-based businesses that are rapidly scalable, and in a way result into strong network effects in the long run. Think of AWS and Amazon marketplace. Indeed, when it can, Amazon typically tries to use this approach wherever possible. And this is why I am skeptical of Amazon's ability to truly be a superior player in the grocery business, as the industry presents very limited opportunities for the deployment of a platform-based model that scales first and breeds network advantages.

Peter writes: In Nassim Nicholas Taleb's "Black Swan,” he cautions that if too many people can see a Black Swan coming, it's usually not the event that ends up being the game changer. Amazon/Whole Foods certainly seems that way right now, which also suggests a lack of imagination by most players in the grocery space (especially those run by big PE).

To Bezos' credit, he has direct competitors (currently much larger) fearing him, and he hasn't even made another strategic move public yet.  Imagine if Apple responded that way with the launch of the Kindle Phone.  I love how this psychology of competition is playing out.

ON VC’S NOT CRITICIZING STARTUPS:

M writes: This is the most moronic statement I have ever heard. Why should people support companies that have horrible crappy business models or financial models that make no sense? The world is littered with these companies. They will eventually go out of business, too.

A writes: Feels like Silicon Valley is moving closer to Wall St. by way of more truthful public accountability. For all its failings, the invisible hand's capitalist tendencies seem to have some virtues...

Jack writes: Thank God the survey showed the silent majority is made of investment professionals. Do you think David Einhorn and Bill Ackman sit around worrying about their ecosystem? This is about managing other peoples money, not feelings.

ON FOUNDER-FRIENDLY INVESTING:

Sachin writes: Though I agree that there are some winds going in that direction, I'd argue it is likely not to change anytime soon.  This is mostly due the exorbitant amount of capital that VCs have raised, and need to deploy ASAP. (Read his blog post on it here!)

THE LATEST FROM FORTUNE...

• Snap’s incredible, vanishing pile of cash.

• Why it matters when CEOs stand up to Trump.

• What Merck, Airbnb and GoDaddy understand about Charlottesville.

• LinkedIn’s legal setback over data.

• Under Armour CEO Kevin Plank leaves Trump’s economic advisory council. As does Intel CEO Brian Krzanich.

• Bill Gates makes his largest donation since 2000.

• The Department of Justice is demanding Dreamhost turn over IP addresses of visitors to an anti-Trump website.

…AND ELSEWHERE

Restaurants are the new factories. The deeply secretive past of candy company Mars. At what point do the CEOs of the largest companies in the Unites States tell President Trump that enough is enough? How more Americans are getting a perfect credit score. Private equity firm lawyers get creative. A PE-backed disaster. China’s biggest unicorns are a different breed. Goldman and JPM are the top corporate investors in fintech. A 100-year-old fruitcake.

VENTURE DEALS

• Poshmark, a Redwood City, Calif.-based online service for buying and selling second-hand clothing, is in talks to raise more than $50 million in a funding round that could value the startup at roughly $600 million, according to Reuters. Read more.

• HomeLight, a San Francisco-based marketplace for connecting home sellers with real estate agents, raised $40 million in Series B funding. Menlo Ventures led the round, and was joined by investors including Citi Ventures, Zeev Ventures, SGVC, Crosslink Capital and Innovation Endeavors.

• Filld, a Palo Alto, Calif.-based mobile fueling startup, raised $9.65 million in Series A funding. Shea Ventures led the round.

• Happify Health, a New York-based platform that combines emotional health interventions with engagement and gaming technology, raised $9 million in funding. TT Capital Partners led the round.

• NuOrder, a West Hollywood, Calif.-based online wholesale platform and marketplace for the fashion industry, raised $8 million in funding, according to VentureBeat. Argentum led the round, and was joined by investors including Upfront Ventures, Greycroft Partners, Cowboy Ventures, Novel TMT, and Box Group. Read more.

• Silversheet, a Los Angeles, Calif.-based provider of medical credentialing tools, raised $5 million in Series A funding. Summation Health Ventures led the round, and was joined by Upfront Ventures, Rincon Venture Partners, and Slow Ventures.

• Agilence, a Mount Laurel, N.J.-based provider of cloud-based analytics for store operations and loss prevention, raised $4 million in funding. Investors include Wellington Financial LP.

• Smilo, a developer of baby feeding and soothing products, raised $3.25 million in seed funding. Investors include Norwest Venture Partners and Brand Foundry Ventures.

• HealthJoy, a Chicago-based artificial intelligence-driven platform for employee benefits engagement and cost containment, raised $3 million in Series A funding. Chicago Ventures led the round, and was joined by investors including Social Capital and Sidekick Ventures.

• IOpipe, a Seattle.-based application operations platform for AWS’s Lambda service, raised $2.5 million in seed funding, according to TechCrunch. Investors include Madrona Venture Group, NEA and Underscore VC. Read more.

• Poncho, a New York-based provider of personalized weather forecasts, raised $2.4 million in seed funding, according to TechCrunch. Lightspeed Ventures led the round. Read more.

• Huddle​, a New York City-based video-based peer-to-peer support app, raised $1.2 million in seed funding. Thrive Capital led the round.

• Pondera Solutions, a Sacramento, Calif.-based  provider of security software for the government technology sector, has secured “an eight-figure” round of Series A funding. Investors include Impact Venture Capital and Serent Capital.

• Peloton Computer Enterprises, a Canada-based provider of well data software solutions to the oil and gas industry, raised funding of an undisclosed amount. Investors include Silver Lake Kraftwerk, TriWest Capital Partners and HarbourVest Partners.

HEALTH AND LIFE SCIENCES DEALS

• Vicarius Pharma AG, a Switzerland-based which provides U.S.-based biopharmaceutical companies a new approach to commercializing assets in European markets, raised $21.8 million in funding. James Mullen led the round.

PRIVATE EQUITY DEALS

• Great Hill Partners acquired Zoom Information Inc, a Waltham, Mass.-based business-to-business data provider. Financial terms weren’t disclosed.

• MarketCast, a portfolio company of Kohlberg & Company, acquired Fizziology LLC, an  Indianapolis-based provider of social insights and analytics for the media and entertainment industry. Financial terms weren’t disclosed.

• Harkness Capital made an investment of an undisclosed amount in Southwest Foodservice Excellence, a Scottsdale, Ariz.-based provider of outsourced food services to K-12 public school districts. Financial terms weren’t disclosed.

• PlayCore, a portfolio company of Sentinel Capital Partners, acquired Superior Recreational Products, a Carrollton, Ga.-based provider of of commercial playground equipment, recreational products, shade structures and site amenities. Financial terms weren’t disclosed.

• LEAP Global Partners invested in Insikt, a San Francisco-based fintech startup specializing in “lending as a service” and Wizeline, a San Francisco-based AI-driven talent and software as a service company. Financial terms weren’t disclosed.

OTHER DEALS

• Miami Marlins owner Jeffrey Loria agreed to sell the baseball team for $1.2 billion to a group led by Bruce Sherman and Derek Jeter, according to The Miami Herald. Read more.

• Target acquired Grand Junction, a San Francisco-based transportation technology company. Financial terms weren’t disclosed. Read more at Fortune.

• Transocean agreed to buy Songa Offshore (OB:SONG) for 9.1 billion Norwegian crowns ($1.1 billion), according to Reuters. Read more.

• JAB Holding Co is looking to sell Bally International AG, a Switzerland-based luxury shoe brand which could fetch at least 600 million euros ($707 million), people with knowledge of the matter said. Read more.

• Descartes Systems Group acquired MacroPoint, a Cleveland, Ohio-based electronic transportation network providing location-based truck tracking and predictive freight capacity data content.

• Webroot acquired the assets of Securecast, an Oregon-based security awareness training platform. Financial terms weren’t disclosed.

IPOs

• Studio City International, a Hollywood inspired gaming resort in Macau, has filed confidentially for an IPO of ADSs with the SEC, the company announced Monday. The company is backed by Melco Resorts and Entertainment, which is in turned backed by James Packer and Lawrence Ho. Crown Asia Investments, Harris Associates, and Oppenheimerfunds.

• Despegar.com, a Latin American online travel agency, filed for an IPO of $100 million with the SEC Tuesday. The company says it raised $411.2 million in revenue and $35.1 million in earnings in 2016. It plans to list on the NYSE as “DESP.” Morgan Stanley and Citi are joint bookrunners in the deal. Tiger Global(57.3% pre-offering), Expedia(16.4%), and General Atlantic Partners (5.4%) back the company. Pricing terms have not yet been disclosed.

EXITS

• Apax Funds agreed to acquire ECi Software Solutions, a Fort Worth, Texas-based provider of enterprise resource planning software solutions for small and medium-sized companies. The sellers were The Carlyle Group and Level Equity. Financial terms weren’t disclosed.

FIRMS + FUNDS

• Onex Corp, a Canada-based private equity firm, raised $5.72 billion so far for its fifth core buyout fund, according to Private Equity News. Read more.

• Base Partners, a Brazil-based investment firm, raised $75 million for its first fund, Base Growth I.

• K9 Ventures, a Palo Alto, Calif.-based venture firm, raised $42 million for its third fund.

PEOPLE

• George Couto joined Pritzker Group Private Capital as a vice president. Previously, Couto was at Palladium Equity Partners.

• Amy Hauke joined Meketa Investment Group as executive vice president, private markets consultant. Previously, Hauke was at Aon Hewitt.

• Sherri Brown, Tomás Peña, and Pat Pinkston joined The Yield Lab as managing directors.

• Craig Rogowski joined Baird’s  global investment banking business as a director on its global technology & services team. Previously, Rogowski was at KeyBanc Capital Markets.

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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.