Skip to Content

Term Sheet — Monday, October 29

EPIC FUNDING

Good morning, Term Sheet readers.

You know you’re getting old and irrelevant when you are furiously googling “Epic Games,” “Fortnite” and “what is fortnite dance challenge?”

In any case, I learned a lot. Fortnite, an online video game that features characters fighting for survival on a dystopian island (I think), has been played by more than 125 million people — making it the world’s most popular video game. It has also sparked controversy with some parents complaining about violent themes.

Today, Epic Games, the company behind Fortnite, raised a whopping $1.25 billion in funding. The roster of investors includes some very recognizable names like KKR, ICONIQ Capital,Smash Ventures, aXiomatic, Vulcan Capital, Kleiner Perkins, and Lightspeed Venture Partners. The deal reportedly values the company at nearly $15 billion, according to The Wall Street Journal. It will use the capital to expand the company’s efforts in e-sports and live events.

Don’t expect investor interest in gaming to stop here. Annual investments in game startups and closely held companies exceeded $3 billion globally for the first time earlier this year, according to Digi-Capital LLC. So far this year, they have topped $5 billion.

Perhaps what’s most interesting to investors is that Epic’s games generate revenue through sales of digital items (ie: virtual costumes & gear). Players have reportedly already spent more than $1 billion on Fortnite’s in-game purchases. Where there’s appetite like this, investor dollars will flow.

BLOCKBUSTER DEAL: IBM will pay a record $34 billion in cash and debt to acquire enterprise open source provider Red Hat. This acquisition surpasses Microsoft’s $26.2 billion deal with LinkedIn to hold the title as the largest software acquisition in history.

Fortune’s Alan Murray spoke with IBM CEO Ginni Rometty shortly after the deal was announced. “This is a huge day. It absolutely resets the cloud landscape,” she said about the deal will likely define her legacy at the 107-year-old computer company. “We will be the number one hybrid cloud provider.”

From Alan’s story:

I asked what she could do as Red Hat’s owner that she couldn’t have done as its long-time partner. Her answer: “This will accelerate the customer journey to the cloud.” Big companies have only moved about 20% of their work to the cloud, she said. “They have done the easy work, the cost-oriented work.” Working together, IBM and Red Hat can attack the remaining 80%, allowing companies to create integrated solutions from the cacophony they now face. “A typical client has at least 1,000 applications, uses multiple clouds, faces vendor lock in,” she said. Together, IBM and Red Hat can provide end-to-end solutions that allow clients “to do some on premises, some in the public and private cloud, unifying multiple clouds, applications and vendors.”

A TESLA SHORT: In Friday’s Term Sheet, I posed the following question from a reader following the news that short seller Andrew Left had reversed his position on Tesla. The question: “Left builds an ownership which contradicts his public statements, then discloses it, handsomely benefits from it and that’s OK? … Certainly begs the question of public disclosure and market manipulation in those days where media-covered announcements move markets. BTW, it is true of a lot of ‘activist investors.’ Can someone build a position in a stock and then move the stock or should they be forced to do the opposite?”

Here are some of the responses I received:

Ben: Thanks to technology and subsequent social media, guys like Left can move markets temporarily and be “opportunistic” without any legal issue.  Most importantly, as they say in the fast money world, “You’re irrational and stubborn if your investment thesis changes and you don’t change with it (TSLA reports profits and you reverse your short because your thesis was bankruptcy).”

Chris: The way I have always seen cases like this is that the big difference is that in this case, Elon Musk has inside and intimate knowledge of his company so the market interprets any remarks or actions by him from that perspective. Left does not have such inside info so he is purely trying to game the market to his advantage and anyone can try that but it is up to the general investment community to decide if they are going to believe him, because he may be right but he may be totally wrong as well! The grey area in this argument arises when you get really big and well-known investors making such remarks because of the name they have built up, and the market listens to them. But then, it is a fact of life in a capitalistic society that the big boys, or gals, make the “rules” of the investment game, not the minnows.

David: “It’s a weakness in market regulation to allow folks that publish to game the market.  Happens all the time. When you can move a market with your opinions, it’s akin to trading on non-public info.”

THE LATEST FROM FORTUNE…

• Bitcoin Exchange Bitstamp Acquired in Latest Cryptocurrency Deal (by Jen Wieczner)

•A Fork in the Road for Avis (by Phil Wahba)

• German Chancellor Angela Merkel Just Signaled She Won’t Run for Re-election (by Grace Dobush)

•Tech Platforms Suspend Gab in Wake of Pittsburgh Synagogue Shooting (by Emma Hinchliffe)

VENTURE DEALS

Grab, a Singapore-based ride-hailing company, raised $200 million in funding from Booking Holdings. Read more.

Sweetgreen, a Washington, D.C.-based fast-casual food chain that focuses on salads, is looking to raise $200 million in funding at a valuation of more than $1 billion, according to CNBC. Fidelity Investments is leading the round. Read more.

StarkWare, an Israel-based blockchain startup, raised $30 million in Series A funding. Paradigm led the round, and was joined by investors including Intel Capital, Sequoia, Atomico, DCVC, Wing, Consensys, Coinbase Ventures, Multicoin Capital, Collaborative Fund, Scalar Capital, Semantic Ventures, Pantera, Floodgate, and Naval Ravikant.

Geltor, a San Leandro, Calif.-based developer of animal-and GMO-free proteins, including collagen, raised $18.2 million in a Series A funding. Cultivian Sandbox Ventures led the round, and was joined by investors including GELITA, ADM Ventures, Cavallo Ventures and Box Group.

AnyMind Group, a Singapore-based company that uses AI in online advertising, HR and marketing, raised $13.4 million in Series B funding. Line and Mirai Creation Fund co-led the round, and were joined by investors including JAFCO and Dream Incubator.

HEALTH AND LIFE SCIENCES DEALS

Galecto Biotech AB, a Sweden-based developer of galectin modulators for the treatment of severe diseases, raised 79 million euros ($90 million) in Series C funding. Investors include Novo Seeds, M Ventures, Sunstone Capital, Ysios Capital, OrbiMed, HBM Healthcare Investments, Bristol Myers-Squibb, Maverick Ventures and Seventure Partners.

PRIVATE EQUITY DEALS

Xponential Fitness, which is backed by Snapdragon Capital, acquired Pure Barre, a Spartanburg, S.C.-based barre franchise. Financial terms weren’t disclosed.

Valedo Partners and General Atlantic are considering taking Joe & the Juice public in the U.S. toward the end of 2019, according to Bloomberg. The deal could value the company at $1.5 billion. Read more.

Oaktree Capital Management LP made an investment in Montrose Environmental Group Inc, an Orange County, Calif.-based environmental services company. Financial terms weren’t disclosed.

Allied Universal, which is backed by Wendel and Warburg Pincus, acquired U.S. Security Associates, a Roswell, Ga.-based provider of security and related services, for approximately $1 billion.

Wheel Pros, a Clearlake Capital portfolio company, acquired ReadyLIFT, a Henderson, Nev.-based manufacturer and distributor of suspension leveling products. Financial terms weren’t disclosed.

ConvergeOne Holdings Inc (Nasdaq:CVON) is exploring a sale after it attracted takeover interest from private equity firms, according to Reuters. Read more.

IPOs

Airtel Africa, the African united of wireless carrier Bharti Airtel, is reportedly delaying its IPO, Bloomberg reports citing sources. Airtel however says its IPO plans is on track. The firm has raised $1.25 billion from investors including SoftBank, Warburg Pincus, and Temasek Holdings. Read more.

360 Finance, a Shanghai-based online consumer lending platform, filed for a $200 million IPO. It posted revenue of $46.7 million and loss of $25.1 million in 2017. Qihoo Technology backs the firm. Goldman Sachs and Citi are underwriters. It plans to list on the NYSE as “QFIN.” Read more.

Tiger Brokers, a Chinese based online brokerage, is planning a $200 million IPO in the U.S., Bloomberg reports citing sources. Jim Rogers and Xiaomi Corp. back the firm. Read more.

Gamida Cell, a Jerusalem, Israel-based Phase 3 biotech creating hematologic malignancies therapies, raised $50 million in an IPO of 6.25 million shares priced at $8, below its $13 to $15 range. It posted loss of $19 million in 2017. Novartis Pharma (21.6% pre-offering), Clal Biotechnology (18.6%), and Elbit Cord Blood(17.9%) back the firm. BMO Capital Markets and RBC Capital Markets are underwriters. It plans to list on the Nasdaq as “GMDA.” Read more.

EXITS

Infor acquired GitLinks, an Austin, Texas-based startup automating monitoring of open source code for security and legal and compliance updates. Financial terms weren’t disclosed. GitLinks raised approximately approximately $612,000 in funding from investors including Morgan Stanley and Newark Venture Partners.

The Jordan Company acquired Gladson LLC, a Chicago-based platform for the creation, hosting and syndication of product content, digital assets and rich content for brands. The seller was Wicks Capital Partners. Financial terms weren’t disclosed.

Altas Partners agreed to acquire Tecta America Corporation, a Rosemont, Ill.-based commercial roofing contractor, from ONCAP. Financial terms weren’t disclosed.

SHARE TODAY’S TERM SHEET

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.