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Why Investment Giant Carlyle Group Is Becoming a C-Corp: Term Sheet

A general view of the lobby outside of the Carlyle Group offices in WashingtonA general view of the lobby outside of the Carlyle Group offices in Washington

Carlyle Group is moving to a ‘one vote, one share’ model. The investment giant said it will abandon its existing partnership structure and become a corporation with a single class of shares. 

This model will give shareholders a bigger say in how it’s run. 

Private equity firms that have gone public have typically done so as partnerships, which saved on taxes but precluded them from being included in major stock indexes like FTSE Russell’s and the S&P 500. Carlyle’s private equity peers KKR, Blackstone, Ares Management Corp, and Apollo Global Management have already made the switch to so-called C-corporations. Carlyle is unique in that it will become the first U.S. private equity firm to hold shareholder votes.

KKR converted last summer. Under the C-Corp structure, it meant that KKR would pay corporate taxes on all revenue. However, the additional tax burden had become less severe after the headline U.S. corporate tax rate was lowered to 21% from 35%.

“The path we’ve chosen is differentiated and positions us in the best way to drive long-term value,” said Carlyle Co-CEOs Kewsong Lee and Glenn Youngkin. “It improves our trading liquidity, makes us more attractive to new investors, provides a fixed dividend that enables improved capital allocation and offers an attractive yield, and enhances shareholder alignment under a new one-share/one vote governance model.”

‘FINALLY, IPOs:’ Silicon Valley Bank’s Q3 State of the Markets report starts off like this: “Finally, The IPOs We’ve Been Waiting For!” It’s no secret that 2019 has brought about some serious anxiety: trade turmoil and tariffs, fears of slowing global growth, increased regulatory scrutiny and an inverted yield curve. Yet companies continue to go public and markets continue to reach new heights.

Here are some interesting insights from the report:

— Capital is becoming concentrated in funds greater than $1 billion in size—representing just under 40% of all fundraising in 2018. So VCs need to pick one of two strategies: raise larger funds or pick a specific focus. 

— Despite being only 3% of total venture deals, family offices are willing to accept longer holding periods and to invest in underserved areas. In 2018, 38% of family offices were involved in sustainable investing, with 45% planning to increase their level of investment going forward.

— Today’s aspiring public tech company typically has raised significantly more capital and boasts much higher revenues. VC-backed tech IPOs hit $230 million in revenue in the first half of 2019, and raised $174 million in equity in the same period.

See the full report here. 

WHAT GETS APPROVED: Two sexual wellness startups — Unbound and Dame Products — have teamed up to bring more awareness to Facebook’s advertising guidelines that they claim cater to the sexualities of men versus women, trans and gender non-conforming people. They have launched a digital campaign to bring awareness to the issue and will be staging a protest outside of Facebook’s New York headquarters. 

Facebook’s policy prohibits the promotion of the sale or use of adult products or services except for ads that pertain to family planning and contraception. The policy also states that ads for contraceptives cannot focus on sexual pleasure. Dame Products CEO Alexandra Fine argues that “functionality only matters for one sex.”

“I think one of the most frustrating things is trying to raise a round and getting pushback around where you’ll spend the money,” Unbound CEO Polly Rodriguez told TechCrunch. “It’s just tough because it’s this vicious cycle where we could be growing at the same rate as a Hims or a Roman. It’s definitely in the tens of millions of dollars in terms of foregone profits.”

VENTURE DEALS

Lightricks, the parent company of photo editing app Facetune, raised $135 million in Series C funding at a post-money valuation of $1 billion. Investors include Goldman Sachs Private Capital Investing and Insight Partners.

Attabotics, a Canada-based 3D robotics supply chain company, raised $25 million in Series B funding. Investors include Coatue, Comcast Ventures, Honeywell Forerunner Ventures and Werklund Growth Fund

Vymo, an India-based developer of software for sales automation and field force productivity, raised $18 million in Series B funding. Investors include Emergence Capital and Sequoia India.

Ordermark, a provider of online ordering management solutions for restaurants, raised $18 million in Series B funding. Foundry Group led the round, and was joined by investors including TenOneTen Ventures, Vertical Venture Partners, Mucker Capital, Act One Ventures and Nosara Capital.

Truework, a San Francisco-based identity platform designed to give employers and employees control over their own data, raised $12 million in Series A funding. Sequoia Capital led the round, and was joined by investors including Stanford University, Khosla Ventures, Menlo Ventures, and Founder Collective

Dgraph Labs, a San Francisco-based cloud-native graph database company, raised $11.5 million in Series A funding. Redpoint Ventures led the round, and was joined by investors including Bain Capital Ventures, Blackbird Ventures, Grok Ventures and Airtree Ventures.

Jobble, a Boston-based community of on-demand workers, raised $11 million in funding. Vestigo Ventures and AXA Venture Partners led the round, and were joined by investors including Guardian Strategic Ventures and Harlem Capital Partners.

Superplastic, a Burlington, Vermont-based designer toy brand, raised $10 million in Series A funding. Craft Ventures led the round, and was joined by investors including Founders Fund’s Cyan Banister, Global Village, Betaworks, Index Ventures, Canaan, and Shrug  Capital.

Prevailion, a Fulton, Md.-based cybersecurity company, raised $10 million in Series A funding. AllegisCyber led the round, and was joined by investors including DataTribe.

Altitude Networks, a San Francisco-based cloud collaboration security platform, raised $9 million in Series A funding. Felicis Ventures led the round, and was joined by investors including Slack Fund, Accomplice, and Alex Stamos. 

Aviso, a Palo Alto, Calif.-based cloud-based predictive insights software for sales management, raised $8 million in funding, bringing its Series B funding to $31 million. Storm Ventures led the extension.

Muzmatch, a Muslim-focused dating app, raised $7 million in Series A funding. Luxor Capital led the round.

DocSend, a San Francisco-based document sharing and tracking platform, raised $5 million in funding. DCM led the round.

NakedPoppy, a San Francisco-based clean beauty site, raised $4 million in seed funding. Investors include Cowboy Ventures, Felicis Ventures, Khosla Ventures, Maveron, Polaris Ventures and Slow Ventures.

Stackin’, a Los Angeles-based text-message based financial platform, raised $4 million in Series A funding. Experian Ventures, Dig Ventures and Cherry Tree Investments led the round, and were joined by investors including Social Leverage, Wavemaker Partners and Mucker Capital.

Edge Delta, a Seattle-based analytics startup leveraging federated learning in DevOps and Security, raised $3 million in seed funding. MaC Venture Capital and Amity Ventures co-led the round.

MyPorter, an Atlanta-based valet storage startup, raised $2.2 million in funding. Investors include Wes Matelich and Ken Haines.

Gatsby, a New York-based commission-free options trading platform, raised $1.5 million in seed funding. Investors include SWS Venture Capital, Plug and Play Ventures and Irish Angels. 

Ciara, a Germany-based virtual assistant for inside sales representatives, raised seed funding of a “seven-digit” amount. UVC Partners led the round.

HEALTH AND LIFE SCIENCES DEALS

Quanta Dialysis Technologies Ltd, a U.K.-based developer of a personal haemodialysis system for patient use in the clinic and the home, raised $48 million in funding. Investors include btov Partners, Wellington Partners and Seroba Life Sciences.

PRIVATE EQUITY DEALS

Arcline Investment Management made an investment in Dark Horse Consulting Group, a Campbell, Calif.-based consultancy practice specializing in cell and gene therapy product development. Financial terms weren’t disclosed. 

IPOs

Dynatrace Holdings, a Waltham, Mass.-based enterprise cloud platform, plans to raise $499 million in an initial public offering of 35.6 million shares (5% insider sold) priced between $13 to $15, an upsized IPO. The firm posted $431 million in revenue for the 12 months ended March 2019 and loss of $166.2 million. Thoma Bravo Fund backs the firm. It plans to list on the NYSE as “DT.” Read more.

Capricorn and Golden Grove, mines in Australia, may IPO as a single company alongside other copper mining assets owned by EMR after 2019. EMR backs both firms. Read more.

Central Group, a Thai family conglomerate that helped introduce shopping malls to Bangkok, plans to list its Central Retail unit in a deal valued at between $1 billion to $2 billion. Central Retail combines its businesses in Vietnam, Italy, and Thailand. Read more.

EXITS

Microsoft acquired BlueTalon, a Redwood City, Calif.-based provider of unified data access control solutions for modern data platforms. Financial terms weren’t disclosed. BlueTalon had raised approximately $27.4 million in funding from investors including Maverick Ventures, Arsenal Venture Partners, Signia Venture Partners, Data Collective, Divergent Ventures, Bloomberg Beta and Stanford-StartX Fund.

Arsenal Capital Partners acquired Seal For Life Industries LLC, a Franklin, Mass.-based provider of corrosion protection and sealing solutions, for $328 million. Berry Global Group Inc was the seller.

Aurora Resurgence sold LandCare, a Frederick, Md.-based provider of landscape maintenance services, to the company’s management team and a small group of investors led by Scott Brickman, former CEO of the Brickman Group. Financial terms weren’t disclosed. 

Equistone Partners Europe Limited agreed to acquire a majority stake in Bulgin, a U.K.-based developer and manufacturer of environmentally sealed high-performance engineered solutions, from Elektron Technology PLC for £105 million ($128 million).

CVC Capital agreed to acquire Ontic, a Chatsworth, Calif.-based provider of parts for aerospace platforms, from BBA Aviation plc. The deal is valued at $1.365 million.

FIRMS + FUNDS

Obvious Ventures, a San Francisco-based venture capital firm, raised $154.3 million for its third venture capital fund.

PEOPLE

Shawn Xu joined Floodgate as a senior associate.

Origin Ventures promoted Scott Stern and Prashant Shukla to vice president, and Devon Leichtman to director of platform.