Mar 20, 2017

Axios Pro Rata

By Dan Primack
Dan Primack

Greetings from Washington, D.C., where I'm in town for some meetings and to remind colleagues of what I look like. Remember that you can provide feedback or scoop by responding directly to these morning missives, by using our anonymous tipbox or services like Confide and Signal (857-472-3072). Here we go...

Top of the Morning

Indebted: Last week we noted that Wal-Mart subsidiary had acquired ModCloth, an online retailer of vintage women's apparel. No financial terms were disclosed, but this didn't feel like a success for either ModCloth or the venture capitalists who had invested over $70 million into the business since its founding 15 years earlier. Here's what happened, per sources familiar with the situation:

  • In 2013 ModCloth went out in search of Series C funding, but the process was felled by a back-to-back pair of lousy quarters. So instead it accepted $20 million in unsecured bank debt.
  • ModCloth effectively treated the debt like growth equity, rather than recognizing the time bomb it could become.
  • When the debt first came due in April 2015, existing ModCloth investors pumped in new equity to, in part, kick repayment down the road for two years. This came amid amid four to five straight quarters of profitability, and just after the company brought in a former Urban Outfitters executive as CEO.
  • Once the income statement returned to the red, ModCloth again tried raising equity ― but prospective investors cited the debt overhang as their reason for passing on a company whose unit economics were otherwise fundable. Insiders could have stepped up but didn't.
  • heard of ModCloth's debt coming due debt month, and pounced. We've been unable to learn the exact amount it paid, except that the amount left over for VCs after repaying the debt (and accounting for receivables) won't be nearly enough to make them whole.
  • 2 takeaways: (1) Debt is not inherently troublesome for startups, particularly if it's supplementing equity as opposed to substituting for equity. But startups must recognize that not all cash is created equal. (2) ModCloth was founded in Pittsburgh, but later moved its HQ to San Francisco. It's impossible to know if things would have worked out differently had the company remained in the Steel City, but some of its quirky retail culture did seem to get commingled with the "grow grow" tech etho

• Never mind, it's rhetorical: For years, CEOs shouted "uncertainty" to explain away everything from their lack of investment in R&D to their inability to provide employee wage hikes. Today we're expecting massive changes to our federal tax, healthcare and regulatory regimes (let alone revived trade war concerns after last week's G20 meeting), but have virtually no certainty on the final details. Yet I haven't heard a single CEO complain about "uncertainty" in months...

• Spectacle: Snap finally got its first buy rating this morning, sending shares up in pre-market trading (albeit still not above the $20 per share mark).

• Kicking: MuleSoft shares popped more than 40% in their first day of trading on Friday, giving the SaaS integration company a market cap north of $3 billion. I spoke via phone with CEO Greg Schott about the IPO, M&A plans, immigration and his "stock price" message to employees. Read it read.

• Gametime: We're into the Sweet 16, and reader Danny Conway is leading our March Madness Extravaganza. His final game also remains intact, although he did have Villanova in his Final Four (which is better than me, who had Nova winning the whole thing). Continued good luck to all.


Vodafone India has agreed to merge with fellow Indian mobile carrier Idea Cellular in a $23 billion transaction. Vodafone would hold a 45.1% stake in the combined company, while Idea's majority shareholder (Aditya Birla Group) would own a 26% stake. The remaining 28.9% position would he held by other Idea Cellular shareholders.

Why it's the BFD: This merger would create the largest telecom company (nearly 400 million customers) in the world's second largest mobile phone market (behind China). It also comes amid major turmoil in the Indian mobile market. Current leader Bharti Airtel last week canceled plans to sell a control stake in its mobile tower unit, largely because of a stock price plunge related to the Vodafone India/Idea Cellular merger talks. And all three companies have been under severe price pressure after India's richest man spent around $20 billion to build out a network that has been offering its consumer services for free.

Bottom line: "Since the merged entity will have more resources, the telecom price war is going to get messier. Idea-Vodafone merger may lead to more consolidation. Reliance Communications, Tata Teleservices and Aircel are already in talks for merger. Airtel has bought India operations of Telenor. Reliance is surely going to face stiff fight from the new biggies. The consumer will be the king." Economic Times

Venture Capital Deals

• Chezhibao, a Chinese used car auction platform, has raised $100 million in Series C funding led by PAG. Existing shareholders include JD Capital, Gobi Partners and Addor Capital.

• Cell Medica, a London-based cellular immunotherapy company, has raised £60 million in Series C funding from return backers Touchstone Innovations, Invesco Perpetual and Woodford Investment Management.

• Moximed, a Hayward, Calif.-based developer of unicompartmental load absorber implants for patients with knee osteoarthritis, has raised $50 million in Series C funding. Backers include Advent Life Sciences, GBS Venture Partners, Future Fund, NEA, Morgenthaler Ventures and Vertex Healthcare.

• Suzhou Ribo Life Science, a Chinese developer of small interfering RNA drugs, has raised $39 million in Series B funding. SDIC Fund Management led the round, and was joined by such firms as Legend Capital, GGV Capital and China Resources.

• Before Brands, a Menlo Park, Calif.-based developer of nutritional products, has raised $35 million in Series B funding led by Gurnet Point Capital.

• MedLumics, a Madrid-based developer of cardiac devices, has raised €34.4 million in Series B funding. Edmond de Rothschild Investment Partners led the round, and was joined by Seroba Life Sciences, Innogest Capital and undisclosed strategic investor and return backers Ysios Capital Partners and Caixa Capital Risc.

• SolarisBank, a Berlin-based fintech services platform, has raised $28 million in new VC funding. Arvato Financial Solutions and SBI Group co-led the round, and were joined by seed backers FinLeap, Hegus and Yabeo Capital.

• Newrank, a Shanghai-based social media content monitoring and ranking platform, has raised $26 million in Series B funding co-led by CMC Capital and HG Capital.

• Advicenne, a French pediatric drug developer focused on orphan renal and neurological diseases, has raised €16 million in new VC funding from IRDI SORIDEC Gestion, Cemag Invest and MI Care, Bpifrance and IXO Private Equity.

• Aetion, a New York-based healthcare analytics platform, has raised $11.2 million in Series A funding. Flare Capital Partners led the round, and was joined by Lakestar.

• Nested, a UK-based residential home sale platform, has raised £8 million in new VC funding. Passion Capital led the round, and was joined by fellow return backers Balderton Capital and Global Founders Capital.

• FarmLead, an Ottawa-based online grain marketplace, has raised US$6.5 million in Series A funding. Monsanto Growth Ventures led the round, and was joined by Avrio Ventures, the MaRS Innovation Accelerator Fund and Serra Ventures.

• MultiX, a French maker of X-ray imaging solutions for airports, has raised €3.5 million in new VC funding from Omnes Capital and H3C.

Private Equity Deals

• Albertsons, the Cerberus-owned grocer that is in registration for an IPO, has held preliminary stalks to acquire Sprouts Farmers Market (Nasdaq: SFM), according to Bloomberg. Sprouts has a current market cap of around $3.2 billion.

• CloudCheckr, a Rochester, N.H.-based cloud management platform, has raised $50 million from Level Equity.

• Crisis Prevention Institute, a Milwaukee-based crisis prevention and de-escalation training company owned by FFL Partners, has acquired Pivotal Education, a UK-based education consultancy and training company. No financial terms were disclosed.

• International Potash Corp., a fertilizer ingredient company that owns and operates the Ochoa Polyhalite Project in New Mexico, has raised an undisclosed amount of new equity funding from existing shareholder Cartesian Capital Group.

• Littlejohn & Co. has acquired Tidel, a Carrollton, Texas-based provider of smart safe solutions to automate cash handling. No financial terms were disclosed, except that a joint venture between Antares and LStar Capital provided leveraged financing.

• Unilver (LSE: ULVR) reportedly is prepping a £6 billion sale of its food "spreads" business, with both Bain Capital and Clayton Dubilier & Rice among those prepping bids.

Public Offerings

• Mavi Jeans, a Turkish jeans maker owned by Turkeven Private Equity and the Akarlilar family, has hired Goldman Sachs and BofA Merrill Lynch to work on an IPO that could value the company at around $800 million, according to Bloomberg.

• Netmarble, a South Korean maker of mobile and PC games, has filed paperwork for a Seoul IPO that could raise upwards of $2.35 billion.

Liquidity Events

Aquiline Capital Partners has sold BI-SAM Technologies, a French provider of provider of portfolio performance and attribution software, to FactSet (NYSE: FDS) for $205.2 million.

• PBM Capital Group has sold a majority stake in Breas Medical Group, a Charlottesville, Va.-based maker of homecare ventilation and sleep apnea devices, to Fosun Pharma. No financial terms were disclosed.

• Renovo Capital has sold Andronico's, a specialty grocer in the Bay Area, to Safeway (NYSE: SWY) for an undisclosed amount.

More M&A

• Atos of France denied a report that its payment terminals unit (Worldline) is prepping a takeover offer for Ingenico that could have been worth upwards of €8 billion.

• Exxon Mobil (NYSE: XOM) is seeking a buyer for half of its 2,500 fuel stations in Italy for upwards of 500 million, according to Reuters.

• The Washington Companies has offered to acquire Canada's Dominion Diamond Corp. (NYSE: DDC) for approximately US$1.1 billion, or $13.50 per share (36% premium to Friday's closing price).


• Aflac Corp. (NYSE: AFLC) has launched a corporate VC arm to invest in early-stage companies relevant to the insurer's core business. It will be led by existing Aflac exec Nadeem Khan, who has served as SVP of corporate development.

• Source Code Capital, a Sequoia Capital affiliate in China, is raising upwards of $260 million for its third VC fund, per an SEC filing.

It's Personnel

• Rob Collins has joined 3i as managing partner of a new North American infrastructure platform. He previously led investments in North America and Europe for Hastings Funds Management.

• James Holley has joined UK-based private equity firm Bridgepoint to head of ESG efforts, per Dow Jones. He previously led UK responsible investment for KPMG.

• Tony Olivo has joined PEF Services, a fund administrator for alternative investment managers, as director of business development. He previously was with Phoenix American Financial Services.

Final Numbers
Dan Primack