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Term Sheet — Wednesday, June 4

BRAIN DRAIN

Good morning, Term Sheet readers.

BREAKING: Microsoft agreed to acquire GitHub for $7.5 billion in stock. GitHub is the code-repository company popular with many software developers. Microsoft is the top contributor to the site, and has more than 1,000 employees actively pushing code to repositories on GitHub. GitHub was last valued at $2 billion in 2015, and it had raised approximately $350 million from investors including Sequoia Capital, Andreessen Horowitz, Thrive Capital, IVP, and SV Angel.

Andreessen Horowitz poured $100 million in the startup back in 2012, making it the largest single check the firm had ever written in a Series A round. At the time, people criticized the firm for overpaying. “When you write the largest check the firm’s ever written on a Series A deal, there will always be questions on whether this is a good deal,” partner Peter Levine told Term Sheet this morning.

He said the investment stemmed from the firm’s theory that developers would drive the new economy, and “GitHub was at the epicenter of that transformation.”

GitHub will reportedly continue to operate as an independent entity within Microsoft. “This whole developer ecosystem is just starting out,” Levine said. “It’s a brilliant move by [Microsoft CEO] Satya Nadella. By integrating GitHub and Microsoft, they extend their open source leadership, and I hope they continue the momentum GitHub’s had so far.”

It was reported that Sequoia Capital partner Matt Huang is leaving the firm to start a cryptocurrency-focused fund with Coinbase co-founder Fred Ehrsam. As the WSJ noted, there’s been a significant brain drain as top talent departs traditional venture in favor of crypto investing.

Last year, Joel Monegro, a Union Square Ventures analyst, quit and started a fund called Placeholder. Runa Capital’s Nick Tomaino left and launched a crypto-focused firm called 1confirmation.

However, some VC firms are choosing to create dedicated crypto funds with a designated partner as the lead (ie: Chris Dixon at Andreessen Horowitz). Others are taking a more collaborative approach (see: Venrock & Coinfund partnership.)

This is timely as I asked Term Sheet readers on Friday the following question: If you work at a traditional venture capital or private equity firm, I’m curious to hear how you are thinking about these initial coin offerings and new blockchain/crypto-focused funds?

Here are some of the responses I received:

Brian Murray, Craft Ventures:

ICO compliance lessons have not sunk in (despite the SEC’s best efforts). ICO campaigns conceived months ago — before we had regulatory clarity — are now hitting their launch date; hoping a bit of utility-token sophistry can help them outsmart regulators and save their attempt at a money grab. That’s just not going to work. This is why we’re so excited about what Harbor is doing and the next generation of ICO: the PICO.

**Term Sheet note: Craft Ventures is David Sacks’ venture firm. Sacks originally came up with the idea for the security token startup Harbor.**

See Term Sheet’s Q&A with Harbor for a security tokens explainer

Mike McCormick, GreatPoint Ventures:

ICOs feel like they are past their prime. I see many startups who 6-12 months ago were gearing for big ICOs, now raising smaller ICOs and/or just equity capital. There seems to be a collective understanding that a token / ICO makes sense for a limited number of use cases, and the rest were probably somewhere along the spectrum of: dumb money chasing hype, to outright scams. Seems like the speculative mania has cooled.

The early crypto funds have performed well with the run up of the major currencies, though it’s hard for me to see how that strategy could continue to work well moving forward (especially with so many funds) unless the opportunities for pump and dumps pick back up, or if the major currencies go on another bull run.

I think the new crypto / blockchain funds will have to be more like traditional VCs, and look for projects that have actual business legs, rather than the speculative betting that’s been much of the market to date.

We’re investing in the space, but are interested in equity. We could own tokens (and for the right Co we might consider it). What we really want are companies solving real market problems — if the solution involves blockchain, cool, but often it seems the Co is just wedging “blockchain” into the story to ride the hype — just like everybody did with ‘machine learning’ 18 months ago.

I bet it’ll look something like the early 2000s fallout — most projects will fail, and in hindsight we’ll make comparisons to pets.com etc. but a few meaningful projects could survive and emerge as the googles and amazons of the movement – and perhaps they’ll lay the groundwork for a future generation of successful crypto / blockchain projects … or maybe not :)

Jeff Carter, West Loop Ventures:

  1. We are ignoring the price.  The market is going to do what the market is going to do and even if we have an opinion that the price is too high, or too low, it should not matter to the execution and outcome of a company.
  2. We “get” crypto/blockchain, but don’t see any “experts” in blockchain out there.  There are thought leaders, but think there is a lot of hype and ego in the space now. 10 years from now it will be different.
  3. We were traders. We intuitively understand risk/reward and the discipline which comes with it. Post ICO raise, the discipline on spending needs to be extremely high to keep focus and to allocate resources inside the company efficiently.
  4. We don’t invest in tokens. We want equity.
  5. Making money without building sustainable value isn’t worth anything. Prices go up and they go down. In blockchain, you still have to build companies.
  6. Why is a company doing a token raise? Is it core to their business model? Core to the ethos/culture of the company? Core to executing the business plan?
  7. We can make a case for using other technology to solve problems instead of blockchain.  Blockchain is not a panacea for every problem out there.
  8. Slapping blockchain on your company without thinking it through just to get a higher valuation is a thing.  Just because you can raise ICO money doesn’t guarantee success. There is going to be a river of failure and tears with lots of capital being chewed up and wasted.  Many companies—>Pets.com=Me too Social=Me too Sharing Economy=Me too Big Data=Me too AI=Blockchain
  9. What really gets us excited about blockchain is the ability to allocate resources more efficiently and create a lot of transparency.

IN OTHER NEWS….

…Lyft nears acquisition of Motivate Co: Told you Lyft wouldn’t be too far behind. Following Uber’s acquisition of JUMP in April,  Lyft has agreed to buy the bike-share company for at least $250 million, according to The Information. Motivate is the company behind Ford GoBike in the Bay Area and Citi Bike in New York City. Like we’ve noted many, many, many times before, the bike-sharing / e-scooter arms race will be one to watch.

THE LATEST FROM FORTUNE…

• The Price of Bitcoin Cratered in 2018. But Here’s Why ICOs and VC Funding to Crypto Is Breaking Records (by Lucinda Shen)

• Nikesh Arora to Become CEO of Palo Alto Networks: ‘I Really Wanted to Be an Operator’ (by Alan Murray)

• Crypto Firms Turn to “Airdrops” to Boost Blockchain Projects (by Jeff John Roberts)

• Hostess Cupcakes’ Savior Buys Maker of Necco Wafers and Candy Hearts (by Kirsten Korosec)

VENTURE DEALS

Cyberbit Ltd, a provider of cyber range training and simulation platforms, and provider of IT/OT threat detection and security orchestration, raised $30 million in funding. Investors include Claridge Israel.

PlayVS, a Los Angeles-based startup building the infrastructure for high school esports, raised $15 million in Series A funding. New Enterprise Associates led the round, and was joined by investors including Science, CrossCut Ventures, Cross Culture Ventures, 49ers, Nas, Michael Dubin, Kevin Lin, Russell Okung, Paul Judge, Baron Davis, Anthony Saleh, and Kelvin Beachum.

Stellapps Technologies, an India-based end-to-end dairy technology solutions company, raised $14 million in funding. Investors include Bill and Melinda Gates Foundation and IndusAge Partners.

CAST, a New York-based software analysis, raised $12 million in funding. Investors include DevFactory, CM-CIC Investment, Keren Finance and the Boston Consulting Group.

WhereTo, a San Francisco-based AI smart business travel booking tool, raised $8 million of Series A funding. Emergence Capital led the round, and was joined by investors including 500 Startups, Rob Dyrdek and Stage Venture Partners.

Systum, a provider of a cloud-based, digital operating platform for small to medium-sized businesses, raised $7.5 million in Series A funding. Underscore VC led the round, and was joined by investors including Hearst Ventures.

Innoactive, a Munich-based provider of VR/AR enterprise software, raised €4.4 million ($5.2 million) in funding. Unternehmertum Venture Capital Partners led the round, and was joined by Capnamic Ventures.

InstaVR Inc, a San Francisco-based virtual reality authoring, publishing, and analysis company, raised $5 million in Series B funding. Investors include YJ Capital, ITOCHU Technology Ventures, Mizuho Capital Partners, GREE Ventures, COLOPL NEXT, and The Venture Reality Fund.

Locus, an India-based startup that helps companies map out their logistics, raised $4 million in pre-Series B funding. Investors include Rocketship.vc, Recruit Strategic Partners, pi Ventures and DSP Group’s Hemendra Kothari. Existing backers Blume Ventures, Exfinity Venture Partners, BeeNext and growX ventures also participated.

Chainvine, a Stockholm and London-based creator of databases and ledgers using blockchain technology, raised 2.5 million pound funding ($3.34 million) in funding. Deepbridge Capital led the round.

NorthOne, a Canada-based digital-only banking platform, raised C$2 million ($1.5 million) in seed funding. Investors include Ferst Capital Partners.

Roli, a London-based developer of new styles of keyboards to compose and play music, raised funding of an undisclosed amount. Sony Innovation Fund led the round.

HEALTH AND LIFE SCIENCES DEALS

ENYO Pharma, a France-based developer of treatment for acute and chronic viral infections, raised 40 million pounds ($53.5 million) in Series B funding. OrbiMed led the round, and was joined by investors including Andera Partners, Bpifrance Large Venture, Sofinnova Private Capital VII, Morningside Venture Investments, InnoBio and Inserm Transfert Initiative.

Xynomic Pharma, a Dover, Delaware and Shanghai-based cancer drug developer, raised funding of an undisclosed amount. Northern Light Venture Capital, Zhongshan Bison Healthcare Investment Limited and Hakim Unique Internet Company Limited led the round, and were joined by investors including Prosperico Ventures.

PRIVATE EQUITY DEALS

Morgan Stanley Energy Partners acquired a majority stake in Presidio Petroleum, a  Fort Worth, Texas-based oil and gas efficiency company. Financial terms weren’t disclosed.

SK Capital Partners acquired SI Group, a Schenectady, N.Y.-based developer of performance additives and intermediates. Financial terms weren’t disclosed.

Bain Capital Private Equity agreed to recapitalize TriTech Software Systems, a San Diego, Calif.-based provider of public safety software. Financial terms weren’t disclosed.

Harvest Partners acquired Dwyer Group, a Waco, Texas-based provider of residential and commercial restoration and cleaning services. Financial terms weren’t disclosed.

Gryphon Investors made a majority investment in Water’s Edge Dermatology, a Palm Beach Gardens, Fla.-based provider of comprehensive dermatology services. Financial terms weren’t disclosed.

Wind Point Partners will acquire Pestell Group, a Canada-based distributor of animal feed ingredients. Financial terms weren’t disclosed.

IPOs

Xiaomi, the Chinese smartphone giant, is expected to offer $3 billion shares in mainland China, while the remainder of its $10 billion total IPO in Hong Kong, Reuters reports citing sources. Read more.

Puxin Limited, a Beijing-based Chinese education firm, said it plans to raise $133 million in an offering of 7.2 million ADSs priced between $17 to $20. The firm posted revenue of $204.5 million in 2017. Citigroup, Deutsche Bank, Barclays, Haitong International, and CICC are underwriters in the deal. The firm plans to list on the NYSE as “NEW.” Read more.

Charah Solutions, a Louisville-based coal and nuclear power generation maintenance firm, plans to offer 7.4 million shares priced between $16 to $18, raising $125 million. The firm posted revenue of $338.9 million in 2017. BCP and CEP Holdings back the firm. Morgan Stanley, BofA, and Stifel are Joint book-running managers. The firm plans to list on the NYSE as “CHRA.” Read more.

Forty Seven, a Menlo Park, Calif.-based immuno-oncology firm, filed to raise $115 million. It has yet to post a revenue. Lightspeed Ventures Partners (16.8% pre-IPO), Sutter Hill Ventures (16.8%), Clarus Lifesciences (15.8%), Wellington Management Company (8.8%), and Alphabet (6.7%) back the firm. Morgan Stanley and Credit Suisse are underwriters. It plans to list on the Nasdaq as “FTSV.” Read more.

Translate Bio, a Lexington, Mass.-based mRNA therapeutics firm, filed for a $115 million IPO. The firm has yet to post a revenue. Shire Human Genetic Therapies (19.6%), Fidelity (14.5%), Baupost (13%), and Atlas Venture Fund (11.1%) back the firm. Citigroup, Leerink Partners, and Evercore ISI are underwriters. The firm plans to list on the Nasdaq as “TBIO.” Read more.

Domo, an American Fork, Utah-based platform that offers employees real-time data insights, filed for an $100 million IPO. The firm posted revenue of $87.5 million in the year ending Jan. 31, 2018. Institutional Venture Partners, Benchmark Capital, BlackRock, and GGV back the firm. Morgan Stanley, Allen & Company, Credit Suisse, UBS Investment Bank, William Blair, JMP Securities, and Cowen & Company are underwriters in the deal. Read more.

Twelve Seas Investment Company, a London-based blank check company seeking a business in Eurasia, filed for a $100 million IPO. Dimitri Elkin of Twelve Seas Capital is CEO of the firm. EarlyBirdCapital is the underwriter. It plans to list on the Nasdaq as “TWLVU.” Read more.

GoodBulk, a Monaco-based dry bulk vessel operator, filed for an $100 million offering. The firm posted revenue of $57.1 million in 2017. CarVal Investors (49.6% pre-offering), Lantern Asset Management (12.9%), and Brentwood Shipping (11.6%) back the firm. Morgan Stanley and Credit Suisse are underwriters in the deal. The firm plans to list on the Nasdaq as “GBLK.” Read more.

AFG Holdings, a Houston-based oil and gas pressure drilling firm, filed for a $100 million IPO. The firm posted revenue of $421 million in 2017. The Carlyle Group and Eaton Vance back the firm. Goldman Sachs, Credit Suisse, Simmons & Co., Barclays, Citi, Evercore ISI, and Wells Fargo Securities are underwriters. The firm plans to list on the NYSE as “AFGL.” Read more.

EverQuote, a Cambridge, Mass.-based auto insurance marketplace, filed to raise $75 million in an IPO. The firm posted revenue of $126.2 million in 2017. Link Ventures (61.9% pre-offering) backs the firm.  J.P. Morgan and BofA Merrill Lynch are underwriters in the deal. It plans to list on the NYSE as “EVER.” Read more.

FIRMS + FUNDS

Mill Point Capital, a New York-based private equity arm of Millstein & Co, raised $450 million for Fund I.

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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.