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Citadel Securities forms an unlikely partnership for its next big move

January 12, 2022, 4:53 PM UTC

Yesterday Sequoia Capital and Paradigm shared they had invested nearly $1.2 billion into Citadel Securities, the market maker that came under attack during the GameStop saga that revealed some of the inner complexities of trade execution—and just how few people really understand how it works.

This deal was arguably a little surprising. For one, it was Citadel Securities’ first outside investment. Now add that one of those investors was Paradigm, a crypto fund founded by Coinbase co-founder Fred Ehrsam and Matt Huang, a former Sequoia Capital partner. Paradigm is one of the most active investors in the blockchain sphere, and it holds the second largest fund investing in crypto and blockchain at nearly $2.5 billion, according to Pitchbook data.

Enter Citadel Securities, which, well, hasn’t historically been in crypto. In fact, CEO Ken Griffin has been pretty openly critical of them, although he did say only a few months ago that his firm would trade them, pending they were “properly regulated.” 

Has there been a change of heart? Paradigm’s Huang noted in the investment press release that the VC firm is investing in Citadel Securities “as they extend their technology and expertise to even more markets and asset classes, including crypto.” A Citadel Securities spokesman declined to provide further comment. 

It seems to be rather inconvenient timing that Citadel Securities just lost its Chief Technology Officer in Europe to a crypto market maker. John MacDonald, who had joined Citadel Securities to build out its options trading business, is now the CTO at GSR, a digital asset market maker, where he will be improving the company’s existing infrastructure and helping it expand.

“I look forward to working with my new colleagues in combining the best of traditional trading and investment solutions with the very creative and rapidly evolving digital assets space,” MacDonald said in a statement issued this morning about his new gig. 

One more thing: I can’t help but wonder whether Citadel Securities’ interest in crypto has anything to do with the growing interest among customers of brokerages like Robinhood. Citadel Securities, as one of the largest market makers in the U.S., has long executed many of Robinhood customers’ stock trades. It’s a model known as retail wholesaling that sometimes includes what is known as payment for order flow (which you can read more about here.) For market makers like Citadel Securities, it’s a critical business that allows them to capture a tiny sliver of each trade they execute. And when you do gobs and gobs of those a day, those slivers add up. 

In the second quarter of 2021, something weird happened. Robinhood saw a flood of crypto transactions on its platform (largely thanks to Doge…). And suddenly, a Jump Trading Group affiliate known as Tai Mo Shan Limited, which has been reported to be behind Robinhood’s free crypto trading capabilities for years now, became a key player. Tai Mo Shan was behind 29% of Robinhood’s transaction-based revenues, up from only 1% during the second quarter of 2020. Citadel Securities, meanwhile, saw its share fall from 36% to 14%, as a result. Here’s a look:

Jump Trading hadn’t gotten into retail equity wholesaling at this point, but it was active in the crypto markets, and later that year formalized its efforts in the space by opening a specific crypto market making arm. Meanwhile, Citadel Securities was less the revenue-driver at Robinhood than it had been. However, with equity trading surging, it’s still the source of most of the payment for order flow at Robinhood:

Crypto aside, this deal may help position Citadel Securities for an IPO—and it looks like it added some plump to Ken Griffin’s net worth.

A reminder: Term Sheet is partnering with Semaphore for its 14th annual confidence survey of private equity, venture capital, hedge fund and other professionals. Will 2022 afford an end to our public health burden? Has it influenced business interests and personal income? Fifty-six percent of respondents expressed confidence in then-new president Biden last year. Is the honeymoon over? Weigh in, if you like, and share your level of confidence in yourself, the economy, and your business; it’s anonymous and should take you 3-4 minutes. You can take the survey here. Have a look at last year’s results here.

See you tomorrow,

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

My colleague Declan Harty contributed to the reporting of this essay.

VENTURE DEALS

- Back Market, a Paris, France-based online refurbished goods marketplace, raised $510 million in Series E funding led by Sprints Capital, Eurazeo Growth, Aglaé Ventures, General Atlantic, and Generation Investment Management.

- Freenome, a San Francisco-based cancer detection platform, raised $290 million in funding from Roche.

- CAIS, a New York-based alternative investment platform for financial advisors, raised $225 million in funding led by Apollo and Motive Partners and was joined by investors including Franklin Templeton.

- Transcarent, a San Francisco-based healthcare platform for employees at self-insured employers, raised $200 million in Series C funding from investors including Northwell Health, Intermountain, and Rush University Medical Center.

- Maze Therapeutics, a San Francisco-based biotechnology platform developer focused on  translating genetic insights into new medicines, raised $190 million in funding led by Matrix Capital Management and was joined by investors including General Catalyst, a16z, Woodline Partners, Casdin Capital, City Hill Ventures, and Foresite Capital.

- Zero Hash, a Chicago-based B2B digital-asset-as-a-service infrastructure platform, raised $100 million in Series D funding from investors including Bain Capital, NYCA, and Point72 Ventures.

- Tecovas, an Austin, Tex.-based western footwear, apparel and accessories company, raised $56 million in Series C funding led by Elephant and was joined by investors including Access Capital, Seamless Capital, and Kemmons Wilson Companies.

- PassiveLogic, a Holladay, Utah-based autonomous building platform, raised $34 million in Series B funding from investors including Addition, Keyframe, RET Ventures, Brookfield Growth, and Era Ventures.

- Mangata Networks, a Phoenix, Ariz.-based satellite-enabled telecommunication services provider, raised $33 million in Series A funding led by Playground Global and was joined by investors including Temasek, ktsat, Scottish Enterprise, Promus Ventures, and Met.

- MOSTLY AI, a Vienna, Austria-based GPU-powered technology developer, raised $25 million in Series B funding led by Molten Ventures and was joined by investors including Earlybird, 42CAP, and Citi Ventures.

- Second Nature, a Tel Aviv, Israel-based AI-powered sales coaching solution, raised $12.5 million in Series A funding from investors including signals Venture Capital, StageOne Ventures, Cardumen Capital, and the Zoom Apps Fund

- Eureka, a Tel Aviv, Israel-based holistic security platform across cloud data stores, raised $8 million in seed funding led by YL Ventures.

- Nana Delivery, a São Paulo, Brazil-based grocery delivery platform, raised $3.6 million in pre-seed funding led by Canary and MAYA Capital and was joined by Presight

- Pilgrim Soul, a Los Angeles-based cannabinoid and terpene profiles developer, raised $2 million in seed funding from investors including Merida Capital and Bee House.

PRIVATE EQUITY

- 360Learning, backed by Softbank, Silver Lake, and Sumeru, acquired Looop, a London-based learning management system developer, for $20 million in cash and shares.

- Constant Contact, backed by Clearlake Capital Group and Siris Capital Group, agreed to acquire Vision6, a Fortitude Valley, Australia-based SMS and email marketing platform. Financial terms were not disclosed.

- Fractal, backed by TPG, acquired Neal Analytics, a Bellevue, Wash.-based cloud, data, engineering and AI Microsoft Gold consulting company. Financial terms were not disclosed.

- Leonard Green & Partners acquired a majority stake in Pace, a Minneapolis, Minn.-based analytical testing and outsourced scientific solutions provider. As part of the deal, Aurora Capital Partners reinvested, but is no longer a majority owner. Financial terms were not disclosed.

- Lightspeed Systems, backed by Madison Dearborn Partners, acquired CatchOn, a Nashville, Tenn.-based learning analytics provider for schools. Financial terms were not disclosed.

- Mercer Global Advisors, owned by Oak Hill Capital and Genstar Capital, acquired Cordasco Financial Network, a Naples, Fla.-based wealth management firm. Financial terms were not disclosed.

- National Fire & Safety, backed by Highview Capital, acquired Commercial Fire Protection, a Newport Beach, Calif.-based fire safety business offering end-to-end fire safety concierge services. Financial terms were not disclosed.

- OpenGate Capital acquired Chemsolv, a Roanoke, Va.-based commodity and specialty chemicals regional distributor. Financial terms were not disclosed.

- RoadSafeTraffic Systems, backed by Trilantic North America and Investcorp, acquired Quattuor Construction, a Sutter, Calif.-based traffic control and underground construction services company. Financial terms were not disclosed.

- Talent Group, an Osceola Capital portfolio company, acquired EdgeLink, a Portland, Oreg.-based IT staffing firm. Financial terms were not disclosed.

- TAS Environmental Services, a Blue Point Capital Partners portfolio company, acquired Texas Water Management, a Conroe, Tex.-based liquid waste transportation service provider to industrial waste generators.

- Vision Innovation Partners, backed by Centre Partners, acquired the Memorial Eye Institute, a Harrisburg, Penn.-based ophthalmology practice and surgical center. Financial terms were not disclosed.

- Worldwise, backed by Alvarez & Marsal Capital Partners, acquired Furhaven Pet Products, a Bellingham, Wash.-based pet accessories e-commerce company. Financial terms were not disclosed.

- 2TM, backed by SoftBank, agreed to acquire CriptoLoja, a Lisbon, Portugal-based crypto exchange. Financial terms were not disclosed.

EXITS

- Converge Technology Solutions acquired PDS Holding Company, which owns Brookfiled, Wis.-based information technology company Paragon Development Systems, from Mason Wells. Financial terms were not disclosed.

OTHER

- Planet Fitness agreed to acquire Sunshine Fitness Growth Holdings, a fitness club franchise and operator. As part of the deal, TSG, which backed Sunshine Fitness, will own a stake of Planet Fitness.

- Diligent acquired Insightia, a London-based SaaS provider of expert insights and intelligent analytics for listed companies. Financial terms were not disclosed.

- Zayo Group Holdings acquired QOS Networks, an Irvine, Calif.-based SD-WAN and edge managed services provider. Financial terms were not disclosed.

IPOS 

- Cooper’s Hawk Winery & Restaurants, a Downers Grove, Ill.-based restaurant chain and wine club, is planning an IPO, according to Bloomberg. Ares Management backs the firm.

- The company that owns WeTransfer, an Amsterdam-based file transfer platform, plans to go public in the Netherlands, per Reuters

SPAC

- Pagaya, a Tel Aviv and New York City-based artificial intelligence-powered lending fintech, raised $350 Million in a PIPE deal ahead of its planned merger with EJF Acquisition Corp. Investors included Tiger Global, Whale Rock, GIC, Healthcare of Ontario Pension Plan, and G Squared.

- Suneva Medical, a San Diego-based anti-aging product company, is in talks to go public via a merger with Viveon Health Acquisition Corp., a SPAC, according to Bloomberg.

FUNDS + FUNDS OF FUNDS

- Listen, a Chicago, Ill.-based venture capital firm, raised $92 million for two funds, including a new opportunity fund.

- TMV, a New York-based early-stage venture capital firm, raised $64 million, for its second fund.

PEOPLE

- The Halifax Group, a Washington, D.C.-based private equity firm, promoted Jamie Cavanaugh to principal. 

- Harvest Partners, a New York-based middle-market private equity firm, promoted Stephen Fessler to partner; Sean Kapur and Lucas Rogers to principal; and Matthew Bruckmann and Mijana Djurdjevic to vice presidents.

- Napier Park Global Capital, a New York-based alternative asset manager, promoted Joe Lane and Julia He to partners.

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