Apr 3, 2020

Axios Pro Rata

Top of the Morning

Illustration: Aïda Amer/Axios

America today launched its $350 billion bailout for small businesses, and already there is widespread skepticism that the program will run smoothly or be large enough to meet demand.

What's new: House GOP leader Kevin McCarthy yesterday told me that the affiliation rule will be waived for any company with less than 500 employees that doesn't have a controlling outside shareholder, thus making most VC-backed startups eligible for PPP loans. This was based on a conversation he'd just had with Treasury Secretary Steven Mnuchin.

What's wrong: Treasury hasn't yet released the aforementioned guidance, which creates an impossible situation for banks that are actually being asked to review and approve the loans. And that's just the tip of the guidance gumworks — with bankers complaining before last night that all they'd gotten were flimsy bullet points, rather than the granular details they really need.

  • JPMorgan Chase, one of the nation's largest business lenders, yesterday warned that it likely didn't have enough information to begin accepting PPP loan applications today.
  • As of this morning, its website says, in bold print: "Please don't send us any SBA or Treasury department forms."

One level deeper: Even if adequate guidance does come and loans get granted, there are worries in D.C. that the federal bureaucracy isn't prepared. Axios' Alayna Treene reports:

Lawmakers and staff who helped draft the rescue package have privately expressed concerns that the Trump administration — particularly the Small Business Administration and Labor Department — may be overwhelmed by the demand for loans and unable to get checks out the door as fast and responsibly as they're needed.
Some fear a repeat of what happened with the botched rollout of the Affordable Care Act in 2013 when the site crashed due to tremendous demand.

Two levels deeper: Even if none of those fears come to pass, as Mnuchin this morning is suggesting via Twitter, there's dawning dread that $350 billion just isn't enough money. Not only because the pandemic has knocked so many small businesses and nonprofits off their feet, but also because there are few guardrails to prevent solvent groups from participating.

  • McCarthy downplayed the need for a "phase 4" stimulus during our conversation yesterday, including President Trump's call for a $2 trillion infrastructure package, saying he'd need more data on how "phase 3" plays out.

The bottom line: This is understandably messy. The CARES Act wasn't even law at this time last week, yet today banks are asked to begin processing and funding tens of thousands of federally-guaranteed loans. You don't blame pilots for the bumpy ride, you just pray they can land it safely in the end.


Source: Giphy

Luckin Coffee (Nasdaq: LK), a Chinese rival to Starbucks that went public last year at a $4.3 billion valuation, disclosed that its chief operating officer fabricated around $310 million in 2019 sales.

  • Why it's the BFD: This raises big questions about due diligence by Luckin's IPO bankers, who subsequently worked on both a secondary share sale and convertible bond offering that relied on the inflated data.
  • Market reax: Luckin went public at $17 in May 2019. It hit a closing high of $50.02 per share this past January, before the coronavirus knocked it down to $26.20 on Wednesday. One day later, it closed at $6.40 per share, and is poised to open even lower today.
  • The bottom line: "An anonymous report publicized by U.S. short seller Muddy Waters earlier this year raised suspicions about the company’s accounting. Luckin said at the time that the report was false, misleading and irrelevant. But in fact it seems very relevant. One interesting allegation, beyond the fabrication of revenue, is that Luckin manipulated order numbers in its app to give an embellished image of its business. More sophisticated investors relied on third-party vendors to collect data beyond companies’ financial statements. But if this accusation is well-founded, that means they need to pay even closer attention to the question of what data can reasonably be trusted."Jacky Wong, WSJ
Pro Rata for Kids

Today's project is for your kid(s) write and decorate a thank you sign (like a card, but single sheet that can be easily photographed). It could be to someone they know, like a parent or sibling or neighbor, or to someone they maybe don't, like doctors, nurses, or the Amazon delivery person.

  • If you are comfortable sharing, please email over what they create.

Yesterday I asked your kid(s) to make a pizza, real or crafty, with an unusual ingredient. Here's some of what came in:

Jo (3) made pizza with olives, mushrooms and peas.
Aidan (10) and Malia (12) made a pizza puzzle with hot dogs, eggs, and other unusual stuff.
O (3 yrs) and L (18mos) helping make pizza. Per their dad: "Black olives aren't unusual per se, but who would have guessed that both kids would love them."
Venture Capital Deals

🚑 RemeGen, a Chinese biologic drug developer , raised around $100 million. Lilly Asia Ventures and Lake Bleu Capital co-led, and were joined by Vivo Capital, Janchor Partners, OrbiMed, Hudson Bay Capital, and return backers Loyal Valley Capital and China Reform Conson Soochow Overseas Fund. http://axios.link/n1w7

Lunar, a Nordic challenger bank, raised €20 million in new Series B funding (round total now €46m). Seed Capital led, and was joined by Greyhound, Socii, and Augustinus. http://axios.link/bo5w

Livly, a Chicago-based developer of software for multifamily homes and property managers, raised $8 million from Geolo Capital, OCA Ventures, and Founder Equity. http://axios.link/mSzW

Pulse, a CIO community platform, raised $6.5 million in Series A funding from AV8 Ventures. http://axios.link/0bCA

🚑 SteadyMD Telehealth, a St. Louis-based telehealth platform, raised $6 million in Series A funding. Pelion Venture Partners and Next Ventures co-led, and were joined by First Trust Capital Partners, the Daube family office, Crosscut Ventures, M25, Wild Ventures, and Hyde Park Venture Partners. http://axios.link/f2Id

Atmosphere, an Austin, Texas-based provider of steaming TV for businesses, raised $5 million in new Series A funding (round total now $14m) from Valor Sirens Ventures and S3 Ventures. http://axios.link/uzXp

JennyLife, a Seattle-based provider of no-exam life insurance for moms, raised $3.5 million in Series A funding (round total now $5m) led by CMFG Ventures. www.jennylife.com

Private Equity Deals

Colony Capital and Sam Zell bailed on a deal whereby they’d invest nearly $200 million into bankrupt West Texas oil and gas company Approach Resources, claiming material condition breaches. In its public filing, the specifics of those breaches were blacked-out, and Approach is disputing their validity. http://axios.link/YHbK

Dave & Buster’s Entertainment (Nasdaq: PLAY) is in talks with private equity firms about a minority investment, per Reuters. http://axios.link/o8e5

EF Education First of Switzerland paused the $2 billion sale of its Chinese unit due to the coronavirus pandemic, per Bloomberg. Remaining bidders had included Hillhouse Capital, Permira, and Warburg Pincus. http://axios.link/P9Yh

Kilter Finance, a London-based lender to the financial services sector, secured up to $500 million in equity funding from KKR. http://axios.link/Y7ji

Lone Star Funds agreed to buy Japanese hotel chain Unizo Holdings (Tokyo: 3258) for $1.9 billion, following a nine-month bidding war against The Blackstone Group and SoftBank-owned Fortress Investment Group. http://axios.link/vNE1

PSP Investments invested in SitusAMC, a Stone Point Capital-owned provider of tech and consulting services to the real estate finance market. www.situs.com

Walmart (NYSE: WMT) is pausing the auction for its majority stake in the British supermarket chain Asda, which was expected fetch at least £7 billion, due to the coronavirus pandemic, per Reuters. First-round bidders reportedly included Apollo Global Management, Lone Star Funds, and TDR Capital (paired with EG Group). http://axios.link/CQmu

Public Offerings

🚑 Zentalis Pharma, a cancer drug startup led by Anthony Sun (ex-Aisling Capital), raised $165 million in its IPO. The company priced 9.2 million shares ay $18, versus plans to sell 7.7 million shares at $16-$18, for an initial market value of $591 million. It will trade on the Nasdaq (ZNTL), used Morgan Stanley as lead underwriter, and had raised $147 million from Matrix Capital (15.2% pre-IPO stake, Viking Global Investors (14.7%), Redmile Group, Farallon Capital, Perceptive Advisors, Surveyor Capital, and Eventide Asset Management. http://axios.link/XnH0

More M&A

🥞 JCP Investment Partnership, an activist investor, is pushing for Applebee’s owner Dine Brands Global (NYSE: DIN) to spin off its IHOP restaurant chain. http://axios.link/3PfT

United Technologies (NYSE: UTX) this morning completed its all-stock purchase of Raytheon (NYSE: RTN), and also spin-outs of its Otis elevator and Carrier air conditioner businesses.


CVC Capital Partners raised $4.5 billion for its fifth Asia-focused buyout fund. http://axios.link/jOAX

🚑 Flagship Pioneering, a Cambridge, Mass.-based biotech incubator and VC firm, raised $1.1 billion for its next early-stage fund. http://axios.link/jcVv

Insight Partners raised $9.5 billion for its eleventh software-focused VC and growth equity fund. www.insightpartners.com

TrueBridge Capital Partners of Chapel Hill, N.C. raised $190 million for its second direct venture fund. http://axios.link/Q44h

🚑 VenBio Partners, a San Francisco-based VC firm, raised $394 million for its third fund. www.venbio.com

It's Personnel

Alice Cheung joined venture firm Section 32 as head of talent. She previously was head of staffing at Playground Global and, before that, lead recruiter for Google X. www.section32.com

Final Numbers
Data: Yahoo Finance; Chart: Axios Visuals

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