Mar 15, 2018

Axios Pro Rata

By Dan Primack
Dan Primack
Top of the Morning
Photo Illustration: Sarah Grillo / Axios

For Elizabeth Holmes, the top of the pedestal is getting harder and harder to see.

The onetime biotech wunderkind and her blood-testing company, Theranos, yesterday were charged with "massive fraud" by the SEC, which alleges that investors were bilked out of around $700 million. For example, the suit claims that Holmes in 2015 told a prospective investor that Theranos had generated $108 million in 2014 revenue. The actual figure was closer to $100,000.

Neither Holmes nor Theranos admit guilt, but there is a settlement that includes Holmes paying a $500,000 penalty, losing voting control of the company, giving back shares and agreeing to not serve as a director or officer of any public company for 10 years. But, again, she's not admitting guilt. MmmmHmmm...

  • Also charged was former Theranos president, and also former Holmes boyfriend, Ramesh “Sunny” Balwani, who has not yet settled.
  • Theranos investors included Rupert Murdoch, New England Patriots owner Bob Kraft, members of Wal-Mart's founding family, Tim Draper, Oracle founder Larry Ellison, and an investment affiliate of Blue Cross Blue Shield.

A reminder that U.S. Defense Secretary James Mattis was on the Theranos board during much of the alleged fraud, and only resigned after being nominated by President Trump. Mattis spokesperson Dana White declined to directly address the fraud charges, instead telling Axios:

“Secretary Mattis was struck by the promise of technology and was looking for any technology solution to save lives on the battlefield.  He resigned his position on the Theranos board on Dec. 16th prior to his confirmation.”

There is not a corresponding criminal claim to the SEC's civil action, but reports are that the Department of Justice has an open investigation.

Tears of toy: Toys "R" Us formally launched its liquidation process shortly after midnight, via a bankruptcy court filing. This came hours after more than 33,000 U.S. employees were told their jobs are likely to disappear.

  • Nothing is finalized yet. There is still some (fading) hope that strong-performing U.S. stores could be merged with the much-healthier Canadian operation.
  • Key number is $81 million, which was EBITDA for U.S. stores in Q4 2017 (i.e., holiday season). That's well below $374 million in Q4 15 and $347 million in Q4 16, not to mention below lender projections of around $330 million.
  • CEO Dave Brandon told me two years ago that a key to specialty retail success would be exclusive product. Either Toys "R" Us and Babies "R" Us didn't have enough of it, or he was wrong. But Brandon got well compensated.
  • There's plenty of blame to go around. Private equity firms Bain Capital and KKR paid too much, larded on too much debt, paid themselves handsomely and didn't adequately foresee the changing face of American retail. The senior lenders seem to have decided that it would be more lucrative to burn the whole thing down, rather than salvage hundreds of viable stores and thousands of jobs. And then there are Amazon and Wal-Mart — which threaten most specialty retailers, but took particular aim at the toy market.
  • Speaking of Bain Capital, another one of its "Golden Age" deals also bit the dust today, when radio broadcaster iHeart Media filed for bankruptcy protection. Some of you might remember this one as Clear Channel.

Streaming: Spotify today will hold a public Investor Day, ahead of its highly-anticipated direct listing. You can watch it here, beginning at 1pm ET.

D.C. doings: The Senate yesterday voted in favor of partially defanging Dodd-Frank, while a House committee heard crypto experts ask for legal clarity around ICOs. Oh, and incoming NEC director Larry Kudlow told CNBC that the U.S. "could lead a coalition of large trading partners and allies against China." Wait until someone tells him about TPP...

Gametime: More than 900 of you are participating in Pro Rata's March Madness contest, which kicks off today at noon ET. There's still time to join:

  1. Log into your account, or sign up for one (it's free).
  2. Go to the Tournament Challenge group page and search for the Pro Rata 2018 group (search box is about halfway down the page). Password: TheBFD
  3. Create your bracket before the games begin. Good luck!
Source: Giphy

Lyft has raised $200 million in new equity funding from Canadian auto parts supplier Magna (TSX: MG), and also announced a strategic partnership around self-driving cars.

  • Why it's the BFD: Because the partnership basically would allow Magna to sell discrete autonomous technologies to OEMs, just like it currently sells items like retractable hardtops or chassis control modules.
  • Bonus: Lyft discloses some financial data
  • Bottom line: "This is in line with Lyft's self-driving car strategy, which has emphasized working with many partners instead of a select few or doing everything in-house." -- Kia Kokalitcheva, Axios
Venture Capital Deals

Qutoutiao, a Chinese personalized news recommendation app, raised more than $100 million in funding led by Tencent. The company reportedly is considering a U.S. IPO that could come as early as this year.

🚑 IDEAYA Biosciences, a South San Francisco-based developer of synthetic lethality medicines and immuno-oncology therapies, has raised $94 million in Series B funding. BVF Partners, Perceptive Advisors, Nextech Invest, GV, Roche Venture Fund, 6 Dimensions Capital, Boxer Capital, Driehaus Capital Management and return backers 5AMVentures, Canaan Partners, Celgene, WuXi Healthcare Ventures and Alexandria Venture Investments.

Cambridge Innovation Center, an operator of “innovation campuses” in four U.S. cities and one in The Netherlands, has raised $58 million from HB Reavis. CIC also announced plans to open a facility in Warsaw, Poland in 2020.

🚑 Foghorn Therapeutics, a Cambridge, Mass.-based startup focused on the body’s chromatin regulatory system, has been launched with a $50 million commitment from Flagship Pioneering.

Zum, a Redwood City, Calif.-based provider of transportation for children, has raised $19 million in Series B funding. Spark Capital led, and was joined by return backer Sequoia Capital.

Skilljar, a Seattle-based customer onboarding startup, has raised $16.4 million in Series A funding from Mayfield and Shasta Ventures.

Kiddom, a San Francisco-based visual collaborative system for K-12 classrooms, has raised $15 million in Series B funding. Owl Ventures led, and was joined by return backer Khosla Ventures.

Pilot, a San Francisco-based bookkeeping software startup from the founding team of Ksplice (sold to Oracle) and Zulip (Dropbox), has raised $15 million in Series A funding led by Index Ventures.

Blue Vision Labs, a London-based collaborative AR startup, has raised $14.5 million in Series A funding. GV led, and was joined by return backers Accel, Horizons Ventures and SV Angel.

🙏, a social networking app for religious communities, has raised $14 million in Series A funding. TPG Growth led, and was joined by return backers Science Inc. and Greylock.

Streetbees, a London-based consumer insights platform, has raised $12 million in Series A funding. Atomico led, and was joined by return backers LocalGlobe, Octopus and BGF Ventures.

Solebit Labs, a Tel Aviv-based cyber-attack prevention startup, has raised $11 million in Series A funding led by ClearSky Security.

FAZUA, a Munich-based manufacturer of e-bike drive systems, raised $8 million. Unternehmertum VC Partners led, and was joined by Bayern Kapital and High-Tech Gruenderfonds.

Foxtrot, a Chicago-based, has raised $6 million in Series A funding. Fifth Wall led, and was joined by Lerer Hippeau, Revolution’s Rise of the Rest, Collaborative VC, BoxGroup, Maveron, M3 Ventures and The University of Chicago.

🚑 Parachute Health, a New York-based provider of medical equipment ordering software, has raised $5.5 million from backers like Greater New York Hospital Association Ventures and Loeb Holding Corp.

BioLumic, a New Zealand-based startup that uses UV to improve crop yield, has raised US$5 million in new funding. Finistere Ventures and Radicle Growth co-led, and were joined by Rabobank and seed backers from New Zealand.

FIGO Pet Insurance, a Chicago-based insur-tech startup focused on the pet market, has raised $4 million from HCS Capital Partners.

Private Equity Deals

🚑 Acuity Eyecare Group, a portfolio company of Riata Capital, has acquired two regional eyecare groups: One Hour Optical (Denver) and 20/20 Image Eye Centers (Phoenix). Acuity also named former Fossil Group exec Eric Anderson as its new CEO.

Apax Partners has agreed to acquire a majority stake in Italian consultancy Business Integration Partners from Argos Soditic for more than €200 million, per Reuters.

Industrial Opportunity Partners has acquired Royston, a Royston, Ga.-based maker of check out and merchandising fixtures and equipment, from Stephens Capital Partners.

Nordic Capital has acquired Trustly, a Swedish payment processing business, from shareholders like Bridgepoint Development Capital for approximately €700 million.

Tritium Partners has recapitalized RateGenius, an Austin, Texas-based online auto refinance marketplace.

🚑 UnitedHealth Group (NYSE: UNH) has dropped out of the auction for the ambulatory services unit of Envision Health (NYSE: EVHC), per Bloomberg. The move comes after Envision sued UnitedHealth over payment issues. Private equity suitors remain in the process.

Public Offerings

🚑 Arcus Biosciences, a Hayward, Calif.-based cancer immunotherapy startup, raised $120 million in its IPO. The company sold 8 million shares at $15 (high end of range) and will trade on the NYSE under ticker RCUS. Citi served as lead underwriter. Pre-IPO shareholders included GV, Stanford University, Column Group, Foresite Capital, Celgene and Novartis.

GreenTree Hospitality Group, a Chinese economy and mid-scale hotel franchisor, set its IPO terms to 19.4 million shares at $16-$18 ($1.9 billion fully-diluted value at midpoint). It plans to trade on the NYSE under ticker GHG, with Morgan Stanley as lead underwriter. The company reports $44 million in net income on $120 million in revenue for 2017.

Helios Towers, a pan-African mobile towers operator, has abandoned a planned London IPO that could have valued the business at around $2.8 billion, without providing an explanation. Shareholders include IFC and Providence Equity Partners.

Lotte Group of South Korea has filed papers to float an IT services subsidiary called Lotte Data Communication Co.

🚑 PolyPid, an Israeli drug release extension platform for preventing infection, set its IPO terms to 3.33 million shares at $21-$24 ($370 million fully-diluted value at midpoint). It plans to trade on the Nasdaq under ticker POLY, with Goldman Sachs serving as lead underwriter. Shareholders include Aurum Ventures (18.3% pre-IPO stake), Shavit Capital (9.1%) and Xenia VC (6.1%). The company previously filed for an IPO in October 2014, but pulled it the following May.

Sunlands Online Education Group, a Beijing-based provider ofonline courses for professional qualifications, set its IPO terms to 13 million shares at $11.50-$13.50 ($2.2 billion fully-diluted value at midpoint). It plans to trade on the NYSE under ticker STG, with Goldman Sachs (Asia) as lead underwriter. The company reports a $34 million net loss on $53 million in revenue for the second half of 2017.

Liquidity Events

🚑 Ardian has hired Rothschild and Jefferies to find a buyer for German drugmaker Riemser Pharma, which could fetch more than €400 million, per Reuters.

Credit Karma, a San Francisco-based credit checking company valued north of $3 billion by VCs, has acquired Penny, a chatbot app that helps users track their spending, per Recode. Penny backers included YC and Social Capital.

Nippon Steel (Tokyo: 5401) has agreed to acquire Swedish specialty steelmaker Ovako from Triton Private Equity.

Toray Industries (Tokyo: 3402) has agreed to acquire TenCate Advanced Composites, a Dutch manufacturer of thermoplastic and thermoset materials, for around €930 million. Sellers would include ABN Amro, Parcom Capital and Gilde Buy Out Partners.

More M&A

🚑 Adicon, a Chinese clinical lab operator, is seeking to fetch around $500 million in a sale, per Bloomberg.

Industrial Property Trust, a U.S. industrial property portfolio owned by Black Creek Group, is seeking strategic options that could include a sale, per Reuters. The current value is around $3.3 billion.

UBS is merging its Asia-Pacific equity and debt capital markets businesses, per an internal memo obtained by Reuters.


Allianz Capital Partners is opening an office in Shanghai, per Private Equity News.

PineBridge Investments has closed its fourth private equity secondaries fund with $568 million.

It's Personnel

Josh Elman is transitioning from a general partner to venture partner role at Greylock, as he’s agreed to become VP of product at zero-fee stock trading app Robinhood.

Alex Friedman has joined Periscope Equity as head of business development. He previously was a VP with Ardenton Capital Corp.

Thomas Mayrhofer has stepped down as CFO of The Carlyle Group’s private equity unit, in order to join hedge fund manager EJF Capital, per PE International. He will be succeeded at Carlyle by global fund management chief Norma Kuntz.

Final Numbers: PE performance
Data through 9/30/17. Private equity returns net of fees. Source: American Investment Council report.
Dan Primack