STATE OF THE MARKETS
Good morning, Term Sheet readers.
In 2018, we saw funding records shatter with nearly 200 venture deals of $100 million or more in the U.S. In 2019, we might actually see exits for many of the startups responsible for last year’s mega-deals.
Although the U.S. has $500 billion worth of unicorns on paper waiting to be realized, 2019 could represent the tipping point between demand for private and public capital at the late stage, according to a new Silicon Valley Bank report.
Some interesting insights:
— Startups are better capitalized than ever before: Capital raises at every stage have more than doubled since the beginning of this decade. Here’s a crazy stat: In order to make the top 100 deals of 2018, a startup would need to have raised a nine-figure round.
— Fewer IPOs in even calmer conditions: Historically, high volatility has slowed the pace of venture-backed tech IPOs, which rely not only on first day pricing, but also on maintaining lofty valuations after a six-month lock-up. But with abundant private capital, 2016–2017 was an anomaly with relatively few IPOs despite calm markets. Also worth noting that public investors have largely agreed with private investors when it comes to unicorn valuations. Seven of the top ten billion-dollar debuts in 2018 priced and remained above their last private round.
— The era of mega-rounds isn’t over yet: Before the flurry of private capital began in 2015, the average venture-backed tech company would raise $100M in private capital ahead of their $100M public offering. Looking at the current crop of US unicorns, more than 90% have already raised at least $100M in a single private financing.
— Profitability takes a backseat: Venture-backed startups have more than doubled their average revenue base at IPO this decade. However, this scaling has come at the expense of profitability ― and few have demonstrated significantly higher revenue growth at their debut.
— San Francisco gets ready for a gold rush: A number of high-profile tech IPOs are anticipated in 2019 (finally), relieving demands for full liquidity. San Francisco may soon find itself flush with the wealth created by its venture darlings. These startups have a combined private value equivalent to all those located across the rest of the US.
FEEDBACK: Some Term Sheet reader comments after my column on Munchery yesterday:
• “Excellent article on the damage that is inflicted when these companies are just [instructed to] “Run Full Speed Into the Wall” by their management teams and VCs. The handwriting is usually on the wall that a company is not going to make it. (You never walk in one day and suddenly it’s all over.) You can see the trends and the cash flow estimates that should give responsible people 3-4 months to wind something down in a responsible manner. Give staff 1) appropriate warning and pay-out schedules for any deferred vacation time; 2) health insurance coverage for 3-6 months; 3) use of the office space to job hunt for 60-90 days 4) pay all legitimate receivables etc. The corollary is that all these smaller service/product suppliers should be much tougher with all/any startups by tightly enforcing 30 day receivable cycles, escrow accounts etc.”
• “As usual, there are two sides to every story. Ms. Estrada needs to be smarter in her management of customers especially if they are VC backed. It would appear that Three Babes and other vendors used poor business practices and did not know their customer. If they did, they would have NOT extended credit terms and would have moved Munchery to a cash in advance or pay at delivery basis. That said, the VCs bailed on their moral fiduciary duty as investors and board members.”
• “This is an expensive lesson, but small businesses should not sell things on credit B2B if they can’t cover the loss. It’s bankrupted many many small operators for centuries. Equity holders are not responsible for biz liabilities. Don’t take promises for payment if it’ll kill you.”
• “Maybe there is an insurance product to be built here? What if there was 1099 insurance where people paid a premium to make sure that if their 1099 revenue stream went bankrupt, an insurance provider would pay a portion of that receivable?”
CONFIDENCE: A reminder that Term Sheet has teamed up with Semaphore on its 11th annual confidence survey of private equity and venture capital professionals. Final call to take the survey here, and I’ll publish the results early next month.
• Uplift, a fintech travel company, raised $123 million in Series C funding. Madrone Capital Partners led the round, and was joined by investors including Draper Nexus, Ridge Ventures, Highgate Ventures, Barton Asset Management and PAR Capital.
• Stripe, an online payments company, raised $100 million in funding at a $22.5 billion valuation from Tiger Global Management.
• RigUp, an Austin, Texas-based marketplace for on-demand services and labor for the energy industry, raised $60 million in Series C funding. Founders Fund led the round, and was joined by investors including Quantum Energy Partners, Global Reserve Group and Bedrock Capital.
• Billd, an Austin, Texas-based fintech startup, raised $60 million in funding, from LL Funds.
• Socati, a Woodburn, Ore.-based hemp company, raised $33 million in funding. Investors include JJR Private Capital Inc.
• MycoTechnology, an Aurora, Colo.-based provider of an organic food processing platform, raised $30 million in Series C funding. Investors include S2G Ventures Fund II, L.P., Middleland MT Holdings, LLC, ADM Capital’s Cibus Fund, Tysons Ventures and Eighteen94 Capital LLC.
• Guardsquare, a security company focused on protecting complex mobile applications, raised $29 million in funding. Investors include Battery Ventures.
• Fortanix, a Mountain View, Calif.-based runtime encryption solutions provider, raised $23 million in Series B funding. Intel Capital led the round, and was joined by investors including Foundation Capital and Neotribe.
• Ironclad, a contract management leader that streamlines legal workflows for companies, raised $23 million in Series B funding. Sequoia Capital led the round, and was joined by investors including Accel and Y Combinator.
• Simplus, a Sandy, Utah-based provider of quote-to-cash solutions, raised $20 million in Series C funding. Kensington – SV Global Innovations LP led the round, and was joined by investors including Savano Capital Partners, Salesforce Ventures, Cross Creek Advisors, EPIC Ventures and University Growth Fund.
• Aporeto Inc, a San Jose, Calif.-based cloud-native security company, raised $20 million in Series B funding. Comcast Ventures led the round, and was joined by investors including Wing VC and Norwest Venture Partners.
• dv01, a New York City-based hub between lenders and capital markets, raised $15 million in Series B funding. Pivot Investment Partners led the round, and was joined by investors including Regions Financial Corp, Quantum Strategic Partners Ltd, Jefferies Financial Group Inc, Illuminate Financial Management and OCA Ventures.
• Stateless, a Boulder, Colo.-based company focused on network connectivity, raised $11.33 million in Series A funding. Drive Capital led the round, and was joined by investors including Speedinvest.
• Zingle, a San Diego-based business-to-customer messaging solution for the hospitality industry, raised $11 million in funding. PeakSpan Capital led the round.
• GT Medical Technologies, Inc., a Tempe, Ariz.-based developer of medical therapies for the treatment of brain tumors, raised $10 million in Series A funding. MedTech Venture Partners led the round, and was joined by investors including BlueStone Venture Partners.
• Avinew, a Westlake Village, Calif.-based insurtech company focused on autonomous and semi-autonomous vehicles, raised $5 million in seed funding. Crosscut Ventures led the round, and was joined by investors including American Family Ventures, Draper Frontier and RPM Ventures.
• CherryCircle Software, a company developing novel solutions for pharmaceutical process development, raised $2.3 million in seed funding. Investors include ATX Seed Ventures, PLH Business Ventures, and Hudson Park Capital.
• Dadi, a men’s health company focused on sperm storage and fertility testing, raised nearly $2 million in funding. Investors include Third Kind Ventures and firstminute capital.
• TRM Labs Inc., a San Francisco-based token relationship management company, raised $1.7 million in seed funding. Blockchain Capital led the round, and was joined by investors including Tapas Capital, Green D Ventures, and The MBA Fund.
PRIVATE EQUITY DEALS
• EnCap Flatrock Midstream invested $300 million in Clear Creek Midstream, a Houston-based energy company.
• CID Capital and ORIX Mezzanine & Private Equity acquired Giftcraft, a Toronto-based provider of fashion, decor, giftware, health, wellness and gourmet consumer products. Financial terms weren’t disclosed.
• OpenGate Capital agreed to acquire Sargent and Greenleaf, a Nicholasville, Ky.-based maker of electronic locks, from Stanley Black & Decker. Financial terms weren’t disclosed.
• Colony Hardware Corporation, a portfolio company of Audax Private Equity, acquired Electrical Fasteners Co Inc, a Mokena, Ill.-based provider of tools, fasteners, and equipment to contractors serving infrastructure and commercial construction end markets. Financial terms weren’t disclosed.
• BV Investment Partners acquired a majority stake in RKD Group, a Dallas-based provider of omnichannel fundraising and marketing services for the nonprofit sector. Financial terms weren’t disclosed.
• Silver Oak Services Partners LLC recapitalized Keystone Partners, a Boston-based provider of outplacement, career management, executive coaching, and leadership development services. Financial terms weren’t disclosed.
• eMDs, a portfolio company of Marlin Equity Partners, acquired Aprima, a Richardson, Texas-based provider of electronic health record, practice management software and revenue cycle management solutions to ambulatory care organizations. Financial terms weren’t disclosed.
• Addison Group, which is backed by Odyssey Investment Partners, acquired DLC Group, a Los Angeles-based finance and accounting consulting and staffing firm. The seller was Gryphon Investors. Financial terms weren’t disclosed.
• Madison Dearborn Partners and CoVant Management agreed to sell LGS Innovations, a Herndon, Va.-based provider of command, control, and cyber products, to CACI International Inc for $750 million.
FIRMS + FUNDS
• TCV, a Menlo Park, Calif.-based private equity and venture capital firm, raised $3 billion for its fund TCV X.
• The Carlyle Group (NASDAQ:CG) raised €1.35 billion ($1.5 billion) for CETP IV.
• Partech, a Paris-based private equity and venture capital firm, raised €125 million ($143 million) for its Partech Africa fund.
• HCAP Partners promoted Bhairvee Shavdia to senior associate.
• Kareem Aly was promoted to principal at Thomvest Ventures.