Aug 11, 2017

Axios Pro Rata

By Dan Primack
Dan Primack
Top of the Morning

Let's begin by getting this out of the way: No, I've never seen anything like it. And I've been covering venture capital and private equity since before the dotcom boom went bust. Then again, I've also never before seen a tech startup valued at $70 billion before IPO, let alone one that also is being sued for IP theft by the world's second-largest company (which also happens to be an investor). Almost every single step here is a brave new world.

Did I miss something? If you're asking that, then you missed our scoop yesterday that Benchmark Capital has sued former Uber CEO Travis Kalanick for fraud, breach of contract and breach of fiduciary duty. You can get all the details and read the full complaint by going here.

Very condensed version: Kalanick last summer asked the board to expand the number of voting directors from 8 to 11, with Kalanick able to designate those extra seats. The board, including Benchmark, agreed. Benchmark now alleges that Kalanick withheld material information at the time — including issues of sexual harassment and an internal report raising trade secret questions about the Otto acquisition — that might have negatively impacted Benchmark's vote. Kalanick left the seats empty until he was forced to resign as CEO in June, at which point he took one of them (since his old board seat was reserved for the CEO). Benchmark, however, says that Kalanick agreed during the resignation negotiations to give up control of the seats, which he has subsequently refused to do. Kalanick denies the "false" allegations, via a spokesman.

What Benchmark wants: The board expansion vote invalidated, which would effectively remove Kalanick from having any formal role at Uber. It also wants a preliminary injunction that would bar Kalanick from participating in board matters, which would include the CEO replacement search.

Why Benchmark wants it: It and Kalanick have barely been on speaking terms for months, and Benchmark believes that Kalanick is sabotaging the CEO search in order to regain some measure of operational power. The Kalanick side argues that Benchmark is a dishonest broker that supported Kalanick's shenanigans until the PR heat got too hot.

What this means for that SoftBank deal: It's dead, at least the version whereby Benchmark exits. Remember, Benchmark has a fiduciary obligation to the company as well as to its own LPs. It has now claimed in court that Kalanick committed fraud, and the SoftBank transaction − or similar offers by other third parties − would effectively give Kalanick additional control. Selling to SoftBank could cause Benchmark its own legal troubles.

Why Benchmark sued now: This part I still don't quite get. Based on the voting percentages listed in the complaint and other reporting, it theoretically could have teamed with some other early investor allies to convert their preferred shares into common — and then used their newfound voting power to remove the extra board seats. There could be some ROI downsides to this, but not if Benchmark really believes Uber will be worth $100 billion in two years (as it tweeted earlier this week). And it wouldn't have risked the CEO search limbo that is almost certain if Benchmark is not granted the injunction.

Reputational risk: VCs once had a rep for kicking out founders and replacing them with "professional" CEOs, but that had swung to the other extreme over the past decade or so. Early-stage investors like Benchmark now want to be known as "founder friendly" and, in some entrepreneurial quarters, Benchmark will be viewed dimly for its actions toward Kalanick (particularly given its past founder quarrels at companies like Twitter and Epinions). Particularly given its highly questionable argument that it was shocked to have just learned of Uber's deep cultural problems. But neither of those early situations seem to have really harmed Benchmark too much, and it's unlikely the firm will ever again have an investment as potentially lucrative as Uber. Protect the wall.

What does Travis do? That will depend on how strong his stomach is for what could be absolutely brutal depositions. At this moment he looks like he wants to fight, believing Benchmark is trying to unfairly steal his baby. It's hard to imagine an actual trial, but I once felt that way about Waymo vs. Uber and Ellen Pao vs. Kleiner Perkins. So perhaps I'll soon be booking some hotel rooms in Delaware...

Your turn: Please send over any and all thoughts on this situation. Email. Anonymous tip. Confide, Signal, Telegram, etc. (DanPrimack, 857-472-3072). And have a great weekend!


The Blackstone Group and KKR are among those kicking the tires on a portfolio of renewable energy assets currently owned by NRG Energy (NYSE: NRG), according to Bloomberg. NRG is under activist pressure to streamline its business, which currently generates around 32% of adjusted EBITDA from renewables (including 26% from solar and wind farm owner NRG Yield). Other possible suitors include Borealis Infrastructure, Global Infrastructure Partners, GIC, John Hancock Life Insurance and NextEra Energy.

  • Why it's the BFD: This could become one of the largest-ever sales of renewable assets, and would be a final nail in the coffin of a "green" diversification strategy favored by NRG's former management.
  • Bottom line:"The units are on the chopping block at an opportune time. A large and deepening pool of buyers are coveting the assets they offer: wind and solar farms that benefit from long-term contracts with utilities. These buyers include pension funds and insurance companies with long-term liabilities that neatly dovetail with the utility contracts. They may also include infrastructure funds."Bloomberg
Venture Capital Deals

• Toutiao, a Chinese news aggregator, is raising around $2 billion at a valuation north of $20 billion, according to Reuters. Existing backers include Sequoia Capital China and CCB International. The report adds that General Atlantic may serve as the round's lead investor.

PCCW OTT, a video and music streaming subsidiary of Hong Kong telecom giant PCCW, has raised $110 million from Hony Capital, Foxconn Ventures and Temasek.

• Coinbase, a San Francisco-based cryptocurrency exchange, has raised $100 million in Series D funding at a $1.5 billion pre-money valuation. IVP led the round, and was joined by Spark Capital, Greylock, Battery Ventures, Section 32 and Draper Associates.

⛽ AMP Americas, a Chicago-based company that turns cow manure into trucking fuel, has raised $47 million in equity funding from EIV Capital.• Auvik Networks, a Canadian provider of network monitoring and management software for managed service providers, has raised C$15 million in Series B funding. OpenView Venture Partners led the round, and was joined by return backers Celtic House Venture Partners and Rho Canada Ventures.• Netlify, a San Francisco-based platform that automates users code to create static websites or apps, has raised $12 million in VC funding led by Andreessen Horowitz.• Glint, a London-based developer of a new "global currency," has raised £3.1 million in VC funding led by Bray Capital.

Private Equity Deals

• Frontenac has acquired Industrial Color Brands, a New York-based provider of production services to brands and ad agencies, from Stone Canyon Industries. No financial terms were disclosed.

•, a Canadian voiceover talent marketplace that recently raised $18 million from Morgan Stanley Expansion Capital, has acquired Voicebank, a Valencia, Calif.-based platform for talent casting and management. No financial terms were disclosed.

• STX Entertainment has acquired Lalela Music, a production music library for film and TV. No financial terms were disclosed. STX backers include TPG, Hony Capital, DNS Captial,Tencent and PCCW.

Public Offerings

⛽ Preferred Sands, a Radnor, Penn.-based provider of sand-based proppant solutions to the oil and gas industry, has filed for a $100 million IPO. It plans to trade on the NYSE under ticker symbol PSND, with Credit Suisse, KKR and Morgan Stanley serving as underwriters. The KKR-owned company reports a $195 million net loss on $60 million in revenue for Q1 2017.

⛽ Ranger Energy Services, a Houston-based provider of well service rigs and associated services, raised $85 million in its IPO. The company priced around 5.86 million shares at $14.50 per share, compared to plans to offer 5 million shares at $16-$18. It will trade on the NYSE under ticker symbol RNGR, while Credit Suisse served as left lead underwriter.

🚑 YogaWorks, a Culver City, Calif.-based yoga studio operator owned by Great Hill Partners, raised $40 million in its IPO. The company priced 7.3 million shares at $5.50 per share (low end of downwardly-revised range), and will trade on the Nasdaq under ticker symbol YOGA. Cowen was listed as left lead underwriter, while YogaWorks reports a $9.5 million net loss on around $55 million in revenue for 2016.

Liquidity Events

• Berkshire Partners and OMERS have hired Goldman Sachs to find a buyer for Husky Injection Molding Systems, a Canadian supplier of injection molding equipment to the plastics market, according to Reuters. The deal could value Husky at around $4 billion, including debt.

• EmergeVest has sold its equity stake in J.D. United Manufacturing, a Chinese apparel supplier, to Taiwan-listed Roo Hsing for $500 million.

• Milestone Partners has completed its previously-announced $360 million sale of Precision Partners, a Canadian provider of automotive tooling and stamped solutions, to AK Steel (NYSE: AKS).

• PayPal (Nasdaq: PYPL) has agreed to acquire Swift Financial, a Wilmington, Del.-based provider of business credit. No financial terms were disclosed. Swift Financial raised VC funding in 2007 form firms like Village Ventures and Sutter Hill Ventures.

More M&A

TeamSnap, a Boulder, Colo.-based provider of sports league management software, has acquired Seattle-based rival Korrio for an undisclosed amount. TeamSnap earlier this year raised $25 million in new VC funding led by Foundry Group, while Korrio backers included Ignition Partners.

• WeWork has acquired Unomy, an Israeli sales and marketing intelligence platform, for an undisclosed amount. Unomy had been seeded by firms like Janvest Capital Partners.


• HighBar Partners, a Menlo Park, Calif.-based VC firm focused on SaaS, enterprise software and infrastructure software, has closed its third fund with $208 million in capital commitments.

• JD Finance, the financial services affiliate of Chinese e-commerce company (Nasdaq: JD), has launched an early-stage VC fund called Qianshu Capital.

• KKR has opened an office in Shanghai, its third in Greater China.

⛽ True Green Capital Management, a Connecticut-based firm focused on distributed power generation, has closed its third private equity fund with $350 million in capital commitments.

It's Personnel

Ian O'Donnell has joined law firm Goodwin as a San Francisco-based partner in its private investment funds practice. He previously was with Cooley.

• Brian Pinkerton is stepping down as chief technology officer of the Chan Zuckerberg Initiative, which he had joined last fall from Amazon.

Final Numbers

Dan Primack