Axios Pro Rata
November 16, 2023
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Top of the Morning
Nearly five months ago, social media "unicorn" IRL shut down after its board determined that almost all of its users were fake.
- Two of the company's co-founders, including its ousted CEO Abraham Shafi, now are pushing back via a lawsuit that accuses IRL's venture capital investors of breaching their fiduciary duties.
Why it matters: Litigation between tech founders and VC firms remains relatively unusual, as it typically behooves each to be outwardly friendly to the other. Even when things have gone very sour.
What to know: IRL raised nearly $200 million between 2016 and 2021, eventually being valued at nearly $1.2 billion. Major backers, and defendants in this lawsuit, were Goodwater Capital, Floodgate, and SoftBank.
What we know: By 2022, both the company and the SEC had been made aware of former IRL employee concerns about the veracity of the company's user metrics.
- The SEC opened an investigation into IRL, which included depositions of two VCs, and the company also engaged several third-parties to do their own investigations.
- The company's board eventually determined that the user fraud was widespread, believed there also was financial misappropriation, and replaced Shafi with an outside CEO.
- Soon after, IRL's number of daily active users plummeted. The board voted to shut down the business, returning around $40 million in remaining cash to investors.
- SoftBank sued Shafi in August, accusing him of fraud and asking for $150 million in damages.
What we don't know: Who's telling the truth.
- Shafi's lawsuit basically says that two other outside firms validated IRL's user metrics before the fatal third report, and that the user deterioration was caused by an outage and other product troubles that occurred after he left and was replaced by a non-technical CEO.
- He argues that the VCs shut down the business to protect their own reputations, rather than admit they'd caused the value destruction.
- The VC backers obviously disagree, including via the SoftBank lawsuit, and appear to believe the user issue came after Shafi stopped paying his bot bills.
- We're still awaiting the outcome of the government's investigation, and a company statement claims there is more than one.
The bottom line: Sometimes, when enough money is lost, everyone is willing to burn their bridges.
Elon Musk yesterday wrote "You have said the actual truth," in response to an X post that claimed Jewish communities support "dialectical hatred against whites." The original poster also implied agreement with the statement, "Hitler was right."
Why it's the BFD: No investment firms that backed Musk's takeover of X, nor those that have backed his other ventures, made public statements of opposition or condemnation. Instead, they cowered.
- Musk later tried to backtrack, suggesting (without evidence) that he was primarily talking about his advertising nemeses at the ADL. But he never removed his original reply.
The bottom line: If the VC firms don't believe they've invested hundreds of millions of LP dollars with someone who is outwardly antisemitic, and there's plenty to support each side of that question, then they must instead believe they've invested hundreds of millions of LP dollars with someone so clumsy as to not realize when he's endorsing tropes that have been used to justify mass murders of Jews.
- Were this almost any other founder or top executive, there already would have been meetings about demanding an apology. At the very least.
Venture Capital Deals
🚑 Forward, an SF-based medical clinic operator, raised $100m in Series E funding from Khosla Ventures, SoftBank and Founders Fund. https://axios.link/46kSWTM
🚑 Cytovale, an SF-based maker of rapid diagnostics tests for sepsis, raised $84m in Series C funding, as first reported by Axios Pro. Norwest Venture Partners led, and was joined by Sands Capital and Global Health Investment Corp. https://axios.link/3MKvvML
Element Energy, a Menlo Park, Calif.-based battery management startup, raised $73m in Series B funding co-led by Cohort Ventures. It also secured a $38m debt facility from Keyframe Capital Partners. www.elementenergy.com
• Revolv, an SF-based provider of electric commercial fleets, raised $25m in equity project financing from Greenbacker Capital Management. www.revolv.us
• Cumulus Coffee, a maker of at-home cold brew coffee machines, raised $20.3m in seed funding. Valor Siren Ventures and Valor Equity Partners co-led, and were joined by Maveron, Howard Schultz, Linden Ventures, Carter Reum and Ryan Tedder. www.cumuluscoffee.com
• CondoConta, a Brazilian fintech focused on condominiums, raised $14.6m in Series A funding from YN Proptech, Endeavor Scale-Up and Terracotta Ventures. https://axios.link/47yhVEg
• Bezi, a collaborative 3D design platform, raised $13m in Series A funding. Benchmark led, and was joined by Uncork Capital and Designer Fund. https://axios.link/3G2Ek0y
• Gravity, a New York-based EV infrastructure startup, raised $13m in seed funding led by GV. www.gravitymobility.com
• Tenet, a New York-based EV financing startup, raised $10m in Series A funding. Nyca Partners led, and was joined by Assurant Ventures and Giant Ventures. https://axios.link/47et7WC
• CFX Labs, a Chicago-based stablecoin settlement network, raised $9.5m in seed funding from Shima Capital, Decasonic, Antalpha, CMT Digital, Corazon Capital, Hard Yaka, Kraken Ventures, New Form Capital and Metropolitan Capital Bank & Trust. www.cfxlabs.com
⚡ Proxima Fusion, a German developer of fusion power plants, raised €7.5m from Visionaries Tomorrow, Hummingbird Collective, Achleitner Ventures, Bosch Holding and FlixFounders. www.proximafusion.com
• Handraise, an AI startup focused on earned media insights for brands, raised $6.4m from Floodgate, Firebrand Ventures and Bill Wood Ventures. www.handraise.com
• Evenergi Labs, a London-based provider of EV transition software for transit agencies, raised $5m from Aligned Climate Capital. https://axios.link/47pYKMO
🌎 OCOchem, a Richland, Wash.-based carbon recycling startup, raised $5m in seed funding. TO VC led, and was joined by Japanese oil company Inpex, LCY Lee Family Office and MIH Capital Management. https://axios.link/3sJl59c
• Qevlar AI, a Paris-based cybersecurity startup, raised €4.5m in seed funding led by EQT Ventures. https://axios.link/49Hji5t
🚑 Morf Health, an SF-based digital health enablement startup, raised $3m in seed funding. Kindred Ventures led, and was joined by Uncommon Capital and Asymmetric Capital. www.morf.health
⚡ Mocean Energy, a Scottish wave energy company, raised €2.5m from Equity Gap, Scottish Enterprise, Old College Capital, Katapult Ocean and MOL Plus. https://axios.link/3sxZ5OC
• Tech Spark AI, a Toronto-based educational AI startup, raised US$1.3m in pre-seed funding led by TD Bank. https://axios.link/40LZKsA
Private Equity Deals
• Advent International agreed to buy myPOS, a British payment services firm, for more than $500m. https://axios.link/3MKV14q
• Allfunds Group, an Amsterdam-listed fund distribution platform with a market cap of around €3.8b, is reaching out to potential private equity suitors, per Bloomberg. https://axios.link/49BBiy1
• Gemspring Capital Management acquired Fenceworks, a Riverside, Calif.-based fencing installer and distributor for homebuilders. www.fenceworks.us
• KKR completed its $1.3b take-private buyout of Westwood, Mass.-based specialty chemicals company Chase Corp. www.chasecorp.com
⚡ Macquarie Asset Management will invest up to €175m into SkyNRG, a Dutch alternative fuel supplier. https://axios.link/3R0sN8f
🚑 MBI Industrial Medicine, a Phoenix-based portfolio company of Clearview Capital, acquired Reliant, a provider of occupational health care services in Southern California. www.mbiaz.com
• Pacific Current Group (ASX: PAC), an Australian asset management firm, said it's ended buyout talks with GQG Partners and River Capital. https://axios.link/3SJKBpM
• Prime Pensions, a Florham Park, N.J.-based portfolio company of Mill Point Capital, acquired Pension Benefits Unlimited, an Irvine, Calif.-based provider of retirement plan design and administration services. www.primepensionsinc.com
• Right Time, a Canadian portfolio company of Gryphon Investors, acquired Breathe Clean, a Halifax-based provider of ductless heat pump cleaning services. www.right-time.ca
⚡ Spectrum Equity bought a 20% stake in Benchmark Mineral Intelligence, a London-based provider of battery data for the EV supply chain, at nearly a $500m enterprise value. https://axios.link/3ufZNR8
• Thoma Bravo agreed to buy German corporate communications and compliance firm EQS Group (ETR: EQS) for around €400m. https://axios.link/3MI12Pm
🚑 Sanofi (Paris: SAN) hired Rothschild & Co. to explore a separate listing of its consumer health unit, which would be valued north of $20b, per Bloomberg. https://axios.link/3SEXVLN
• World View, a Tucson, Ariz.-based stratospheric balloon startup, has again delayed the planned close of a merger with Leo Holdings Corp. II (NYSE: LHC), a SPAC backed by Lion Capital. https://axios.link/40Id9Su
• Bedford Media, led by Karlie Kloss, is acquiring fashion and culture-focused i-D magazine from Vice. https://axios.link/40DsYtu
⚡ Karoon Energy (ASX: KAR) agreed to pay US$720m to buy stakes in offshore oil and gas fields in the Gulf of Mexico from Louisiana-based LLOG Exploration. https://axios.link/3ujwoWg
• Mars Inc. agreed to buy British chocolatier Hotel Chocolat (LSE: HOTC) for £534m. https://axios.link/47B1C9K
🚑 QuidelOrtho (Nasdaq: QDEL) is seeking a buyer for its transfusion medicine business, which could fetch up to $2b, per Bloomberg. https://axios.link/47kNLEH
🍺 Young & Co's Brewery (LSE: YNGA) agreed to buy smaller British pub operator City Pub Group (LSE: CPC) for £162m. https://axios.link/47yrins
⚡ BlackRock said it's secured nearly $1b in client commitments for its evergreen infrastructure fund, focused on the energy transition. www.blackrock.com
• L Squared Capital Partners, a Newport Beach, Calif.-based PE firm, raised $840m for its fourth fund. www.lsquaredcap.com
• Material Impact, a Boston-based VC firm focused on material sciences, raised $352m for its third fund. www.materialiompact.com
• John Casey, co-founder and former head of biz dev at Senda Biosciences, is joining VC firm Pillar as a venture partner. www.pillar.vc
• Roni Hiranand joined GV as a London-based principal. He previously was with Vectr Ventures. https://axios.link/47bA6jp
🚑 Trip Hofer, former CEO of Optum Behavioral Health Solutions, joined .406 Ventures as a venture partner and CEO of portfolio company Redox. www.406ventures.com
• Amol Kulkarni, former chief product and engineering officer at CrowdStrike, joined Permira as a senior advisor. www.permira.com
• Will Swayne joined New State Capital Partners as a senior principal. He previously was a managing director with Partners Group. www.newstatecp.com
Stocks are roaring as U.S.-China tensions and inflation both cool.
- The S&P 500 is up 7.4% so far in November, while the Nasdaq gained 9.8%, the Russell 2000 rose 8.4% and the Dow is up 5.9%.
- Go deeper.
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