Aug 21, 2019

Axios Pro Rata

By Dan Primack
Dan Primack

🎧 Pro Rata Podcast digs into the unexpected, and controversial, partnership between Jay-Z and the NFL. Listen here.

Top of the Morning

Illustration: Aïda Amer/Axios

WeWork has long been a unicorn piñata. It's wildly unprofitable. It's cultish. It's real estate masquerading as technology.

  • Yes, I've played this game, once referring to WeWork as a commercial property bubble living atop a startup bubble.
  • That one led to me getting a PowerPoint walk-through of WeWork's business by CFO Artie Minson, who made a fairly persuasive case that I was overstating both risks.
  • Since then I've been more sanguine, concluding that there is a defensible bull case (in terms of viability, if not specific valuation). Kind of like what Stratechery's Ben Thompson wrote yesterday.

But, man, WeWork doesn't make it easy to love it. And a few more unforced errors could lead to an ugly IPO road-show.

  • The most egregious is WeWork paying founder and CEO Adam Neumann $5.9 million for the "We" trademark when it formally changed its name to "The We Company." There is just zero defense here, even if Neumann originally planned to use the trademark for unaffiliated businesses and it subsequently gained in taxable transfer value because of WeWork. It's abusive of the company's balance sheet.
  • WeWork's corporate structure is a convoluted mess of holding companies because, well, real estate. But it needn't have made the financial section of its prospectus what IPO analyst Rett Wallace calls a "masterpiece of obfuscation."
  • All IPOs include some conflicted underwriter interests, given that one side of the bank is working for the company (get a high price) and another side is working for its high-net-worth clients (get a lower price so it will pop). We WeWork puts those conflicts on overdrive, because of personal loans made to Neumann that are secured against his (still illiquid) stock.
    • And that doesn't even address the IPO-simultaneous $6 billion debt facility, which can be read either as a vote of confidence/alignment of interests or as a deepened conflict.

WeWork has time to fix some of this in its amended filing. But, if it doesn't, then the bull could be drowned by the BS.

The BFD

Illustration: Sarah Grillo/Axios

Homeis, a New York-based social networking app for immigrants, raised $12 million in Series A funding co-led by Canaan Partners and Spark Capital.

  • Why it's the BFD: Heated political rhetoric on immigration tends to overlook the day-to-day needs of newcomers to a community, particularly when there are language and cultural barriers, and existing social networks haven't directly addressed this ready-made target market. At the same time, vulnerable populations are likely to have elevated data privacy fears.
  • Bonus: Homeis co-founder Ran Harnevo, who sold his prior company (5Min) to AOL, will join me on today's podcast.
  • Bottom line: "It's a place for people born in foreign communities to find each other in their new home city for tips, dates, jobs and more. For example, Israelis living in New York City can find recommendations on locating authentic Israeli cuisine or babysitters and doctors who speak Hebrew nearby." — Sara Ashley O'Brien, CNN
Venture Capital Deals

• PlusAI, a self-driving truck startup backed by Sequoia Capital and Lightspeed Venture Partners, is in advanced talks to raise $200 million at a valuation north of $1 billion, per Bloomberg. http://axios.link/nDXC

• Tala, a Santa Monica, Calif.-based uncollateralized lender in emerging markets, raised $110 million in Series D funding. RPS Ventures led, and was joined by GGV Capital and return backers IVP, Revolution Growth, Lowercase Capital, DCVC, ThomVest Ventures, and PayPal Ventures. http://axios.link/Ufvn

🚑 Graybug Vision, a Redwood City, Calif.-based developer of drugs to treat ocular diseases, raised $80 million in Series C funding. CBC Group led, and was joined by return backers Deerfield Management, OrbiMed Advisors, Hatteras Venture Partners, and Blackstone Life Sciences. www.graybug.com

🚑 Oncorus, a Cambridge, Mass.-based developer of oncolytic viruses, raised $79.5 million in Series B funding co-led by Cowen Healthcare Investments and Perceptive Advisors. http://axios.link/2wXr

Kobitron, an Atlanta-based mobile testing platform, raised $5.2 million in Series A funding. BIP Capital led, and was joined by return backers KMS Technology and Kinetic Ventures. http://axios.link/BS3c

Private Equity Deals

Capital Dynamics agreed to buy the equity of four operating wind projects in Northern Ireland from Brookfield Renewable Partners. http://axios.link/Znru

CoveMark invested in Capra Foods, a Goldthwaite, Texas-based lamb meat producer. www.caprafoods.com

Masco (NYSE: MAS) received first-round bids for its cabinetry business from American Industrial Partners, Bain Capital, Clearlake Capital and WW Grainger, per Bloomberg. A deal could be worth around $1.2 billion. http://axios.link/AbBc

🚑 New Mountain Capital is merging portfolio companies Signify Health (Dallas) and Remedy Partners (Connecticut) into a single healthcare enablement platform. www.remedypartners.com

Polytek, an Easton, Penn.-based portfolio company of Arsenal Capital Partners, acquired Stone Coat Countertops, a Grants Pass, Ore.-based maker of epoxy coating and casting systems. www.polytek.com

Sea Link International, a Largo, Fla.-based portfolio company of New Water Capital, acquired Hicks Plastics, a Macomb, Mich.-based provider of injection molded and metallized automotive forward lighting parts. www.sealinkinternational.com

Public Offerings

Alibaba (NYSE: BABA) will indefinitely postpone a Hong Kong listing due to the protests, per Reuters. It had been expected to raise upwards of $15 billion. http://axios.link/xn9H

Uhuru, a Japanese “digital transformation” company, is prepping a London IPO for October, per the FT. Backers include SoftBank, Salesforce Ventures and NEC Corp. http://axios.link/aH4n

Vivara Participações, a Brazilian jewelry retailer, filed for an IPO. http://axios.link/qwPj

Liquidity Events

CenterOak Partners sold TruRoad, a Woburn, Mass.-based auto glass and claims management company, to Safelite.

DoorDash acquired Scotty Labs, a developer of "teleoperations” for remotely controlling driverless cars that last year raised a $6 million in a round led by Gradient Ventures. http://axios.link/sLSW

More M&A

🚑 Cigna (NYSE: CI) is considering a sale of its group benefits insurance unit, which could fetch upwards of $6 billion, per Reuters. http://axios.link/6rGM

Goldman Sachs applied for majority control of its Chinese joint venture. http://axios.link/cMku

🚑 IAC (Nasdaa: IAC) acquired NurseFly, an online job board for short-term nursing, for a reported $15 million. http://axios.link/q1r

ITC, a listed Indian cigarette maker, is considering a bid for a stake in listed Indian coffee shop chain Coffee Day, in which KKR holds a 6% stake. http://axios.link/1W6E

Fundraising

Keshia Knight Pulliam, the actress known to my generation as Rudy Huxtable, has partnered with lifestyle entrepreneur Arian Simone to launch a $5 million VC fund focused on female founders of color. It's called Fearless Fund.

March Capital Partners, a Santa Monica, Calif.-based VC firm, is raising up to $50 million for a gaming-focused fund, per an SEC filing. www.marchcp.com

Varient Equity, a Los Angeles-based private equity firm focused on corporate carve-outs, raised $102 million for its second fund, per an SEC filing. www.variantequity.com

Vulcan Capital opened an office in Singapore and committed to invest at least $100 million in Southeast Asian startups. http://axios.link/hx9a

It's Personnel

🚑 Michael Bernstein joined Arsenal Capital Partners as an operating partner. He previously led healthcare investing for Baird Capital Partners. www.arsenalcap.com

The Carlyle Group hired 23-year Goldman Sachs vet Bruce Larson as chief human resources officer www.carlyle.com

🚑 Ram Jagannath is joining The Blackstone Group to focus on healthcare growth equity investing, per PE Hub. He previously was with Navab Capital Partners, which shuttered after the death of founder Alex Navab. http://axios.link/kQ6q

Samardh Kumar left Citigroup to join Bank of America as co-head of a new investing banking group focused on private growth companies, per Bloomberg. http://axios.link/5VCL

Highview Capital, a Los Angeles-based private equity firm, promoted PJ Gilbert to principal and Kapish Haldia to senior associate. It also hired Kelly Cash (ex-Goldman) as an associate. www.highviewcp.com

Final Numbers
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Data: Pitchbook; Chart: Axios Visuals
Dan Primack

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