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What Happens When ‘Fake It Till You Make It’ Goes Too Far: Term Sheet for April 4, 2019

SECOND ACT

If you read the book Bad Blood or watched the HBO documentary The Inventor, both of which detail the implosion of blood testing company Theranos, you might think that there’s no way ex-CEO Elizabeth Holmes makes a comeback.

Well, think again.

My colleague Lucinda wrote a story about a founder who, like Holmes, took the adage “fake it until you make it” a little too far. Daniel Mattes, the founder of mobile payments identification startup Jumio, reached a settlement with the SEC this week. He agreed to pay more than $17 million to settle charges that he defrauded investors — allegedly overstating the company’s revenue by more than ten times in a bid to sell off his own existing shares in the company to individuals as well as funds starting in 2014.

Jumio had raised approximately $55.4 million from investors including Facebook co-founder Eduardo Saverin, Andreessen Horowitz, and Citi Ventures. Between 2013 and 2014, even as the company faced falling revenues, Mattes allegedly dramatically cooked the books. According to the commission, Mattes stated in reports to investors that Jumio’s gross revenue reached $251 million when the real figure was $17.2 million in those two years. Jumio then stated that net loss for those two periods together was $9.7 million—73% lower than the actual $36 million loss for that period, according to the SEC complaint.

And even as he sold off a portion of his stake for a roughly $14 million profit 2014, the SEC says, Mattes sought to reassure investors, telling them that there was “lots of great stuff coming up” and “(he himself) would be stupid to sell at this point.” The SEC contends that he lied to the company’s board of directors as well, telling the team that a vice president was seeking to offload the shares—not himself. At the time, the board had previously refused to let Mattes sell any more of his own stake, keen on keeping Mattes fully invested in Jumio’s success as a company. In 2016, Jumio filed for bankruptcy, making the shares Mattes had sold off worthless. Centana Growth Partners acquired what was left of the payments company shortly thereafter.

As part of the settlement with the SEC, Mattes is no longer allowed to head a publicly listed company in the U.S. But who says he can’t make a comeback elsewhere?

He has returned to his homeland, Austria, where in late 2015 he founded a startup 42.cx that seeks to commercialize A.I. He is also now a judge on the Austrian version of Shark Tank dubbed “2 Minuten 2 Millionen.”

Lucinda reports:

The Jumio case is sign that the SEC is making inroads towards overseeing a world that has often exhibited a spirit of lawlessness (think the sharing economy’s “ask for forgiveness, not permission” approach). About three years ago, then-SEC Chair Mary Jo White noted that it is “essential that the Commission fully engage with Silicon Valley,” adding that she hoped the relationship would become a “a permanent fixture.”

Read the full story here.

OFFICE MANAGEMENT: WeWork has agreed to acquire Managed by Q, a New York City-based on-demand office services startup. Financial terms weren’t disclosed, but Managed by Q had raised more than $97 million in venture funding from investors including GV, Homebrew, and RRE Ventures. It was reportedly last valued at $249 million. Managed by Q CEO Dan Teran will stay on after the acquisition, and the company, along with its 500 employees, will remain a wholly-owned separate entity.

The acquisition makes sense for WeWork as it will get exposure to Managed by Q’s clients — mostly medium and larger-size companies. The co-working giant will also expand beyond office space leases and into a platform that caters to your every need. Through Managed by Q, WeWork will be able to offer services such as IT support, plumbing, painting, catering and furniture assembly to its clients.

WeWork has also acquired several other workspace platforms such as Teem and Euclid in the last few months. The co-working giant is using its — what seems like unlimited — cash to show that it’s serious about growing and solidifying its position in the corporate world.

MO’ MONEY: Imagine having $100 billion and looking at it and thinking, “Nah, that’s not enough. I need more.” Welcome to life at Softbank. The Japanese conglomerate is reportedly in talks with investors to add as much as $15 billion more its mammoth Vision Fund.

In roughly two years, the Vision Fund has deployed more than $70 billion into tech companies including WeWork, Uber, ARM Holdings, Nvidia, DoorDash, GM Cruise, and Katerra. According to Bloomberg, Softbank wants to keep up its dealmaking spree, while leaving enough capital in the reserves to continue buying shares in companies it currently backs. It then plans to get more aggressive in its fundraising for a second Vision Fund.

This isn’t entirely surprising when you consider that it has a $100 million check size minimum, and it asks founders, “If money was not a constraint, what would you do differently in the next five to 10 years?” Softbank CEO Masayoshi Son has also talked about raising a new Vision fund every two or three years, which means he aims to invest in more than 1,000 companies over a decade.

I’m very curious to see where the capital for its future funds comes from as Softbank was under fire after it was revealed that Saudi Arabia provided more than half of the capital in its debut Vision Fund. (The CIA concluded that Crown Prince Mohammed bin Salman ordered the murder of journalist Jamal Khashoggi.) Wherever the money comes from, SoftBank will continue deploying money and founders will continue taking it. Like I’ve said before, I’m not holding my breath for someone to turn down SoftBank dollars anytime soon.

VENTURE DEALS

Affirm, a fintech company that offers installment loans to consumers at the point of sale, raised $300 million in Series F funding. Thrive Capital led the round, and was joined by investors including Fidelity, Wellington Management, Baillie Gifford, Sound Ventures, Founders Fund and Khosla Ventures.

Vertical Companies, a multi-state cannabis operator, raised $58 million in Series A funding. Investors include Merida Capital Partner.

Onfido, a London-based identity verification provider, raised $50 million in funding. SBI Investment and Salesforce Ventures led the round.

Squelch Inc, a Redwood City, Calif.-based provider of customer experience optimization solutions, raised $12 million in funding. Investors include Shasta Ventures, Correlation Ventures and Tenaya Capital.

Boost Payment Solutions, a New York City-based provider of commercial card optimization solutions, raised $12 million in Series B funding. Mosaik Partners and North Atlantic Capital led the round.

Tru Optik, a Stamford, Conn.-based provider of over-the-top data management platform, raised $10 million in funding. Mithera Capital led the round, and was joined by investors including TransUnion, Connecticut Innovations, Arab Angel Fund and Progress Ventures.

AppOmni, a San Francisco-based cybersecurity startup, raised $3 million in seed funding. Costanoa Ventures led the round, and was joined by investors including Silicon Valley Data Capital.

HEALTH AND LIFE SCIENCES DEALS

Fusion Pharmaceuticals, a clinical-stage biopharmaceutical company, raised $105 million in Series B funding. Varian and OrbiMed led the round, and was joined by investors including Perceptive Advisors, Pivotal bioVenture Partners, Rock Springs Capital, Healthcap, Adams Street Partners, Johnson & Johnson Innovation – JJDC Inc, TPG Biotech, Seroba Life Sciences, Genesys Capital and FACIT.

AgomAb, a Belgium-based biotherapeutics company, raised 21 million euros ($23.6 million) in Series A funding. V-Bio Ventures and Advent France Biotechnology led the round, and was joined by investors including Boehringer Ingelheim Venture Fund, Omnes and Pontifax.

Run:AI, an Israel-based deep learning startup, raised $13 million in funding. Investors include S Capital and TLV Partners.

OpenGamma, a U.K.-based analytics company focused on reducing the costs of trading derivatives, raised $10 million in funding. Dawn led the round, and was joined by investors including Accel, CME Ventures and Cristóbal Conde.

Zaver, a Sweden-based payments platform that facilitates peer-to-peer trades, raised more than $1.2 million in seed funding. Investors include Inventure and Inbox Capital.

PRIVATE EQUITY DEALS

Vantage Specialty Chemical Holdings Inc, a portfolio company of H.I.G. Capital, agreed to acquire Textron, a Spain-based provider of natural oils for the personal care, food and chemical industries. Financial terms weren’t disclosed.

ICONIQ Capital made an investment in Truckstop.com, a New Plymouth, Idaho-based freight marketplace. Financial terms weren’t disclosed.

TowerBrook Capital Partners invested $100 million in Studio Movie Grill, a Dallas, Texas-based in-theater dining brand.

Coretelligent, a portfolio company of VSS, acquired United Technology Group, a Duluth, Ga.-based provider of co-management technology services. Financial terms weren’t disclosed.

Horizon Capital invested in ResearchBods and Bonamy Finch, and combined the companies to form STRAT7, a customer insights group with software and data analytics capability. Financial terms weren’t disclosed.

Great Hill Partners is leading a group to invest in Custom Ink, a Fairfax, Va.-based provider of customer apparel, through a recapitalization. Financial terms weren’t disclosed.

Cache Creek Industries will partner with Rockmont Capital Partners Ltd to acquire Automated Business Power Inc, a Gaithersburg, Md.-based designer of advanced integrated communications systems. Financial terms weren’t disclosed.

Tikehau Capital and Bpifrance will invest 38 million euros ($42.67 million) in Addev Materials, a France-based industrial company that specializes in the conversion and custom cutting of high-performance materials like insulation, technical films, adhesives, foams.

OTHER DEALS

Accenture plans to buy Droga5, a New York-based independent ad agency. Financial terms weren’t disclosed. Read more.

IPOs

Tradeweb Markets, a New York-based electronic trading platform, raised $1.1 billion in an IPO of 40 million shares priced between at $27, an upsized IPO above its $24 to $26 range. Thomson Reuters and Blackstone back the firm. J.P. Morgan, Citi, Goldman Sachs and Morgan Stanley are underwriters. It plans to list on the Nasdaq as “TW.” Read more.

Ruhnn, a Chinese startup creating influencers, raised $125 million in an IPO of 10 million ADSs prices at $12.50 apiece. Taobao backs the firm. Read more.

NGM Biopharmaceuticals, a South San Francisco-based biotech developing therapies for NASH and Type 2 Diabetes, raised $107 million in an IPO of 6.7 million shares priced at $16, the high end of its range. The firm posted revenue of $77 million in 2017 and loss of $14.2 million. The Column Group (25.1%), Merck Sharp and Dohme (16.3%), and Prospect Ventures (9.1%) back the firm. Goldman Sachs, Citi and Cowen are underwriters. It plans to list on the Nasdaq as “NGM.” Read more.

Silk Road Medical, a Sunnyvale, Calif.-based maker of medical devices treating carotid artery disease, raised $120 million in an offering of 6 million shares priced at $20, an upsized IPO above its $15 to $17 range. The firm posted revenue of $34.6 million and loss of $37.6 million in 2018. Warburg Pincus (56% pre-offering), The Vertical Group (18.9%), Norwest Venture Partners (11%) back the firm. J.P. Morgan and BofA Merrill Lynch are underwriters. It plans to list on the Nasdaq as “SILK.” Read more

iHeartMedia, a San Antonio, Texas-based radio station owner, filed for a $100 million IPO. Goldman Sachs and Morgan Stanley are underwriters on the deal. Read more.

EXITS

H.I.G. Capital acquired Craig Holdings Inc, a Carlsbad, Calif.-based provider of weight loss services including meal plans, foods, and consultants. North Castle Partners was the seller.

Intervale Capital sold Epic Lift Systems, a Fort Worth, Texas-based provider of plunger lift, gas lift and complementary compression solutions, to Tally Energy Services. Financial terms weren’t disclosed.

FIRMS + FUNDS

Blackstone Group LP (NYSE:BX) raised more than $22 billion for its latest buyout fund.

ATL Partners, a New York-based private equity firm, raised $575 million for its latest fund.

DFW Capital Partners, a Teaneck, N.J.-based private equity firm, raised $500 million for its sixth fund, Capital Partners VI LP.

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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.