Feb 1, 2017

Axios Pro Rata

By Dan Primack
Dan Primack

Bleary-eyed greetings from Los Angeles, where later today I'll be interviewing venture capitalists Brad Feld and Josh Kopelman on Day 1 of the Upfront Summit. It's on-the-record, so shoot over any questions you think I should ask (i.e., do my job for me). Tomorrow I'll do something similar on M&A with top execs from Salesforce and Netsuite. Here we go...

Top of the Morning

• Sand Hill shakeup: As Axios was first to report yesterday, Sequoia Capital is making several changes to its senior leadership. Most notably, Jim Goetz ― who somehow convinced WhatsApp's founders to not take VC from anyone else before selling for $19 billion to Facebook ― is stepping back from his "Sequoia Steward" role and his position as co-head of U.S. venture capital. He will be succeeded by Roelof Botha on the former, while Alfred Lin will join Botha on leading U.S. venture capital.

We've got a lot more detail here, but the broader takeaway is that Sequoia has now repeatedly managed to transition senior leadership (something that has been a struggle for many VC and PE firms). Sometimes founders want to realize some sort of equity for their work, or keep their name on the door. Sequoia founder Don Valentine, however, intentionally chose a firm name in 1972 that reflected long-lived stability, and later handed over the reins to Doug Leone and Michael Moritz without asking for a dollar in return. Moritz stepped back a bit in 2012 due to health concerns, and Leone asked Goetz and Neil Shen to take on the "Sequoia Steward" role while Leone focused on running the day-to-day. Now Goetz is following tradition by passing it on.

Leone tells Axios: "In 1996, Don met with Michael Moritz and me in a conference room. He shared three messages. First, he said he'd like us to guide the partnership. He did not ask for anything in return. Second, he said you decide if you want me around. Finally, he slid a piece of paper across the table. It had a couple dozen categories of investor responsibilities, with checkmarks beside the things he was willing to do going forward.

Don had observed partners at other firms staying around too long, in some cases even falling asleep in meetings, and clinging on to too much of the economics. He believed that was very damaging, and wanted to ensure it never happened to Sequoia."

• Molasses watch:The expected 2017 IPO rebound has hit a major speed-bump. Just three companies filed S-1s in January, tying it with last February for the slowest such month since May 2009. Pricings were a bit stronger with eight (not including last night's Invitation Homes and Laureate Education, which begin trading today), which was the same or weaker than eight months in a 2016 that was widely viewed as slow.

• Recommended reading: The ripple effect of Trump's proposed H1-B visa reforms.

• PE holy grail: For years, private equity has been trying to work its way into the defined contribution space. Today it may be getting significantly closer, as longtime manager Pantheon will unveil an evergreen product whose performance-pricing mechanism is designed to protect against class-action lawsuits on the fee side (of which there are hundreds filed, sometimes even related to index funds). In short, there will be no management fee. Instead, Pantheon only gets paid if it outperforms the S&P 500 benchmark on a quarterly basis ― but even that payment (1/3 of over-performance) is held back (1/8 per quarter) so as to maintain an adequate capital reserve for possible rebates. Pantheon also is working with firms like KKR to put capital spikes to work quickly into overage opportunities, albeit on a best-efforts basis.

Kevin Albert of Pantheon, who has been placing private equity funds for three decades, says that about a dozen big groups have expressed major interest, but that he still needs a brave first user. "This has been one of the easiest things ever for me to get meetings for, because DC plans realize that they're missing out on between 50 to 80 basis points by not being in private equity... It just takes one CIO to start, just like it once did to get DB plans like public pension funds into private equity. Then the rest will follow."

The BFD

BlackRock (NYSE: BLK) reportedly has agreed to buy the energy infrastructure business of private equity firm First Reserve, including a 37-person team and two funds that had raised a combined $3.7 billion. Only around half of the newer fund ― a $2.5 billion vehicle raised in 2014 ― is called down, and BlackRock does plan to eventually raise a third fund. No financial terms of the transaction have been disclosed.

• Why it's the BFD: This seems to be a Hail Mary for First Reserve, which will be left with a core private equity product that has really struggled in recent years (in terms of fundraising, returns and staff stability). First Reserve was long viewed as the biggest fish in the energy private equity pond but, if this refocusing doesn't work out, it may have just jettisoned its only life preserver.

• Bottom line: "Executives from BlackRock and First Reserve met through their 2015 purchase of a 45% stake in a natural-gas pipeline project in Mexico... The Pemex project brings U.S. natural gas to central Mexico, a channel that has helped support gas prices in the U.S. Some analysts warn that trade policies limiting that flow of energy could increase a domestic gas glut and harm prices." -- WSJ

Venture Capital Deals

• ClearMotion, a Boston-based digital chassis developer, has raised $100 million in Series C funding. J.P. Morgan Asset Management led the round, and was joined by NEA, Qualcomm Ventures, World Innovation Lab and Eileses Capital. http://bloom.bg/2jV2VJ2

• Uptake, a Chicago-based predictive analytics SaaS platform, has raised $40 million in new funding from Revolution Growth at a reported valuation of around $2 billion. http://on.wsj.com/2kR6UKI

• Netgain, a St. Cloud, Minn.-based provider of IT-as-a-service for healthcare providers, has raised $25 million in double-tranched funding from Bluff Point Associates. www.netgainhosting.com

• Xometry, a Gaithersburg, Md.-based on-demand manufacturing marketplace, has raised $23 million in new VC funding from GE Ventures and return backers like Highland Capital Partners. www.xometry.com

• Feedvisor, an Israel-based provider of algorithmic repricing and revenue intelligence solutions for online retailers, has raised $20 million in Series B funding led by General Catalyst. http://tcrn.ch/2kcnHou

• Comparably, a Santa Monica, Calif;-based platform that provides compensation data for public and private companies, has raised $7.25 million in new VC funding. Greycroft Partners led the round, and was joined by Comcast Ventures, Crosslink Capital, Upfront Ventures, Lowercase Capital, Alpha Edison, Cornerstone on Demand, Accelerator Ventures and Rincon Ventures. http://bit.ly/2jOiNx1

• Qvivr, a Fremont, Calif-based developer of fin-tech hardware products for millennials, has raised $5 million in Series A funding led by Khosla Ventures. http://tcrn.ch/2knMjN5

• Trussle, a UK-based online mortgage broker, has raised £4.5 million in new VC funding led by Orange Growth Capital. http://bit.ly/2kQSK9h

• Gilde Technologies, a UK-based pharma development and device startup focused on the needle-free administration of solid dose formulations, has raised £3.2 million in VC funding. Backers include Invesco Perpetual, Oxford Technology Venture Capital Trusts, Oxford Capital Partners and Hygea VCT. www.gilde-technologies.com

• Radish, a Los Angeles-based short-form serialized fiction platform, has raised $3 million in seed funding. Backers include Greylock, Lowercase Capital, Softbank Next Media Innovation Fund, UTA, Bertelsmann Digital Media Investments and Sherpa Capital. http://tcrn.ch/2kmJywb

• OpenGamma, a UK-based provider of real-time market risk management technology for financial institutions, has raised an undisclosed amount of minority equity funding from Japan Exchange Group, operator of the Tokyo Stock Exchange. http://bit.ly/2jCFp2s

• Uber and German automaker Daimler today announced an agreement whereby Daimler will begin producing self-driving Mercedes-Benz vehicles that will operate on Uber's global ride-sharing network. It is unclear if the deal includes an equity component. http://bit.ly/2kVhGM5

Private Equity Deals

• General Electric (NYSE: GE) has agreed to sell its 43% stake in South Korean credit card company Hyundai Card Co. for $258 million to an investor group that includes Affinity Equity Partners, AlpInvest, GIC and Hyundai Commercial. http://reut.rs/2kQJIJo

• Gradient Energy Services, a Denver-based provider of water management solutions to the energy industry, has secured an undisclosed amount of growth equity capital from Turnbridge Capital. www.gradientenergyservices.com

• GTCR has formed Ceba-Tech Specialty Solutions as a St. Louis-based acquisition platform focused on the specialty chemicals, materials and ingredients industry. No equity commitment was disclosed. Ceba-Tech will be led by Charles Nicolais, former CEO of SensoryEffects. www.gtcr.com

• Huntsman Family Investments has agreed to acquire telecom provider GTA TeleGuam from Japanese private equity firm Advantage Partners. No financial terms were disclosed. The company previously was sold to Indonesia SOE for nearly $300 million, but that deal was blocked by U.S. regulators due to national security concerns. http://bit.ly/2kq7C0Y

• InfoArmor, a Scottsdale, Ariz.-based provider of employee protection and cyber intelligence solutions, has raised an undisclosed amount of growth equity funding from Summit Partners.

• Littlejohn & Co. has acquired Brown Jordan International, a St. Augustine, Fla.-based maker of indoor and outdoor furniture for both the consumer and commercial markets. No financial terms were disclosed. www.bji.com

• Telos Corp., an Ashburn, Va.-based provider of enterprise IT services, has raised an undisclosed amount of equity funding from Enlightenment Capital. http://bit.ly/2kqfcJ8

• Veson Nautical, a Boston-based platform for buyers and sellers of marine freight, has secured an undisclosed amount of growth equity funding from Pamlico Capital. www.veson.com

• The Wicks Group of Cos has acquired Gladson Holdings, a Lisle, Ill.-based provider of digital content "to support omni-channel initiatives," from Lake Pacific Partners. No financial terms were disclosed. www.gladson.com

Public Offerings

ForeScout, a 16-year-old cybersecurity firm based in Campbell, Calif., has filed confidentially for an IPO, according to TechCrunch. The company has raised over $150 million in VC funding (most recently at a $1 billion valuation), from firms like Wellington Management, Accel, Cross Creek Advisors, Intel Capital, Itochu, Meritech Capital Partners and Pitango Venture Capital. http://tcrn.ch/2kSz7gd

• Invitation Homes, a Dallas-based residential REIT backed by The Blackstone Group, raised $1.54 billion in its IPO. The company priced 77 million shares at $20 per share ($17-$21 range), for an initial market cap just south of $6 billion. It will trade on the NYSE under ticker symbol INVH, while Deutsche Bank served as left-lead underwriter. http://reut.rs/2juZPQ0

• Laureate Education Inc., a Baltimore-based for-profit education company owned by KKR, raised $490 million in its IPO. The company priced 35 million shares at $14 per share, compared to plans to offer 29 million shares at between $17 and $20 per share. It will trade on the Nasdaq under ticker symbol LAUR, while Credit Suisse was listed as left lead underwriter. Laureate reports around $327 million in net income on just over $3 billion of revenue for the nine months ending Sept. 30, 2016. http://bit.ly/2kglati

Liquidity Events

• Arqiva, a British TV and mobile infrastructure provider whose shareholders include CPPIB and Macquarie, has hired Rothschild to consider strategic options, according to Reuters. The company generated £850 million in revenue for its most recent fiscal year, and could be valued at between £5 billion and £6 billion. http://reut.rs/2kQNjXO

• Carbonite (Nasdaq: CARB) has acquired Double-Take Software, a Southborough, Mass.-based provider of downtime and data protection solutions, from Vision Solutions, a portfolio company of Clearlake Capital Group. The deal is valued at $65.25 million. http://reut.rs/2kQUWxC

• Fingerprint Cards (Oslo: FING) has acquired Delta ID, a Newark, Calif.-based provider of iris recognition technology, for $106 million. Sellers include Intel Capital. http://bit.ly/2kQNse4

• Nordex of Germany has agreed to acquire SSP Technology, a Danish maker of wind turbine blade design services. No financial terms were disclosed. Sellers include VM Capital Advisors. http://bit.ly/2kqkKTS

• Radware (Nasdaq: RDWR) has acquired Seculert, an Israeli network threat detection company. No financial terms were disclosed. Seculert has raised around $15 million in VC funding from firms like Sequoia Capital and Norwest Venture Partners. http://bit.ly/2kQZffK

• Take-Two Interactive (Nasdaq: TTWO) has acquired Social Point, a Barcelona-based social game publisher, for upwards of $276 million (including $250m upfront). Social Point had raised over $40 million in VC funding from firms like Greylock, Highland Capital Partners Europe, 83 North and Nauta Capital. http://tcrn.ch/2kUABH0

• Turgut Aydin Holding is considering a sale of a minority stake in Turkish grocery store chain A101 Yeni Magazacilik, according to Bloomberg. http://bloom.bg/2krBz0d

More M&A

• Roche Holdings is pushing back against a Bloomberg report that it is considering a sale or spin-off of its diabetes unit. http://reut.rs/2kqk1lJ

• SmartRecruiters, a San Francisco-based enterprise talent acquisition platform, has acquired smaller Berlin-based peer Jobspotting. No financial terms were disclosed. SmartRecruiters has raised around $55 million in VC funding from firms like Mayfield and Insight Venture Partners, while Jobspotting was seeded by Horizon Ventures. http://tcrn.ch/2kPEX1O

Fundraising

• Akina has closed its sixth private equity fund focused on lower middle-market European companies with €410 million in capital commitments. www.akinapartners.com

• Great Hill Partners has closed its sixth middle-market private equity fund with $1.5 billion in capital commitments. www.greathillpartners.com

It's Personnel

• Daniel Clare has joined Constitution Capital Partners as a partner and head of the Boston-based firm's new New York office. He previously was a managing director with Ascribe Capital (f.k.a. American Securities Opportunities Fund). www.concp.com

• Jim Dai, former CTO of Coupang, has joined Illuminate Ventures as a venture partner. www.illuminate.com

• Matt DeFusco has joined Credit Suisse as a managing director. He previously was with Goldman Sachs as the head of U.S. leveraged finance origination and head of TMT leveraged finance. http://reut.rs/2kQEOvS

• Lee Equity Partners has promoted Geoffrey Lieberthal, Billy Nand and Collins Ward to partner. The New York-based private equity firm also promoted Eric Hsu to VP and John Ettinger to senior associate. www.leeequity.com

• Jon Weber has joined hedge fund operator BlueMountain Capital Management as head of portfolio company management. He previously served in similar roles at firms like Anchorage Capital Group, Goldman Sachs Special Situations Group and Icahn Enterprises. www.bluemountaincapital.com

Final Numbers: IPO Pipeline

Dan Primack