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The Case For (and Against) Investing in WeWork: Term Sheet

In the case that you can bear yet another WeWork-themed Term Sheet, I’ve got one for you. 

My colleague Lucinda Shen lays out both the bull and bear case on investing in the co-working behemoth. She notes that most people predict WeWork will change the world as we know it—or be a money-losing disaster—seemingly with little middle ground.

One Term Sheet reader recently wrote: “Very curious to see how WeWork and Peloton end up as public companies. My belief is that both are way overvalued, which seems to help many of venture investors (especially Softbank) that get to show an increase in value on their earlier round investments. Let's see if they and others ever reach profitability. I'm sure it's been told, but it would be a great story to evaluate the dynamics between the VCs and new public company institutional investors. Seems like quite an imbalance here, as the new investors buy over valued and risky stock that is subject to wild swings in the future and the VCs look to get out after the lock out period.”

WeWork, of course, has the perfect ingredients for debate: A sky-high valuation, a lack of profits, impressive growth, and an unconventional, effusive founder.

One big risk factor that WeWork clearly outlined in its S-1 that I don’t hear too much commentary about is that too much lies in the hands of its CEO Adam Neumann (who is mentioned 65 times in the filing). The S-1 explains that WeWork’s future success depends in large part on him continuing to serve as CEO, “which cannot be ensured or guaranteed.” 

It goes on to say: “Adam has been key to setting our vision, strategic direction and execution priorities. We have no employment agreement in place with Adam, and there can be no assurance that Adam will continue to work for us or serve our interests in any capacity.”

As Lucinda explains in the article:

Neumann's control comes with real cost. As payment for a dual-class share structure, shares of the We Company will be excluded from major indices including the S&P 500—meaning popular index fund won't buy "WE" shares. Moreover, the traditional checks-and-balances traditionally imposed on companies between the CEO and his or her board dissolves with the dual-class share structure, with the CEO holding the ability to appoint directors.

Oh, and let’s not forget this interesting nugget of information:

And unlike a growing number of companies that have begun imposing clauses limiting the length of time a founder controls a company even in a dual-class setting, WeWork has made an unusual move to ensure control remains in the family: In the event that Neumann can no longer serve as CEO before 2029, his wife, Rebekah Neumann, will work with two board members to pick a successor, the S-1 filing specifies.

Read the full story here.

UNDERVALUED: Eminence Capital, which has a 4.4% stake in Just Eat, will oppose the company’s proposed $11 billion merger with Takeaway.com saying the deal undervalued Just Eat. Eminence claimed said the merger had a sound strategic rationale but the financial terms of the deal were “grossly inadequate to Just Eat shareholders.” Read more.

FIGHTING THE CRYPTO CRACKDOWN: According to a report in The Wall Street Journal, Andreessen Horowitz held a private conference in May that hosted officials from the United States Treasury Department and representatives from a number of regulatory agencies.

In his opening remarks, Marc Andreessen reportedly made parallels between the current state of the crypto industry and the early days of the Internet. Crypto, he said, could solve some of the Internet’s biggest challenges, including privacy threats, if Washington would adopt a less stringent form of regulation.

But the response from Washington wasn’t as warm as anticipated. J. Christopher Giancarlo, who was chairman of the Commodity Futures Trading Commission until stepping down in July, said he warned Andreessen Horowitz that regulation of crypto couldn’t be brushed aside. “Some of the things you learned from your older VCs, this won’t transfer,” he told the WSJ. 

You may remember that in April, Andreessen Horowitz made the decision to come under SEC oversight for the first time, giving up the exemption that allows venture capitalists to avoid regulation. The firm wanted to raise a $350 million fund focused on the crypto sector with holdings that could exceed an allowance for investing in assets other than stock issued in private deals.

On Thursday, Andreessen Horowitz released some audio from that very event, which you can listen to here. Marc Andreessen makes the point that basically the crypto cat is out of the bag, and: “I think there’s the opportunity here for enlightened policy that helps set the right guidelines and the right guardrails, but fundamentally enables American businesses to win these markets.” 

Feel free to email me at polina.marinova@fortune.com with your thoughts on how tightly regulated you believe cryptocurrencies should be — or whether they should be regulated at all. Please elaborate. (Note that your responses may be used in a future Term Sheet with only your first name.) 

QUOTE OF THE DAY: “Just back from Burning Man. Reminds me of Woodstock with better art (installations) and less good music. What a great vibe and what amazing creativity! — Ray Dalio at Burning Man

VENTURE DEALS

OpenGov, a Redwood City, Calif.-based provider of enterprise cloud solutions for government, raised $51 million in Series D funding. Weatherford Capital and 8VC co-led the round, and were joined by investors including Andreessen Horowitz.

Credit Sesame, a Mountain View, Calif.-based consumer credit health management platform, raised more than $43 million in equity and debt funding. ATW Partners led the round.

Baton Systems, a Fremont, Calif.-based provider of blockchain-inspired, bank-to-bank payments infrastructure, raised more than $12 million in Series A funding. Trinity Ventures led the round, and was joined by investors including Alsop Louie and Commerce Ventures.

SmartBeat, a Salt Lake City, Utah-based provider of infant monitoring system solutions, raised seed funding of an undisclosed, from Ideaship.

HEALTH & LIFE SCIENCES DEALS

MGB Biopharma, a Scotland-based biopharmaceutical company, raised funding of an undisclosed amount. Archangel Investors led the round, and was joined by investors including Scottish Investment Bank, Barwell and TriCapital Investors.

PRIVATE EQUITY DEALS

CPS Performance Materials, a portfolio company of Arsenal Capital Partners, acquired GEO Specialty Chemicals, an Ambler, Penn.-based supplier of specialty chemicals for customers. Financial terms weren’t disclosed. 

AE Industrial Partners acquired Triman Industries, Inc, a West Berlin, N.J.-based distribution, supply chain and repair management business. Financial terms weren’t disclosed. 

Waud Capital Partners acquired Health & Safety Institute, a Eugene, Ore.-based industry-leading compliance and training technology platform. Financial terms weren’t disclosed. 

IPOs

SmileDirectClub, a Nashville-based seller of teeth straightening products, plans to raise $1.2 billion in an IPO of 58.5 million shares priced between $19 to $22. The firm posted $423 million in revenue for 2018 and loss of $74.8 million. David Katzman and Clayton Dubilier & Rice back the firm. It plans to list on the Nasdaq as “SDC.” Read more.

EQT, a Swedish buyout group, plans to raise at least  €500 million ($547 million) in fresh equity that could value it at about €4 billion ($4.4 billion). Read more.

CloudFlare, a San Francisco-based web performance and security company, plans to raise $385 million in an IPO of 35 million shares priced between $10 to $12. The firm posted revenue of $192.7 million in 2018 and a loss of $87.2 million. Fidelity, Venrock, NEA, and Pelion Ventures back the firm. It plans to list on the NYSE as “NET.” Read more.

Blued, a Chinese gay-dating app, is planning a $200 million IPO in the U.S., Bloomberg reports citing sources. Read more.

SpringWorks Therapeutics, a Stamford, Conn.-based biotech for rare cancers, plans to raise $125 million in an IPO of 7.4 million shares priced between $16 to $18. The firm has yet to post a revenue and posted a loss of $17.8 million in 2018. Pfizer, Bain, OrbiMed, and Perceptive Life Sciences back the firm. It plans to list on the Nasdaq as “SWTX.” Read more.

IGM Biosciences, a Mountain View, Calif.-based biotech firm developing antibody therapies for cancer, plans to raise $125 million in an IPO of 7.8 million shares priced between $15 to $17. The firm posted q loss of $22.7 million in 2018 and has yet to post a revenue. Haldor Topsøe Holding, Baker Bros., Janus Capital, and Redmile Group back the firm. It plans to list on the Nasdaq as “IGMS.” Read more.

Uhuru, a Japanese IoT firm, plans to raise $50 million in London, Reuters reports, citing sources. Softbank  backs the firm. Read more.

EXITS

Kabbage acquired Radius Intelligence, a marketing technology firm with database housing information on some 20 million small and medium businesses in the US. Financial terms weren’t disclosed. Radius had raised approximately $120 million from investors including Founders Fund, David Sacks, Salesforce Ventures, AME Cloud Ventures, and Jared Leto.

Smartbear, which is backed by Francisco Partners, acquired Bitbar, a Finland-based provider of cloud-based mobile app testing solutions. Financial terms weren’t disclosed. Bitbar had raised approximately $3 million in venture funding from investors including Inventure, Qualcomm Ventures, Draper Esprit, Creathor Ventures, Nordic Venture Partners, and Avera Pharmaceutical. 

Avista Capital Partners acquired GCM Holding Corporation, a Union City, Calif.-based supplier of manufacturing services, from May River Capital.

FIRMS + FUNDS

L Catterton, a Greenwich, Conn.-based private equity firm, set a $4 billion target for its ninth flagship fund, according to an SEC filing. Read more.