Sep 21, 2018

Axios Pro Rata

By Dan Primack
Dan Primack
Top of the Morning

Illustration: Lazaro Gamio / Axios

Two weeks ago today, we detailed the ego-fueled collapse of Social Capital, a Silicon Valley venture capital firm known for early investments in companies like Slack.

Yesterday, firm CEO Chamath Palihapitiya basically confirmed our reporting — via both a Medium post and interview with The Information — while simultaneously calling it "fake news." Pretty neat trick.

What he announced: Social Capital will no longer take outside capital, and even more staffers are expected to depart. By year-end, it will become a "technology holding company" that invests off of its "balance sheet," with investments of between $50 million and $250 million.

  • Palihapitiya is basically turning Social Capital into a family office. LP sources say there are still fund reserves for follow-on investments, the funds might recycle some profits, and any additional needs could be offered to LPs as direct investments on a no fee/no carry basis.
  • He also told select LPs on a conference call that he will focus most on a sub-group of Social Capital's strongest portfolio companies.

Conference call: This was a regularly-scheduled LP advisory committee meeting, and it only lasted around 30 minutes. "He kept dodging questions," one LP on the call says. "There would be a question about things like organizational structure — who is actually managing our investments? — and he wouldn't give direct answers."

Another LP says things might have been more contentious had everyone first read The Information article, which came out shortly before the call began. Namely because he said the following of LPs and their complaints of being uninformed of major firm changes:

"It doesn't matter."
“They probably felt maybe not listened to as much as they should have been by me. Tough."
“I would rather spend time with the people that are 100% aligned with what I want to do and the person that’s most aligned with what I want to do is me.”

Probably worth recalling that "Partnership" was part of Social Capital's original name, but it was dropped somewhere along the way.

Four more notes on this fiasco:

  • Palihapitiya continues to serve as CEO of a publicly-traded blank check company called Social Capital Hedosophia (NYSE: IPOA). If it doesn't acquire a company by the middle of next September, then investors get their cash back and it's a heavily-hyped wash. But if it does acquire a company, how will shareholders feel about Palihapitiya's involvement, given his stated contempt for investor interests?
  • There does not appear to be any LP appetite for firing the general partner. Or at least not yet. One big reason, as voiced by an investor, is that spearheading such an effort could get his firm blackballed by Palihapitiya's influential Silicon Valley friends. Too much risk for too little reward.
  • Reminder that Social Capital once discussed a "takeover" by Kleiner Perkins, but the deal collapsed after Palihapitiya insisted on being named CEO (or the managerial equivalent) of the combined firm.
  • Social Capital has not responded to any of my requests for comment for the past three weeks (including yesterday). Same goes for direct inquiries to Palihapitiya.

Listen up: Yesterday I had Mike Allen on the podcast, discussing how last year's tax cuts have become a liability for Republicans in the midterms. One big reason is that many companies have focused more on share buybacks than wage increases. Listen here.

Airbnb sent a comment letter to the SEC, asking it to allow the home-sharing company to give equity to its hosts. Kia has the scoop.

🏈 Go Pats!

The BFD
Source: Giphy

Adobe (Nasdaq: ADBE) agreed to buy Marketo, a San Mateo, Calif.-based maker of marketing automation software, from Vista Equity Partners for $4.75 billion.

  • Why it's the BFD: This makes Adobe a more viable rival to Oracle and Salesforce, setting the stage for future consolidation.
  • ROI: Vista raised eyebrows by paying a 64% premium to take Marketo private in 2016, but the total deal value was only $1.8 billion.
  • Bottom line: "Adobe is known for products like Photoshop and Adobe Reader, but the company’s Experience Cloud, which houses its marketing technology and data and analytics products, is growing at a fast clip, the company said. The Experience Cloud reported annual revenue of $2.03 billion in 2017, according to a financial filing." — Alexandra Bruell, WSJ
Venture Capital Deals

🚑 uBiome, a San Francisco-based microbial genomics startup, raised $83 million in Series C funding. OS Fund led, and was joined by 8VC, Y Combinator and Dentsu Ventures. www.ubiome.com

Origami, a Tokyo-based QR payment company, raised nearly $67 million in Series C funding from SBI Investment, Toyota Finance, Shinkin Central Bank, Union Pay International, Credit Saison, Nihon Unisys, JCB, Ogaki Kyoritsu Bank, Mitsui Sumitomo Card Co. and the DG Lab Fund. www.origami.com

🚑 Silverback Therapeutics, a Seattle-based developer of systemically delivered, locally-active therapies for therapies for cancer and fibrosis, raised $37.5 million in new Series A finding. Return backer OrbiMed led, and was joined by Celgene and Alexandria Venture Investments. http://axios.link/D1iG

🚑 Alydia Health (fka InPress Technologies), a Menlo Park-based developer of bleeding cessation products for postpartum hemorrhages, raised $10 million in Series B funding led by the Global Health Investment Fund. http://axios.link/jBdG

Cleo, a London-based digital assistant for personal banking, raised $10 million in funding led by Balderton Capital. http://axios.link/2Zjb

Country Archer Jerky Co., a San Bernadino, Calif.-based jerky brand, raised $10 million in Series B funding from Monogram Capital Partners. http://axios.link/9rt5

🚑 Tvardi Therapeutics, a Houston-based biotech focused on solid tumors, raised $9 million in Series A funding from undisclosed investors. http://axios.link/VMoS

Copado, a Madrid-based release management platform, raised €7.5 million in Series A funding. Insight Venture Partners led and was joined by Salesforce Ventures. www.copado.com

Yumble, a New York-based delivery service for prepared and healthy kids meals, raised $7 million in Series A funding. Sonoma Brands led, and was joined by Danone Manifesto Ventures, RiverPark Ventures, Launch Capital and Apple Core. http://axios.link/v5V4

Masterplan, a German online training company, raised €6 million in Series A funding led by Tengelmann Ventures. www.masterplan.com

Lunewave, a Tucson, Ariz.-based developer of sensor technologies for autonomous vehicles, raised $3.75 million in seed funding led by McCombs Fraser. http://axios.link/Pulr

Jones, a New York-based commercial insurance startup, raised $2.8 million in seed funding led by Hetz Ventures. www.getjones.com

Private Equity Deals

CVC Capital Partners agreed to acquire a majority stake in UnitedLex, an Overland Park, Kansas-based provider of enterprise legal services. Sellers include Sequoia Capital. http://axios.link/a1uu

Public Offerings

• Farfetch, a London-based e-commerce marketplace for independent boutiques, raised $885 million in its IPO. The company priced 44.2 million shares at $20 (above $15-$17 range), for a market value of around $5.8 billion. Goldman Sachs was lead underwriter. It will trade on the NYSE (FTCH), reports a $68 million net loss on $268 million in revenue for the first half of 2018, and has raised over $700 million in VC funding from firms like Advent Venture Partners, Index Ventures and DST. http://axios.link/O8Kw

Bank7, an Oklahoma City-based bank with seven branches, raised $65 million in its IPO. The company priced 2.4 million shares at $19 ($18-$21 range), and will trade on the Nasdaq (BSVN).

Remora Royalties, an Austin, Texas-based owner of oil and gas mineral royalty interests, postponed an IPO that was planning to offer 5.25 million shares at $19-$21. It had planned to trade on the Nasdaq (RRI) with RBC Capital Markets as lead underwriter. http://axios.link/TEfF

🚑 SI-Bone, a Santa Clara, Calif.-based spinal implant developer, filed for a $98 million IPO. It plans to trade on the Nasdaq (SIBN) with Morgan Stanley as lead underwriter. It reports a $7 million net loss on $26 million in revenue for the first half of 2018, while shareholders include Skyline Ventures (26% pre-IPO stake), Montreaux Equity Partners (12.9%), Arboretum Ventures (9.5%), Redline Capital (6%) and OrbiMed 5%). www.si-bone.com

Xella, a German building materials company owned by Lone Star Funds, is considering a Q2 2019 IPO in Frankfurt, per Reuters. http://axios.link/wAvM

🚑 Y-mAbs Therapeutics, a New York-based developer of pediatric cancer antibodies, raised $96 million in its IPO. The company priced 6 million shares at $16 (above range), and will trade on the Nasdaq (YMAB). Shareholders include WG Biotech (18.42% pre-IPO stake), Memorial Sloan Kettering Cancer Center (10.11%) and HBM Healthcare Investments (9.14%).

Liquidity Events

Inspired Schools of the UK is nearing a $500 million deal for the schools division of ACG Education, a New Zealand-based private education company owned by Pacific Equity Partners, per Bloomberg. http://axios.link/RAkC

More M&A

🚑 Medtronic (NYSE: MDT) agreed to buy Mazor Robotics (Tel Aviv: MZOR), an Israeli maker of guidance systems for spine and brain surgeries, for around $1.64 billion in cash (including of its existing $300m stake). http://axios.link/5u1F

⛽ Royal Dutch Shell is in talks to sell around $1.5 billion worth of Gulf of Mexico assets to Focus Oil, per Bloomberg. http://axios.link/i8Sz

Tikehau Capital (Paris: TKO) said it’s in talks to acquire fellow French real estate asset manager Sofidy.

Fundraising

SoftBank Ventures Korea raised $300 million for a new China-focused fund. http://axios.link/nW67

It's Personnel

Bruce Andrews joined SoftBank as VP of global public policy, based in Washington DC. He previously was a managing director of Rock Creek Global Advisors and former Deputy Secretary of the US Commerce Department.

Blumberg Capital hired: Steve Gillian (ex-Mercantila) as SF-based COO and CFO; Yodfat Harel Buchris (ex-Orbotech) as a Tel Aviv-based managing director; Ehud Schneorson (ex-commander of Unit 8200 in the Israel Defense Forces) as a Tel Aviv-based managing director; and Idan Nurich (computer scientist in Unit 8200) as a Tel Aviv-based principal. www.blumbergcapital.com

Jaime Lewis stepped down as a director in KPMG's VC practice to join Runway Growth Capital as a managing director and head of Northeast origination.

Amy Thiessen joined HQ Capital as director of business development and fundraising. She previously was a principal with Park Madison Partners. www.hqcapital.com

Ethan Zweig has left JPMorgan to join tech-focused investment bank Qatalyst Partners. http://axios.link/jh2v

Final Numbers
Dan Primack