HOPING FOR A MARKET DIP
Happy New Year, Term Sheet readers.
Appreciate some of you who were concerned enough to message me with a “Where you at?” or the Term Sheet reader with the simple “… Polina, you there?” We took a much-needed break over the holidays, but don’t worry, I still woke up on Christmas Day at 10:20 a.m. in a state of panic & worry that I hadn’t sent Term Sheet yet. Now, we’re back with your regularly scheduled programming.
In December, Term Sheet published readers’ business-related predictions for 2019. Many of you predicted a recession is around the corner. In a New York Times report published yesterday, it appears that a growing number of venture capitalists are not complaining — VCs are actually rooting for a market dip in hopes to calm the overheated startup environment.
This doesn’t come as a surprise to anyone remotely paying attention to the tech industry at the moment. In 2018, it felt like there was a company raising a mega-round every other day. July set an an all-time record for the number of $100 million+ venture deals struck in a single month. And then remember December 18 when five companies raised $100M+ rounds in a single day? In other words, dealmaking is getting expensive.
It seems that many entrepreneurs have adopted the mentality that capital can act as a differentiator. Armed with a war chest of funding, startups can attract more talent, acquire smaller players, market aggressively, capture customers, and blow past its rivals.
Of course, this strategy is often critiqued because bombshell amounts can inflate already-inflated tech valuations, while also pumping hundreds of millions of dollars into startups that don’t necessarily need it. Which brings us to present day — a time where VCs are wishing for a market downturn.
This reminds me of a Term Sheet Q&A I did with Romulus Capital founder Krishna Gupta, in which he told me we’re living in an insatiable time. He launched his firm in 2008, when venture capital looked very, very different. The talent was more clustered and the valuations were more realistic.
He used the following example: In 2008, founders went out to raise $2 million and ended up raising only $500,000. Today, they go out to raise $2 million, and it’s not uncommon for them to end up with $5 million. “The most important thing for founders to know is that this won’t last forever,” he told me.
At the time, I was skeptical. I wondered — As much as we blast companies for raising more than they need, sub-optimally spending their resources, and ruining their cultures in the meantime, were we even at the peak yet? As we came to find out, 2018 proved we weren’t.
So that leads us to 2019. Sure, U.S.-based VC firms might be hoping for a cooling of the markets, but does that matter so long as we have SoftBank’s yet-unspent Vision Fund? And let’s not forget the massive global sovereign wealth funds that are just now joining the game. There are also the investor darlings — Alibaba and Tencent — that have morphed into powerful investors in their own right.
A recession might be looming, but I’m not convinced that will be the solution the venture industry is longing for.
CONFIDENCE: Term Sheet has teamed up with Semaphore on its 11th annual confidence survey of private equity and venture capital professionals. In the past, hundreds of you have chimed in with your confidence levels for the year ahead. I encourage you all to take the survey here. The results will be published here early next month. Thanks in advance.
THE LATEST FROM FORTUNE…
• U.S. Gov Shutdown Costing Private-Sector Contractors $245 Million Every Day (by Grace Dobush)
• Sears Is Said to Prep for Possible Liquidation as ESL Bid Fails
• How CES Will Show Off a Future That Never Quite Arrives (by Adam Lashinsky)
• How the British Government Is Rehearsing Worst-Case Brexit Scenarios (by David Meyer)
The story of the Jimmy John’s sandwich empire. How Duolingo made you addicted to learning. Hollywood is buying up hit podcasts. Want to divorce your private equity manager? Good luck. Rapper 2 Milly has sued the maker of the Fortnite video game over dance moves. Tesla broke ground on its $2 billion Shanghai Gigafactory.
• Boom Supersonic, a Denver-based aerospace startup, raised $100 million in Series B funding. Investors included Sunstone Management and Y Combinator Continuity.
• Mindstrong Health, a Los Altos Hills, Calif.-based healthcare innovation company dedicated to mental health, raised $31 million in Series B funding. General Catalyst led the round.
• Tidelift, open source monetizations startup, raised $25 million in Series B funding. General Catalyst, Foundry Group, and former Red Hat Chairman and CEO Matthew Szulik co-led the round.
• WithMe Health, a Boston-based medication guidance company, raised $20 million in funding, from Oak HC/FT.
• Vengo Labs, a Long Island City, N.Y.-based ad tech company, raised $7 million in Series B funding. Arcade Beauty led the round, and was joined by investors including SPINS, Bill Apfelbaum, and Kensington Capital.
• Synapse Technology, an artificial intelligence security and defense company, raised $6 million in seed funding. Investors include Village Global, Founders Fund and 8VC.
• Babyscripts, Inc., a virtual care platform for managing obstetrics, raised $6 million in funding. Philips led the round, and was joined by investors including StartUp Health and NueCura Partners.
HEALTH AND LIFE SCIENCES DEALS
• Verily, a South San Francisco-based life sciences company, raised $1 billion in funding. Silver Lake led the round, and was joined by investors including Ontario Teachers’ Pension Plan.
• 10x Genomics, a Pleasanton, Calif.-based developer of integrated systems for genome sequencing, exome sequencing, and single cell transcriptomics, raised a $35 million Series D extension. Meritech Capital led the round, and was joined by investors including Fidelity and Wells Fargo.
• Vyome Therapeutics Inc., a clinical-stage specialty pharmaceutical company developing novel medicines for treating skin diseases, raised $22 million in funding. Iron Pillar led the round, and was joined by investors including Perceptive Advisors, Romulus Capital and Kalaari Capital.
PRIVATE EQUITY DEALS
• KKR will invest $1 billion in Altavair AirFinance, a principal investment firm specializing in aviation finance. Financial terms weren’t disclosed.
• AlertMedia, a provider of emergency communication software provider, raised $25 million in funding from JMI Equity.
• Aspect Software, Inc, a Phoenix, Ariz.-based provider of customer engagement, workforce optimization, and self-service solutions, agreed to be acquired by Vector Capital.
• TA Associates invested in Behavioral Health Works, an Anaheim, Calif.-based behavioral health services provider specializing in therapy and ancillary services for children with autism spectrum disorder and related disorders. Financial terms of the transaction were not disclosed.
• Pueblo Mechanical & Controls, which is backed by Huron Capital, acquired Commercial Air Inc, a Phoenix-based provider of air conditioning, refrigeration and heating systems. Financial terms weren’t disclosed.
• Atlas Holdings LLC acquired Saxco International, a Concord, Calif.-based provider of rigid packaging to the wine, spirits, craft beer and food markets. Financial terms weren’t disclosed.
• Abry Partners agreed to make an investment in Millennium Trust Company, an Oak Brook, Ill.-based provider of technology-enabled retirement services and institutional custody solutions for businesses, institutions, adviser and individuals. Financial terms weren’t disclosed.
• Amynta Group, a portfolio company of Madison Dearborn Partners, acquired ClearView Risk Holdings LLC, a Dallas- based managing general agent and wholesale brokerage. Financial terms weren’t disclosed.
• Apollo Global Management is considering a bid for all or part of General Electric’s jet-leasing business, according to Bloomberg. A sale of GE’s jet leasing unit could be valued as much as $40 billion. Read more.
• Global Savings Group acquired Pouch, a London-based money-saving browser extension, in an all-cash “7-figure” deal, plus performance-related bonuses, according to media reports. Pouch had raised approximately £380,000 ($434,901) in funding. Read more.
• DaySmart Software acquired PupKeep, a pet services cloud software company. Financial terms weren’t disclosed.
• Mr. D.I.Y., Malaysia’s largest home improvement store, is considering a $500 million IPO, Bloomberg reports citing sources. Read more.
• Poseida Therapeutics, a San Diego, Calif.-based biotech creating solutions for multiple myeloma and prostate cancer, filed for an IPO of up to $115 million. It posted revenue of $3 million in 2017, and loss of $19.7 million. Malin Life Sciences (33% pre-offering) and Longitude Venture (7.7%) back the firm. Citi, Credit Suisse, and Wells Fargo Securities are underwriters. It plans to list on the Nasdaq as “PSTX.” Read more.
• Gridiron Capital sold Quality Solutions, Inc, an asset light facilities management provider, to Cushman & Wakefield (NYSE: CWK). Financial terms weren’t disclosed.
• Anzu Partners sold Axsun Technologies, a Billerica, Mass.-based manufacturer of photonics products, to Excelitas Technologies Corp. Financial terms weren’t disclosed.
• Advent International agreed to buy a majority of Aimbridge Hospitality, a Piano, Texas-based hotel investment and management company. Financial terms weren’t disclosed. Lee Equity Partners and General Atlantic were the sellers.
FIRMS + FUNDS
• WindRose Health Investors, a New York-based private equity firm, raised $705 million for its fifth fund.
• Silversmith Capital Partners promoted Sri Rao to general partner.
• Flare Capital Partners promoted Dan Gebremedhin to partner.
• Spectrum Equity promoted Jeff Haywood to managing director, Parag Khandelwal to principal, Adam Gassin to vice president and Maureen Sullivan to investor relations manager.