Why China Ride-Hailing Giant Didi Chuxing Is Spinning Out Its Autonomous Driving Unit: Term Sheet

Didi claims the new company will “integrate the resources and technological advantages of Didi’s platform, continue to increase investment in R&D of core innovative technologies, and deepen collaboration with upstream and downstream auto industry partners.” 

That’s company jargon for: “We realized it will take a lot more money, time, and resources to develop a cost-effective autonomous vehicle than we initially thought.” The company is reportedly in talks with SoftBank to raise funding for the new unit. 

You may remember that in March, it was reported that Waymo, Alphabet’s autonomous vehicle unit would raise outside capital for the first time. “The efforts suggest Alphabet wants to limit how much money it invests in the division, and show how valuable other parties believe it to be,” read a report in The Information. Right now, Alphabet is reportedly spending at least $1 billion per year on the self-driving division.

In July, Volkswagen agreed to invest approximately $2.6 billion in Ford’s autonomous vehicle partner, Argo AI, in a deal that values the Pittsburgh-based startup at a whopping $7 billion. The collaboration between the automakers was viewed as a major step forward in self-driving car technology, but it was also an acknowledgment that this technology is costly and it requires lots of capital and lots of patience.

The autonomous vehicle war is very much a money war. The company with the most willingness to spend will be able to outlast any rival who isn’t willing to shell out the cash necessary to fund the innovation. So hence the spin-offs. Outside funding can help cut costs for the parent companies while simultaneously working with deep-pocketed partners and forming alliances that will pay off in the (very expensive) future. 

FEE POOL: WeWork is close to naming JPMorgan Chase and Goldman Sachs to lead its initial public offering next month, according to Bloomberg. Earlier this week, WeWork was poised to carve out 2.5% to 3% of the total money raised via the IPO to pay underwriter fees. That portion under discussion has since climbed to 3.5%, according to the story. Read more.

FALL FROM GRACE: The SEC alleges that former Silicon Valley venture capitalist Mike Rothenberg misappropriated roughly $19 million in investor funds. “The very month he was informed of the SEC investigation, Rothenberg raised and misappropriated, $1.3 million,” the SEC document states. 

Another interesting tidbit from the document:

“With his investors out $18.8 million due to his misappropriation, bank records reveal that in 2018 and early 2019, Rothenberg nevertheless gave $30,000 to the Stanford University Athletics Department and spent thousands of dollars on ballet tickets.”

Ballet tickets. Nice.

12 NEW UNICORNS: In July, a total from 12 startups passed the coveted $1 billion valuation mark, making it the busiest month for new unicorns in 2019. They include Monday.com, Hippo Insurance, Sonder, and Turo. See the full class of unicorns at PitchBook.

VENTURE DEALS

- Built In Inc, a Chicago-based tech hub, raised $22 million in Series C funding. Updata Partners led the round, and was joined by investors including MATH Venture Partners. 

- Yoti, a London-based digital identity startup, raised 8 million pounds ($9.7 million) in funding. The investors were not named.

- NextStep Interactive, a Seattle and Bozeman, Montana-based startup that aims to help displaced workers retrain for health care careers, raised $3 million in funding. Investors include SEI Ventures, JAZZ Venture Partners, Learn Capital, Springrock Ventures, City Light Capital and Frontier Angels. NextStep is a spinout of Pioneer Square Labs.

- Dumpling, a Berkeley, Calif.-based company that helps gig workers run their own franchises, raised $3 million in funding. Investors include Floodgate and FUEL Capital.

- ePayRails, a Jacksonville, Fla.-based fintech payment service as a provider, raised $2.45 million in Series A funding. Aspire Fund Management led the round.

- Sheets & Giggles, a Denver-based bedding brand, raised $1.3 million in seed funding. Rockies Venture Club led the round. 

PRIVATE EQUITY DEALS

- Guidehouse, a portfolio company of Veritas Capital, agreed to acquire Navigant Consulting Inc (NYSE:NCI), for approximately $1.1 billion. 

- Surge Private Equity made an investment in Hippodrome Services Group, a New York City-based provider of outsourced laundry and dry-cleaning services. Financial terms weren't disclosed. 

- Restoration + Recovery, which is backed by DFW Capital, acquired the assets of DGC Environmental Services Inc, a Fort Pierce, Fla.-based provider of stormwater services. Financial terms weren't disclosed. 

- Linden Capital Partners acquired Collagen Matrix Inc, an Oakland, N.J.-based maker of collagen-based medical products used for tissue and bone repair and regeneration across orthopedic, sports medicine, dental, and neurosurgery end markets. Financial terms weren't disclosed. 

- Apax Partners agreed to acquire a majority stake in ADCO Group, a Germany-based company focused on portable sanitary solutions. Financial terms weren't disclosed. 

- Mill Rock Capital Management LP made an investment in Venture Metals, LLC and SI Metallics, LLC. Venture Metals has also acquired Versatile Processing Group, Inc, Indianapolis, Ind.-based provider of transformer recycling, repair, and disposal services. Financial terms weren't disclosed. 

- Shermco Industries, Inc, which is backed by Gryphon Investors, acquired Southwest Energy Systems, a Phoenix, Ariz.-based provider of third-party electrical testing and engineering services for commercial electrical systems. Financial terms weren't disclosed. 

- Sample Preparation Technologies, a portfolio company of Battery Ventures, agreed to acquire Quantifoil Micro Tools GmbH, a Germany-based manufacturer of specialty support foils for electron-microscopy applications.

IPOs

- CrossFirst Bankshares, a Leawood, Kansas-based bank with seven locations, plans to raise $116 million in an IPO of 7.1 million shares (24% insider sold) priced between $15 to $17. The firm posted interest income of about $156.9 million and net income of $17.5 million in 2018. First Security Bancorp backs the firm. It plans to list on the Nasdaq as “CFB.” Read more.

- Endeavor Group, the company behind Hollywood’s largest talent agency, plans to delay its IPO until September at the earliest, the Wall Street Journal reports, citing sources. Endeavor is reportedly close to acquiring On Location Experiences, a live-experiences company, for as much as $700 million. Read more.

EXITS

- Reliance Industries will acquire an 87.6% stake in Fynd, a Mumbai-based startup that connects brick and mortar retailers with online stores and consumers, for 2.95 billion Indian rupees ($42.33 million). Fynd had raised approximately $7.3 million in venture funding from investors including Google, IIFL, Venture Catalysts, Axis Capital Partners, Singularity Ventures, and Kae Capital.

- Genstar Capital will acquire a majority stake in OEConnection, a Richfield, Ohio-based automotive technology provider for OEM distribution networks, from Providence Equity Partners.

- Eurazeo acquired Elemica, a Wayne, Penn.-based digital supply network. Financial terms weren't disclosed. Sellers include Thoma Bravo. 

- Wind Point Partners sold Evans Food Group, a Chicago-based producer of branded and private label pork rinds, to Highlander Partners.

FIRMS + FUNDS

- Nyca Partners, a New York-based venture capital firm, raised $210 million for its third fund.

PEOPLE

- Greylock Partners named Saam Motamedi a general partner.

- Sumeru Equity Partners promoted Vinay Kumar to vice president and Jack McCabe to senior associate. Sumeru also hired Jialin Zhang and Jamol Williams as associates.

- Sorenson Ventures named Chris Downer as a principal.

- Brian Strachan left his role as growth equity investor at Providence Equity Partners.