Term Sheet — Tuesday, January 23

January 23, 2018, 2:24 PM UTC


Good morning, Term Sheet readers.

Scandals can bring even the mightiest of unicorns to their knees, and smart money is starting to fall out of love with Silicon Valley’s bad boys. Limited partners have woken up to the fact they could be backing partners who engage in unacceptable behavior — and that’s bad for business.

In a new feature, my colleague Michal Lev-Ram delves into the inner-workings of Aspect Ventures, a rare gender-balanced VC firm. “Our company is nearly 50/50 in an industry in which just 7% of investors are female,” says Aspect Ventures co-founder Theresia Gouw. “And our portfolio is a reflection of our pipeline.”

Overall, women founders receive less than 3% of total VC dollars, and women of color get a meager 0.2%. Aspect’s portfolio looks strikingly different from the norm: About 40% of the firm’s companies were founded by women, and 30% were started by minorities.

When co-founders Gouw and Jennifer Fonstad launched the firm in 2014, they didn’t set out to create a “female-focused” fund, but they did have an underlying belief that diversity was good for business. The result? Seven public offerings, 26 acquisitions, and more than 500 financing rounds in follow-on capital.

Now, Aspect has raised $181 million for a second fund from notable LPs including Melinda Gates and Cisco Systems. An excerpt from Michal’s story:

While there have long been small players in the venture capital community who defied the stats and were able to attract some LP money, they tended to be relegated to the fringes of the industry, with less access to sizable funds and the buzziest companies. Now, as Silicon Valley is finally coming to terms with the fact that bad behavior can do more than cause a temporary headache, concerned LPs are taking notice. That opens the door for funds like Aspect, which have made diversity part of their investment strategy from the get-go. The question now: Is this newish breed of VCs truly in a position to challenge the established firms that have long ruled Sand Hill Road? Or is this trend just another one of tech’s passing fads?

Read the full story here. I’d love to hear your thoughts on the questions posed in the excerpt above.

PE SOUND OFF: A few of you had strong reactions to yesterday’s column on how the tax overhaul could force private equity firms to re-think the way they do deals. Here are two perspectives:

Frank writes: This is a really big deal. Surprised more people have not been focused on it. 1) From a policy point of view, it is a good thing to reduce the overall leverage in the Corp System, as it makes the system stronger and more able to withstands shocks (recessions/9-11, etc.) 2) It will however reduce the absolute price that PE firms will be able to pay because it reduces aftertax cash flow. Look for more battles between corps and PE over various smaller companies. At the present time, most companies with decent cash flow have an “implicit” takeover price in the 5-6X EBITDA range built into their stock price. This could act as a partial “lid” on stock prices.

Charlie writes: I found your comment around PE multiples going down due to the interest expense tax shield shrinking interesting and academic but (in my opinion) likely false. (See graph three.)

While there are a few potential explanations around why this is happening, my experience tells me that it's not driven by fundamentals (greater growth potential, superior competitive advantages, ect.) but by a crowding of the market caused by the explosion of PE funds in size and number resulting in a more competitive bidding process. If this is the case, the assumption that the market is rational becomes shaky at best! If the potential risk / return profile of the investments are unchanged yet prices are rising a logical conclusion is irrationality. Though there are a few other potential explanations none of which I find compelling.

All in all my point is that the market has historically and currently displayed irrational pricing characteristics that I believe will carry over into the tax change. Companies will "have more upside" and bigger projections to overcome the downward pressure on multiples caused by the loss in the interest tax shield. While this is entirely an estimate of what I believe will happen I strongly believe the academic interpretation of PE is often false as agency and the potential to create incredible amounts of wealth for individuals even in the face of failure often trump the adherence to rationality.

THIS JUST IN: Twitter COO Anthony Noto resigned to become the CEO of SoFi, effective March 1.


How to stay safe from killer robots (by Adam Lashinsky)

Elon Musk has a new salary (by David Meyer)

Trump says yes to new tariffs that target China (by Kirsten Korosec)

Netflix’s value just hit $100 billion (by Tom Huddleston)


Paddle8 is merging with a Swiss tech company. Digital token exchange claims first SEC-compliant trade. Blockchain name changes are still paying off. Populism is waning.


Bolt Threads, a Emeryville, Calif.-based developer of programmable fibers and fabrics, raised $123 million in Series D funding. Baillie Gifford led the round, and was joined by investors including Fidelity Management and Research Company, Formation 8/BUILDERS VC, Founders Fund and Temasek.

Paytronix Systems, Inc., a Newton, Mass.-based provider of loyalty, rewards, gift, mobile applications, and guest engagement analytics software, raised $65 million in funding. Investors include Great Hill Partners.

Cumulus Networks, a Mountain View, Calif.-based company bringing web-scale networking to enterprise cloud, raised $43 million in Series D funding. Telstra Ventures led the round and was joined by existing investors including Andreessen Horowitz, Battery Ventures and Sequoia Capital.

Zipongo, a San Francisco-based digital nutrition platform, raised $35 million in Series B funding. Investors include Seventure Partners, Mayfield, Zaffre Investments, and Blue Cross Blue Shield of Massachusetts.

Dremio, a Mountain View, Calif.-based self-service data company, raised $25 million in Series B funding. Norwest Venture Partners led the round, and was joined by investors including Lightspeed Venture Partners and Redpoint Ventures.

Rainforest QA, a San Francisco-based company focused on on-demand quality assurance (QA) solutions, raised $25 million in Series B funding. Investors include Silicon Valley Bank, Bessemer Venture Partners, Sutter Hill Capital, Rincon Ventures, and Initialized Capital.

Springbuk, an Indianapolis, Ind.-based provider of employer-facing health intelligence software, raised $20 million in Series B funding. HealthQuest Capital and Echo Health Ventures led the round, and was joined by investors including Lewis & Clark Ventures and Elevate Ventures.

SheerID, a Eugene, Ore.-based developer of verification technology enabling digital trust, raised $18 million in Series B funding. Centana Growth Partners led the round.

Unravel Data, a Menlo Park, Calif.-based developer of an Application Performance Management (APM) platform, raised $15 million in Series B funding. GGV Capital led the round, and was joined by investors including Microsoft Ventures and Menlo Ventures.

PrinterLogic, a St. George, Utah-based provider of print management software solutions, raised $15 million in Series A funding. Mercato Partners led the round.

Zylo, an Indianapolis-based enterprise SaaS optimization platform, raised $9.3 million in Series A funding. Bessemer Venture Partners led the round, and was joined by investors including Salesforce Ventures and the Slack Fund. Existing investors High Alpha Capital, GGV, SV Angel, and Hyde Park Venture Partners participated.

Esports One, a data and analytics company focused on esports, raised $3 million in seed funding. XSeed Capital and Eniac Ventures co-led the round, and were joined by investors including Crest Capital.

Acellere, a Germany-based software technology company, raised $2.5 million in Series A funding. Capnamic Ventures led the round.

Cognovi Labs, a Dayton, Ohio-based developer of the SaaS platform for emotion-based artificial intelligence (Emotion AI), raised $2.3 million in seed funding. Ikove Venture Partners led the round, and was joined by investors including HBS Alumni Angels of Greater New York and Bossa Nova Investimentos.


Harbour BioMed, a China and Newton, Mass.-based developer of therapeutics for cancer, raised funding of an undisclosed amount. Investors include CDH Investments and Advantech Capital.


Compass Diversified Holdings agreed to acquire Foam Fabricators, Inc, a Scottsdale, Ariz.-based manufacturer of molded foam products, for $247.5 million.

DexKo Global, a portfolio company of KPS Capital Partners, acquired Kodiak, a Fort Worth, Texas-based producer of light and medium duty axle brakes. Financial terms weren't disclosed.

Summit Partners acquired a minority stake in Advance Medical, a provider of telehealth services. Financial terms weren't disclosed.

American Surgical Professionals, a portfolio company of Great Point Partners, acquired Chesapeake Medical Staffing, a Timonium, Md.-based provider of nurse staffing and allied health services to acute and post-acute care facilities throughout the East Coast. Financial terms weren't disclosed.

Great Hill Partners invested $65 million in Paytronix Systems Inc, a Newton, Mass.-based provider of loyalty, rewards, gift, mobile applications and guest engagement analytics software.

Mainsail Partners invested $30 million in Bio-Optronics, a Rochester, New York and Switzerland-based software and services company for healthcare companies.

Cortec recapitalized Window Nation, a Fulton, Md.-based distributor of replacement windows, doors, roofing, and siding products. Financial terms weren't disclosed.


Bacardi agreed to buy Patron Spirits International, a high-end tequila maker, in a deal that values Patron at $5.1 billion, according to Reuters. Read more.

Harvard Bioscience, Inc. agreed to acquire Data Sciences International, Inc, a St. Paul, Minn.-based biomedical research company, for approximately $70 million.

Clubessential acquired ClubReady, LLC, a Saint Louis, Mo.-based operator of a club management platform. Financial terms weren't disclosed.

Sumo Logic acquired FactorChain, a Los Altos, Calif.-based security company. Financial terms weren't disclosed.


FTS International, a Fort Worth, Texas-based fracking firm, said it plans to offer 15.2 million shares priced between $15 to $18 a piece, raising $250 million. Temasek and Chesapeake Energy back the company. Credit Suisse and Morgan Stanley are underwriters in the deal. The firm plans to list on the NYSE as “FTSI.”

Italo, an Italian high-speed railway firm, said it plans to offer 35% to 40% of its shares in an IPO to be completed by February, Reuters reports. Read more.


AXA Group will acquire Maestro Health, a Chicago-based all-in employee health and benefits company, for $155 million. Maestro Health previously raised approximately $53 million from investors including SV Health Investors, Oak HC/FT, and Oak Investment Partners.

Tradesmen International, a portfolio company of Blackstone Capital Partners, acquired Construction Labor Contractors, a Richfield, Ohio-based provider of temporary staffing of skilled tradesmen for the commercial construction market. The seller was Silver Oak Services Partners LLC. Financial terms weren't disclosed.

Partners Group agreed to sell Trimco International Holdings Limited, a Hong Kong-headquartered apparel-labeling producer, to Affinity Equity Partners for $520 million, generating a 3.4x return for Partners Group on its original investment.

Saw Mill Capital Partners acquired Meteor Education, a Gainesville, Fla.-based provider of furnishings and interior design services for education facilities, from Hudson Ferry Capital. Financial terms weren't disclosed.


Brynwood Partners, a Greenwich, Conn.-based private equity firm, raised $649 million for its eighth fund.


Fairview Capital Partners promoted Aakar Vachhani to partner.

Lily Lyman joined Underscore VC as a principal.


View this email in your browser.

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

Read More

CryptocurrencyInvestingBanksReal Estate