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Apr 2, 2020

Axios Pro Rata

🎧 Pro Rata Podcast digs into the Defense Production Act. What it is, why President Trump won't fully invoke it, and how the White House regularly used it before COVID-19. Listen here.

Top of the Morning

Illustration: Aïda Amer/Axios

Private equity and venture capital investors now have high-powered bipartisan support for their efforts to expand the types of small businesses eligible for $350 billion in federal loans via the CARES Act.

  • House Speaker Nancy Pelosi and House Minority Leader Kevin McCarthy, who rarely agree on anything except for the grandeur of California, both want the so-called "affiliation rules" waived.

What's the affiliation rule? As we discussed last week, it excludes most small businesses from qualifying as small businesses if they are owned by a private equity firm — by "affiliating" all of the company's employees with those of the private equity firm's other portfolio companies.

  • So if a private equity firm has 10 portfolio companies with 51 employees each, then none of those companies would qualify for loans that are explicitly structured to keep people employed.

Affiliation rules also expand to many VC-backed companies, even if there is no outside investor control, such as if two or more VC firms combined "are large compared to other stock holdings."

  • This is particularly pernicious because the vagueness could cause banks participating in the loan program to avoid VC-backed companies, given that they cannot be sure of the federal guarantees until weeks or months from now (when the SBA would rule on a case-by-case basis).
  • As Justin Field of the National Venture Capital Association suggests, it's reminiscent of the Seinfeld bit when Kramer pretends to be Moviefone. "Why don't you just tell me if you're a small business..."

Some argue that these companies should tap their existing financial sponsors for support, but that misses the point of a federal program designed to stem job losses immediately.

  • Some firms could (and are) plugging in new cash or debt, but many are holding out in case they need to rescue the entire entity (at which point there would be no prospect for rehiring).

All of which brings us back to Pelosi and McCarthy.

  • Yes, they helped write the bill that they now want Treasury or the SBA to fix via "guidance."
  • No, we can't say that the bill just relied on existing SBA language, given that it exempted relevant companies in select industries (restaurants, hospitality, etc.) and those that have received prior SBA funding via SBICs.
  • But, but, but: Their vocal efforts are better late than never for hundreds, maybe thousands, of companies that are staring down awful payroll decisions.

The bottom line: Waiving the affiliate rule remains a long shot, particularly given that it wasn't addressed yesterday in new loan application information released by the Treasury and SBA. Still, it remains a long shot that's worth taking.

  • Bonus: Later today I'll be interviewing McCarthy about the affiliate rule on Pro Rata podcast.


SoftBank has officially pulled the plug on its $3 billion tender offer for WeWork shares, which was agreed to last fall and scheduled to close yesterday.

  • Why it matters: This is money that was all but promised to early WeWork employees and investors, some of whom may have made major financial decisions based on its receipt. The snarkier coverage may focus on the $970 million that former WeWork CEO Adam Neumann "lost," but that shouldn't obscure where the bulk of the money was to go.
  • Balance sheet: None of the $3 billion was designated for WeWork itself, but there was $1.1 billion of debt financing contingent on the tender closing. SoftBank still could provide the $1.1 billion, but is no longer obligated to do so, thus giving WeWork less financial flexibility at a time when its co-working model is anathema to public health.
  • The bottom line: SoftBank says its decision was based on WeWork not meeting all of the closing conditions, including "at least one" antitrust approval, plus the launch of both civil and criminal investigations that could create material liabilities. It is worth noting that SoftBank had two directors on the WeWork board prior to the tender agreement, and subsequently installed one of its own executives, Marcelo Claure, as executive chairman.
Pro Rata for Kids

🍕 Today's project is to ask your kid(s) to make a pizza. It can be a real pizza, a bagel pizza, a drawn pizza, a Lego pizza, or something else. BUT: It needs to include at least one unusual (and edible) ingredient. Bonus points if it's real AND it becomes lunch or dinner.

  • Per usual, please send me photos of what they create.

Yesterday, I asked your kid(s) to "make" an emotion, but without using a face. Here are a couple submissions:

Azalia, age 8, from Sydney, Australia.
Rowan, age 4, made "happy." He adds: "Lego is awesome. How does Dan know about Lego?"
Venture Capital Deals

🚑 iTeos Therapeutics, a Belgian immuno-oncology startup, raised $125 million in Series B2 funding. RA Capital and Boxer Capital co-led, and were joined by Janus Henderson Investors, RTW Investors, Invus Group, and return backers MPM Capital, HBM Partners Fund, VIVES II, and SFPI. http://axios.link/MPOg

Collibra, a New York-based provider of data governance software for business users, raised $112.5 million in fifth-round funding at a $2.3 billion post-money valuation co-led by Durable Capital Partners and insiders Iconiq Capital and Index Ventures. Also returning were Battery Ventures, CapitalG, and Dawn Capital. http://axios.link/WQgc

🚑 Pandion Therapeutics, a Cambridge, Mass.-based biotech focused on autoimmune disorders like Type 1 diabetes, raised $80 million in Series B funding. Access Biotechnology and Boxer Capital co-led, and were joined by RA Capital, OrbiMed, and return backers Polaris Partners, Versant Ventures, Roche Venture Fund, SR 1, JDRF T1D Fund, and BioInnovation Capital. http://axios.link/13n7

🚑 MedGenome, a Foster City, Calif.-based genetic diagnostics and research startup focused on Southeast Asia, raised $55 million. LeapFrog Investments led, and was joined by return backers Sequoia Capital and Sofina. http://axios.link/zBWr

🚑 Dynacure, a French drug startup focused on rare and orphan disorders like myotubular and centronuclear myopathies, raised €50 million in Series C funding. Perceptive Advisors led, and was joined by Bpifrance, Tekla Capital, Andera Partners, Kurma Partners, and Pontifax. http://axios.link/O0By

Notion, a San Francisco-based provider of cloud-based collaboration tools, raised $50 million in new funding at a $2 billion valuation led by Index Ventures. http://axios.link/36HW

BigRentz, an Irvine, Calif.-based construction equipment rental platform, raised $15 million led by Japan’s Itochu Corp. http://axios.link/WhEG

RoadSync, an Atlanta-based digital payment platform for transportation, raised $5.7 million in Series A funding. Base10 Partners led, and was joined by Hyde Park Venture Partners and Companyon Ventures. http://axios.link/7jCM

Orum, a San Francisco-based AI-sales platform, raised $4 million in seed funding. Unusual Ventures led, and was joined by Neo. http://axios.link/ctG5

Private Equity Deals

🚑 Francisco Partners completed its purchase of Smith Technologies, a Spartanburg, S.C.-based developer of community pharmacy and long-term care technology, from J M Smith Corp. The company has been rebranded RedSail Technologies. http://axios.link/KlXf

PSP Investments and Alberta Teachers’ completed their C$1.7 billion take-private acquisition of Canadian utility AltaGas Canada.

Stone Canyon Industries completed its US$2 billion acquisition of Kissner, a Toronto-based salt producer, from Metalmark Capital. www.kissner.com

Public Offerings

WiMi Hologram Cloud, a Chinese augmented reality platform, raised $26 million in its IPO. The company priced 4.8 million shares at $5.50 (low end of range, for a market cap of $325 million. It will trade on the Nasdaq (WIMI). http://axios.link/oPUm

Liquidity Events

Koch Engineered Solutions, a unit of Koch Industries, acquired Sentient Energy, a Burlingame, Calif.-based provider of electric line sensors and grid analytics software. Sentient had raised around $47 million from backers like ClearSky, Foundation Capital, GE Ventures, and KCK Group.

More M&A

Illustration: Aïda Amer/Axios

T-Mobile US (Nasdaq: TMUS) completed its $26 billion merger with Sprint and said that T-Mobile CEO John Legere is stepping down a month early, meaning that Mike Sievert is now running the show. http://axios.link/6p5P

CSC, a Wilmington, Del.-based provider of administration services to alternative asset managers, acquired Dutch peer TCS-Groep. http://www.finsmes.com/2020/04/csc-buys-tcs-groep.html

Majesco (Nasdaq: MJGO) acquired Eddystone, Penn.-based InsPro Technologies, an OTC-listed provider of software to the life and annuity insurance markets. www.inspro.com

Xerox (NYSE: XRX) abandoned its $35 billion hostile takeover of HP (NYSE: HPQ). http://axios.link/DsHd


🚑 Arch Venture Partners raised a total of $1.5 billion for its tenth early-stage biotech fund and an affiliated overage fund. http://axios.link/3Ovx

🚑 Gilde Healthcare raised €416m for its fifth health care-focused VC and growth equity fund. The Dutch firm has a U.S. office in Cambridge, Mass. http://axios.link/uMxa

It's Personnel

HGGC promoted Dan Stanko to partner and hired Chris Heim (ex-CEO of HGGC portfolio company HelpSystems) as an executive director. www.hggc.com

Final Numbers
Data: U.S. Labor Department via FRED; Chart: Andrew Witherspoon/Axios

Go deeper: America's jobs picture gets much, much bleaker

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