A hidden footnote in Nasdaq’s diversity rule says a lot about dealmaking

Late last week the SEC approved Nasdaq’s new diversity rule, aimed at upping the number of directors who are women, people of color, and members of the LGBTQ+ community. But there was a little-noticed footnote in the document that could change how VCs think about their own role in board seat selection.

Buried on page 40 of the rule (which you can find here in case you urgently want to read the whole document) is Nasdaq’s explanation for the transition period it has given newly-listed companies to meet the new requirements of having at least one or two diverse board members (depending on company size), or being able to explain in writing why they don’t. As for the aforementioned annotation, it essentially points out that some companies may need more time to meet these goals, due to pre-existing staggered board structures, or—here’s the key point —because some board seats have already been divvied out to VCs that back the firm.

Now why would VCs picking board positions mean companies need more time to comply with the new Nasdaq rule? 

The venture capital control over private boards is significant, and it tends to grow over consecutive rounds of funding. After a startup’s second financing round, the median firm has two entrepreneur directors, two VC directors, and one independent board member, according to 2021 research from the California Institute of Technology and the University of Michigan. By the fourth round of fundraising, venture capitalists control, on average, more than 50% of board seats. 

We already know that venture capital employees are overwhelmingly male, white, and graduates of Harvard or Stanford (though many firms have been saying, particularly in the last year, that they are working to address that.). VCs tend to invest in startups run by people that match that demographic. They also largely recruit managers to serve on boards from their own networks, per a 2019 report from Yale, Harvard, and the University of California.

All this to say: VCs are part of the reason that pre-IPO boards tend to lean white and male in the first place. Therefore, Nasdaq’s new rule may just incentivize VC investors to take a second look at their own election process for board positions, too. After all, they have a vested interest in preparing the companies they back to successfully list on an exchange in order to cash out. Not to mention, some of the investment banks, like Goldman Sachs, already have board diversity requirements themselves for companies that want to hire them for an IPO.

“VCs are going to have to extend their network—finally,” says Senofer Mendoza, general partner of Mendoza Ventures, a VC focused on fintech, AI, and cybersecurity companies run by women and people of color. 

Plus, hiring diverse talent may improve a company’s shot at a better valuation. “If you want to have a higher valuation—which is what everyone wants—you have to consider what investors are looking at,” says Rebecca Corbin, CEO of Corbin Advisors, which has a segment of business to help prepare executives for taking their companies public. Gender and racial diversity on boards is the third most important governance issue to institutional investors, according to her research.

VCs could be instrumental in helping their portfolio companies meet the new board diversity requirements, but it will have to start with a willingness to make some changes within their own firms and board selection processes. I suppose by this time next year we’ll see how committed VCs are to that.

Thanks for sticking it out with me for a couple days. See you tomorrow.

Jessica Mathews
Twitter: @jessicakmathews
Email: jessica.mathews@fortune.com

Anne Sraders curated today’s Term Sheet. Jessica Mathews compiled the IPO and SPAC sections of this newsletter.

VENTURE DEALS

​​-  Emeritus, a Singapore-based edtech startup offering affordable education resources for individuals, companies, and governments, raised $650 million in Series E primary and secondary funding. Accel and SoftBank Vision Fund 2 co-led the round and were joined by investors including Chan Zuckerberg Initiative and Leeds Illuminate, and Prosus.

- Talkdesk, a San Francisco-based cloud customer service software provider, raised $230 million in Series D funding from investors including Whale Rock Capital Management, TI Platform Management, Alpha Square Group, Amity Ventures, Franklin Templeton, Top Tier Capital Partners, Viking Global Investors, and Willoughby Capital.

- Gusto, a San Francisco-based benefits, payroll, and HR software provider, raised $175 million in Series E funding led by T. Rowe Price.

- SellerX, a Berlin-based company that acquires and helps build Amazon businesses, raised €100 million ($118 million) in funding. L Catterton’s Growth Fund led the round and was joined by investors including Sofina, Cherry Ventures, Felix Capital, and 83North.

​​- Doxel, a Redwood City, Calif.-based platform for companies to track construction site project progress, raised $40 million in Series B funding. Insight Partners led the round and was joined by investors including Andreessen Horowitz and Amplo.

 - Betty Blocks, an Atlanta and the Netherlands-based no-code application development platform, raised $33 million in funding. SmartFin Capital led the round and was joined by investors including Morse Investments and NIBC Bank. 

​​- Parcel Perform, a Singapore-based delivery management platform and parcel tracking startup, raised $20 million in Series A funding. Cambridge Capital led the round and was joined by investors including SoftBank Ventures Asia, Wavemaker Partners, and Investible.

​​- Car IQ, an Oakland, Calif.-based startup that allows fleet vehicles to autonomously make payments for gas and tolls, raised $15 million in Series B funding. Forté Ventures led the round and was joined by investors including Ally Ventures, BlackBerry Limited, State Farm Ventures, TELUS Ventures, Alpana Ventures, Avanta Ventures, Citi Ventures, Quest Venture Partners, and Scrum Ventures.

​​- HAGAR, an Israel-based developer of GWave, a non-invasive glucose monitoring technology, raised $11.7 million in Series B funding led by Columbia Pacific. 

​​- Champ Titles, a Cleveland, Ohio-based company focused on transferring vehicle ownership titles, raised $8.5 million in Series A funding. EOS Venture Partners and W. R. Berkley Corporation led the round. 

- Youreka Labs, a Baltimore-based mobile technology platform for upskilling and assisting frontline workers, raised $8.5 million in Series A funding. Boulder Ventures and Grotech Ventures co-led the round and were joined by investors including Salesforce Ventures.

- Esper, an Austin-based cloud-based software startup that helps governments manage public policymaking, raised $8 million in Series A funding. Cota Capital led the round and was joined by investors including 8VC, Gaingels, and Stand Together Ventures Lab. 

​​- Keebo, a U.K.-based personalized credit card provider that uses open banking data, raised £5 million (roughly $6.9 million) in seed funding. Breega and Connect Ventures led the round. 

​​- Fable Food, an Australia-based mushroom-based meat alternative startup, raised $6.5 million AUD (roughly $4.8 million) in seed funding. Blackbird Ventures led the round and was joined by investors including Canva, Culture Amp, SafetyCulture, AgFunder, Aera VC, Better Bite Ventures, and Ban Choon Marketing.

​​- Machinery Partner, a Boston-based heavy machinery marketplace for small businesses, raised $4.5 million in seed funding. One Way Ventures and Euclid Ventures led the round and were joined by investors including PJC and Techstars Ventures.

​​- Branch Energy, a Houston-based startup that helps consumers lower their energy usage, raised $4.5 million in seed funding. Comcast Ventures led the round and was joined by investors including Global Founders Capital and Inovia Capital. 

- Dovetail, an Australia-based software platform for companies’ customer research data, raised $5 million AUD ($3.7 million) in funding. Felicis Ventures led the round and was joined by investors including Blackbird Ventures, Grok Ventures, and Culture Amp CEO Didier Elzinga.

​​- Anthill, a Chicago-based talent management platform for deskless workers, raised $3 million in seed funding. Rethink Education led the round and was joined by investors including Origin Ventures, BBG Ventures, The Fund, and JFF (Jobs for the Future).

PRIVATE EQUITY

- EnCap Investments reportedly agreed to acquire EP Energy, a Houston-based oil and gas producer, for $1.5 billion, Reuters reported citing sources. 

- Newlight Partners invested up to $100 million in Honest Networks, a New York-based internet service provider for residences and businesses in the Tri-state area. Fifth Wall Ventures also participated in the investment. 

- Long Ridge Equity Partners  and CBC Companies invested in SoftWorks AI, a New York-based intelligent mortgage automation platform. Financial terms weren’t disclosed. 

- Service Champions Group, owned by Odyssey Investment Partners, acquired SWAN Heating & Air Conditioning, a Loveland, Colo.-based HVAC service provider. Financial terms weren’t disclosed.

- City Capital Ventures acquired GreenTech Environmental, a Johnson City, Tenn.-based air purification systems company. Financial terms weren’t disclosed. 

- CORE Industrial Partners acquired CGI Automated Manufacturing, a Romeoville, Ill.-based precision sheet metal fabrication maker. Financial terms weren’t disclosed. 

- Clearlake Capital Group invested in RSA Security, a Bedford, Mass.-based provider of cybersecurity and risk management software for companies. Financial terms weren’t disclosed.

- Kainos Capital acquired Muenster Milling, a Muenster, Texas-based pet food manufacturer. Kainos Capital partnered with the company’s owners Mitch and Chad Felderhoff for the deal. Financial terms weren’t disclosed. 

- Congruex, backed by Crestview Partners, acquired A&M Communications, a Boring, Ore.-based wireless telecommunications and cell tower equipment installer and servicer. Financial terms weren’t disclosed. 

EXIT

- mdf commerce agreed to acquire Periscope Intermediate Corp., an Austin-based procurement solution for state and local government agencies and suppliers, from Parthenon Capital Partners for approximately $259.9 million CAD ($207.3 million).

- Airtable acquired Bayes, a San Francisco-based data visualization tool for non-developers. Bayes is backed by investors including Amplify Partners and Y Combinator. Financial terms weren’t disclosed.

- Spruce acquired The Minte, a Chicago-based housekeeping service catering to luxury apartments. The Minte is backed by investors including Second Century Ventures and Firebrand Ventures. Financial terms weren’t disclosed. 

- PNC Riverarch Capital acquired Fresh Direct Produce, a Vancouver-based fresh produce distributor, from HKW. Financial terms weren’t disclosed. 

- Savant Growth recapitalized and is selling its stake in Revolution Prep, a Santa Monica, Calif.-based provider of online tutoring and test prep services. Financial terms weren’t disclosed. 

OTHER

- Chesapeake Energy Corp (NASDAQ:CHK) will acquire Vine Energy, a Haynesville-focused natural gas producer, for roughly $2.2 billion in equity and cash. 

- WOW Tech Group is merging with Lovehoney, a U.K.-based maker and retailer of sexual lifestyle products and accessories. The companies will become the Lovehoney Group. Financial terms weren’t disclosed. 

- Zilch agreed to acquire Neptune Financial (NepFin), a Miami-based commercial lending startup. Financial terms weren’t disclosed. 

- Mailchimp, an Atlanta-based email marketing software startup, is reportedly considering a sale that could value the company at over $10 billion, Bloomberg reported citing sources. 

- Voya Financial has reportedly been considering possibly acquiring Alight, a Lincolnshire, Ill.-based HR and benefits manager, Bloomberg reported citing sources. Alight went public via a SPAC in July. 

IPO

- Aichi Automobile Co., a Shanghai-based energy vehicle production company, is exploring an IPO in the U.S., per Bloomberg.

SPAC

- VNG Corp., a Vietnemese technology and online entertainment company, is in talks to go public via a merger with a SPAC, per Bloomberg. A deal could value the company at $2 or $3 billion.

- Aspiration, a Marina del Rey, Calif.-based financial services company focused on erasing the carbon footprint, is in talks to go public via a merger with InterPrivate III Financial Partners Inc., a SPAC led by the founder of asset management company Landmark Value Investments, Ahmed Fattouh, per Bloomberg. A deal would value the company at more than $2 billion.

- Tim Hortons China, the Canadian-based coffee chain locations in China that are run by Cartesian Capital Group and an RBI subsidiary, is nearing a deal to go public via a merger with Silver Crest Acquisition Corp., a SPAC backed by Ascendent Capital Partners, according to Bloomberg. A deal would value the company at $1.8 billion.

- Pony.ai, a Fremont, Calif.-based autonomous driving vehicle company that operates in both the U.S. and China, has paused plans to go public via a SPAC merger over concerns of the Chinese regulatory crackdown, per Reuters. The firm is backed by Toyota Motor Corp.

F+FS

- Sageview Capital, a Palo Alto-based private growth capital firm, raised $710 million for its third fund.  

- AppWorks, a Taiwan-based venture capital firm, raised $150 million for its third fund.

PEOPLE

- Cressey & Company,  a Chicago-based private investment firm, promoted Andy Hurd to partner. 

- AE Industrial Partners, a Boca Raton, Fla.-based private equity firm, promoted Katie Folmar and Jonathan Lusczakoski to vice presidents.