‘EMERGING NEW WORLD OF VC’
Good morning, Term Sheet readers.
I’m back! Thanks for all the emails … I’m still sorting through them so there might be a slight delay in response.
In January, we predicted that everything would be bigger in 2018. With more and more venture firms raising mega-funds, that prediction has largely become reality.
Icon Ventures, a Palo Alto and San Francisco-based venture firm, announced today that it’s expanding its most recent fund Icon Ventures VI from $265 million to $375 million.
“Recognizing the emerging new world of venture capital with investment opportunities requiring more capital and the impact of mega-funds affecting financings at all stages, Icon chose to re-open its last fund,” according to a firm news release.
Joe Horowitz, the managing general partner of Icon Ventures, told CNBC: “If we don’t adjust to the reality of the implications of what the mega-funds mean for us, we’re at risk for our business. To be relevant today … you need enough capital.”
Tiger Global also just raised more capital than it was initially seeking. The investment firm raised $3.75 billion for its latest venture capital fund, surpassing its initial target of $3 billion and making it one of the largest fundraisings of its kind this year.
This influx of capital makes sense given that the bulk of venture capital funds raised by U.S. technology start-ups in the third quarter came from “mega-rounds” of $100 million or more.
Don’t expect this mega-everything trend to slow anytime soon. Venture firms will keep raising larger funds and companies will continue taking their money. Why? Because in today’s world, even a really well-funded startup company will have trouble competing when it’s up against a rival backed by a mega-fund.
As Trinity Ventures general partner Patricia Nakache told me:
“I feel like over the past three years, the venture environment had bifurcated into this world of ‘haves’ and ‘have nots’ where there are some companies that have struggled to raise money and some companies that have been able to raise gobs of money.
But I think what [Softbank’s] Vision Fund has done is created this layer of ‘super-haves.’ And the ‘super-haves’ are almost untouchable in a way because they’re in a whole different stratosphere from a competitive perspective. If you are an early-stage venture fund, you have to be thinking pretty hard about, ‘I hope I’m backing the company that ultimately becomes a ‘super-have’ because they seem to have an unfair advantage.’”
OPPORTUNITY ZONE INVESTING: We discussed Opportunity Zones last month when Term Sheet featured an interview with Peter Brack, the founder of one of the earliest venture funds focused on investing in Opportunity Zones. These zones refer to a new capital gains exemption for people who make long-term investments in underserved communities. There are currently 8,700 designated Opportunity Zones in the U.S.
Recode has a deep dive on this new, so-called “impact investing on steroids.” Here’s how tax accountant Mike Bernier describes the calls he gets from clients about Opportunity Zone investing: “Hey, I was talking to my buddy about this. It sounds too good to be true. Can you help me understand?”
As Brack told Term Sheet: “We haven’t yet seen all the final opinions coming out of the IRS and the Treasury. I do think there will be a lot of learning along the way.” The federal government is expected to clarify more specifics on the tax benefits as soon as this month.
THE LATEST FROM FORTUNE…
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• Why A.I. Is Business’s Next Frontier (by Clifton Leaf)
• How AI Is Changing the Way You Work (by Fortune staff)
• 25 Ways A.I. Is Changing Business (By Fortune staff)
• Uber Is Accelerating Its Plans to Deliver You Burgers by Drone (by David Meyer)
Fiat Chrysler unloads car-parts unit in $7.1 billion deal with KKR. Ellen Pao on how tech founders’ absolute power is destroying company culture. The secret lives of central bankers. Will tech leave Detroit in the dust? Tech startups stoke market for IPOs.
• Plaid Technologies Inc, a San Francisco-based developer of APIs for banking data, is in talks to raise $200 million at a valuation of up to $3 billion, according to Bloomberg. Investors could include Kleiner Perkins Caufield & Byers. Read more.
• Kite Hill, a San Francisco-based producer of plant-based foods, raised $40 million in funding. 301 INC, General Mills, and CAVU Venture Partners co-led the round.
• Pulumi, a Seattle-based startup that lets developers specify and manage their cloud infrastructure, raised a $15 million in Series A funding. Madrona Venture Group led the round, and was joined by investors including Tola Capital.
• Minds, a decentralized social network, raised $6 million in Series A funding. Investors include Medici Ventures, Overstock.com’s venture arm.
• Next Century Spirits, a Raleigh, N.C.-based company specializing in custom distilled spirtits, raised $3.6 million in funding. Blue Hill Group led the round.
• Hummingbird, a platform for anti-money laundering, raised $3 million in funding. Homebrew led the round, and was joined by investors including Omidyar Network, TTV Capital, and Designer Fund.
PRIVATE EQUITY DEALS
• Equistone Partners Europe will acquire Courir, a France-based footwear retailer, from Groupe Go Sport, for €283 million ($325 million).
• Goldman Sachs Asset Management made an investment in Harvest Partners, a New York-based private equity firm. Financial terms weren’t disclosed.
• HEPACO, which is majority owned by Gryphon Investors, acquired Trans Environmental, a Loves Park, Ill.-based provider of environmental remediation, industrial cleaning, and emergency response services. Financial terms weren’t disclosed.
• Littlejohn & Co acquired The Cook & Boardman Group, a Winston Salem, N.C.-based specialty distributor of commercial door entry solutions. Financial terms weren’t disclosed.
• Centerfield Capital Partners made an investment in Pure Wafer, a San Jose, Calif.-based provider of silicon wafer reclaim services and also supplies virgin silicon wafers. Financial terms weren’t disclosed.
• Blackstone Group agreed a deal to acquire Ulterra Drilling Technologies, a Ft. Worth, Texas-based manufacturer of drill bits and downhole tools for the oil and gas industry, for approximately $700 million, according to Reuters. Read more.
• Arsenal Capital Partners acquired Polytek Development Corp, an Easton, Penn.-based manufacturer of liquid mold rubbers and casting plastics, from Morgenthaler Private Equity. Financial terms weren’t disclosed.
• Potomac Equity Partners sold Orion Systems Integrators, a Monmouth Junction, N.J.-based information technology solutions and services provider, to One Equity Partners.