Jun 18, 2018

Axios Pro Rata

By Dan Primack
Dan Primack
Top of the Morning
Illustration: Lazaro Gamio/Axios

Federal prosecutors on Friday charged Theranos founder Elizabeth Holmes and former Theranos president Sunny Balwani with 11 counts of criminally defrauding investors, patients and doctors.

  • Criminal charges had been expected, particularly after the SEC's civil action in March.
  • Holmes, who settled the SEC case, has not yet commented. She did, however, step down as Theranos CEO while sticking on the board as chair. Balwani, who is fighting the civil charges, said via an attorney that he "looks forward to clearing his name at trial."
  • We've posted the full criminal complaint.

Three reasons why Theranos matters, even for those who had no direct or indirect relationship to the company:

1. It changed biotech investing, by turning peer-reviewed science from a "nice to have" into a "must have." This isn't always be applicable at a startup's earliest stages, but life sciences VCs and private equity investors no longer accept corporate partnerships as substitutes for objective due diligence.

2. It increased skepticism of tech. Theranos was the biggest fraud in Silicon Valley's history, and was partially enabled by the "wow factor" of prior Silicon Valley inventions. If we all got a supercomputer in our pocket, who's to say we can't we have dozens of blood tests from a single drop? Theranos dimmed that credulous shimmer a bit, and helped set the stage for increased scrutiny of all sorts of tech company claims.

3. It created an unfortunate blame game. There has been tons written about how dumb the investors were. Or how obliviously obsequious the board was. Or how desperate the media was to put Holmes on a pedestal. And there is truth to all of it.

But a greater truth is that great grift looks obvious only in retrospect, as the startup world previously saw in lower-profile cases like Canopy Financial. Con artists knows which buttons to press and which to avoid. Where trust is assumed and where it must be obtained. Where the law can be used to their advantage. Theranos wasn't valued at $9 billion because everyone was stupid, but rather because those running the company were smart. At least for a while...

The BFD
Illustration: Sarah Grillo/Axios

Google has agreed to invest $550 million into Chinese e-commerce giant JD.com (Nasdaq: JD), as part of a broader strategic partnership. JD shares opened up nearly 6% today, giving it a market cap north of $65 billion.

  • Why it's the BFD: While American retail giants like Amazon and Walmart battle overseas in places in India, Chinese retail giants like JD and Alibaba are taking their fight stateside.
  • Bottom line: "This will help JD break into the U.S. and European markets, as CEO Richard Liu wants the company to earn half its money abroad within the next decade. For Google, it's a wedge into Chinese e-commerce via the country's most sophisticated logistics network." — Axios' Steve LeVine, who just wrote about how JD built a giant new fulfillment center that employs only four people (all of whom service the robots).
Venture Capital Deals

Moxy, a new commercial airline startup from David Neeleman (founder of JetBlue and Azul), is raising $100 million in first-round funding, per Airline Weekly. http://axios.link/MFc9

Tessian (fka CheckRecipient), a London-based email security startup, raised $13 million in Series a funding. Balderton Capital led, and was joined by Amadeus Capital Partners, Crane, LocalGlobe, Winton Ventures and Walking Ventures. http://axios.link/UkFr

TennantBase, a Santa Monica, Calif.-based tech-enabled commercial real estate brokerage, raised $10.7 million in new funding led by Stonecutter Capital. www.tennantbase.com

Panaseer, a London-based provider of cybersecurity risk intelligence software, raised $10 million in Series A funding. Evolution Equity Partners led, and was joined by Cisco and return backers Notion Capital, Albion Capital, Winton Ventures and Paladin Capital Group. www.panaseer.com

RideOS, a developer of deployment software for self-driving car fleets, raised $9 million in Series A funding. Sequoia Capital led, and was joined by Graph Ventures and SV Angel. http://axios.link/iLK0

Zenaton, a SaaS developer tool for building workflows, raised $2.35 million in seed funding co-led by Accel and Point Nine Capital. www.zenaton.com

Private Equity Deals

Cerberus Capital Management is nearing a deal to buy Worldwide Flight Services, an Irving, Texas-based air cargo handler, from Platinum Equity for around $1.4 billion, per Bloomberg. http://axios.link/T5u8

• Vintage Capital has agreed to buy Rent-A-Center (Nasdaq: RCII) for around $1.37 billion (including assumed debt), or $15 per share.

Public Offerings

Eleven companies plan to go public on U.S. exchanges this weeks: Aptinyx, Autolus Therapeutics, AvroBio, Eidos Therapeutics, Electrocore, Essential Properties, i3 Verticals, Kezar Life Sciences, LF Capital Acquisition, Magenta Therapeutics and Xeris Pharmaceuticals. http://axios.link/inUP

BJ's Wholesale Club, a Westborough, Mass.-based retailer, set its IPO terms to 37.5 million shares at $15-$17. It would have an initial market cap of $2.02 billion, were it to price in the middle. The company reports $50 million in profit on $12.5 billion in revenue for its most recent fiscal year, and plans to trade on the NYSE (BJ) with BofA Merrill Lynch as lead underwriter. It was taken private in 2011 by CVC Capital Partners and Leonard Green & Partners.

Domo, a Utah-based data management and analytics company, set its IPO terms to 9.2 million shares at $19-$22. It will trade on the Nasdaq (DOMO) with Morgan Stanley as lead underwriter. The company reports a $177 million net loss on $108 million in revenue for its most recent fiscal year, and raised over $700 million from firms like Benchmark, BlackRock, IVP and GGV Capital. www.domo.com

EverQuote Inc., a Cambridge, Mass.-based insurance marketplace, set its IPO terms to nearly 4.7 million shares at $15-$17. It would have an initial market cap of $397 million, were it to price in the middle. The company plans to trade on the NYSE (EVER) with J.P. Morgan as lead underwriter, and reports a $1 million net loss on $40 million in revenue for Q1. EverQuote has raised over $37 million in VC funding from firms like Link Ventures, Savano Capital, Stratim Capital, Oceanic Partners and T Capital Partners. www.everquote.com

Lovesac Co., a Stamford, Conn.-based seller of beanbag chairs, set its IPO terms to 3 million shares at $13-$15. It would have an initial market cap of $171 million, were it to price in the middle. The company plans to trade on the Nasdaq (LOVE) with Roth Capital as sole underwriter, and reports a $5.5 million net loss on around $102 million in revenue for its most recent fiscal year. Shareholders include Satori Capital and Mistral Equity Partners. www.lovesac.com

🚑 Translate Bio, a Lexington, Mass.-based developer mRNA therapeutics for cystic fibrosis, set its IPO terms to 7.7 million shares at $12-$14. It would have an initial market cap of $561 million, were it to price in the middle. The pre-revenue company plans to trade on the Nasdaq (TBIO) with Citi as lead underwriter, and has raised around $140 million from Shire (19.6% pre-IPO stake), Fidelity (14.5%), Baupost Group (13%), Atlas Venture (11.1%), S.R. One (9.7%), Omega Funds (6.9%) and MRL Ventures 5.4%). www.translate.bio

More M&A

BOK Financial (Nasdaq: BOKF) has agreed to buy Denver-based commercial lender CoBiz Financial (Nasdaq: COBZ) for around $1 billion in cash and stock. http://axios.link/ycog

CYBG (LSE: CYBGC) has agreed to buy Virgin Money (LSE: VM) for £1.7 billion in stock, in a deal that would create Britain’s sixth largest bank. http://axios.link/l4mG

F-Secure, a listed Finnish cybersecurity company, is acquiring UK-based MWR InfoSecurity for up to £105 million in cash (£80m upfront). http://axios.link/2bNj

⛽ LyondellBasell Industries (NYSE: LYB) is in exclusive talks to acquire Brazilian petrochemicals company Braskem from Odebrecht SA in a deal that could be worth more than $9 billion, per Reuters. http://axios.link/Un5R

South32 (ASX: S32) of Australia has offered to buy what it doesn’t already own in Vancouver-based Arizona Mining (TSX: AZ) for C$1.3 billion, or C$6.20 per share (50% premium to Friday’s close). http://axios.link/Gjns

Fundraising

🚑 Cressey & Co., a healthcare-focused private equity firm, raised $995 million for a new flagship fund and $105 million for a new co-investment fund. www.cresseyco.com

It's Personnel

Joy Basu has stepped down as head of food and agriculture investing at TPG's The Rise Fund, although she will remain a senior advisor.

Dan Levin, former president and COO of Box, has joined Khosla Ventures as an operating partner. http://axios.link/nj0f

Arjun Sethi has stepped down as a general partner with VC firm Social Capital, per Bloomberg. http://axios.link/bDJa

Final Numbers
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Data: MONEY.NET through Friday's market close; Chart: Axios Visuals

When President Trump signed the tax cuts into law late last December, there were questions as to whether Wall Street had already baked them into corporate stock prices. The answer has been a mixed bag.

  • The DJIA has only climbed 1.3% since the tax cuts were signed, despite having climbed 14.75% over the previous five months, and the S&P 500 is only up 3.5% compared to a previous gain of 8.7%.
  • Nasdaq is up 11.3%, compared to nearly 9% for the prior five months.
Dan Primack

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