Apr 30, 2020

Axios Pro Rata

🖥️ Today: Axios will host a virtual live event at 12:30pm ET on how the pandemic has impacted our work lives, featuring conversations with Slack CEO Stewart Butterfield and Verizon CEO Hans Vestberg. Register here.

🎧 Pro Rata Podcast digs into the fight over meat processing plants. Take a listen.

Top of the Morning

Illustration: Aïda Amer/Axios

"Why didn't their venture capitalists just bail them out?"

  • That's the question I've been getting nonstop, as more and more VC-backed startups acknowledge having received Paycheck Protection Program loans. So let's try to answer it.

Of note: Before continuing, I want to make clear that none of this is specific to Axios, which received and then returned a PPP loan. Both decisions were above my pay grade.

The deep pocket fallacy: Venture capital funds are not the same as the rich uncle. They have their own investors, or limited partners, to whom they owe a fiduciary duty.

  • Many of these limited partners, such as pension funds and college endowments, are dealing with their own liquidity and allocation troubles. We've only heard select stories of LPs defaulting on capital calls, but imagine the strain if a VC fund chose to simultaneously "bail out" most of its portfolio companies.
  • There also may be some technical issues, in terms of there not being enough fund capital reserved to bail out existing portfolio companies. Or limits on the amount that can be invested per company. Cross-fund investing is usually considered legally dubious — which means that a VC firm's new, largely uninvested, cross-vehicle may not be available for portfolio companies in the last fund.

Cushion: Venture capital isn't designed to create massive capital cushions for startups, which is why so many are feeling the crunch.

  • Whether a startup raised $5 million or $50 million in their last round, it's usually intended to last less than two years in a normal economic environment.
  • Some more conservative founders insisted on large rainy day funds, or got very fortunate in the timing of their last infusion, but most startups aren't sitting on piles of cash.

Capitalism: The cold hard truth is that VC funds aren't social safety nets, per the legal agreements signed with their investors.

  • PPP is explicitly written to keep employees on payroll. VC fund documents are explicitly written to generate financial returns for limited partners.
  • VCs may be able to make a compelling case that keeping all or most employees is the best way to conserve long-term value, and thus worth taking the short-term hit. But, in many cases, that's a tough fiduciary argument to make — particularly when so much startup hiring is done to meet growth projections that have been slashed.

The bottom line: It's certainly true that too few startups and their investors were adequately prepared for a major economic downturn, let alone a calamity. Lost value will, in many cases, be deserved. It should force tough, productive conversations about future actions and structures.

  • But, for now, this is about the livelihoods of those who don't get to make those decisions. Venture capital funds raised before the crisis are unlikely to be their most efficient or effective payers. Even if we wish they were.

Illustration: Sarah Grillo/Axios

Stash, a New York-based investing and savings platform, raised $112 million in Series F funding led by LendingTree at a valuation north of $800 million.

  • Why it's the BFD: This reflects confidence that the current economic catastrophe won't prompt the same the formative risk aversion as did the financial crisis, when many young people swore off investing.
  • Other investors include T. Rowe Price and return backers Union Square Ventures, Breyer Capital, Goodwater Capital, and Greenspring Associates.
  • The bottom line: "The average age of a Stash user is 29 and average income is less than $50,000 per year. Users can invest in increments as small as $1, although the average is $28, with flat fees on top of that at $1, $3, and $9 for monthly subscriptions depending on what services you are using." — Ingrid Lunden, TechCrunch
Pro Rata for Kids

Today's project is for your kids to complete a black box cooking challenge. Just put 5-7 different ingredients in a box, or on a counter, and ask them to make a single dish that both of you will taste (they must use most of them. Don't overthink it — items like breakfast cereals, crackers, pre-cut veggies, and cold cuts all work. And be sure to add one challenge ingredient.

  • Per usual, send over pics of what they come up with.
  • Also, be sure to check this space tomorrow (trust me).

Yesterday's project was for your kids to create their dream bedrooms. Kellan, age 6, created the "Triple Bunk Boom," which has three levels of beds, a foldable top floor, an entertainment wall, and a double door to stop intruders.

Venture Capital Deals

Pivot Bio, a Berkeley, Calif.-based developer of microbial nitrogen tech for increasing crop yields, raised $100 million in Series C funding. Breakthrough Energy Ventures and Temasek co-led, and were joined by fellow return backer DCVC. http://axios.link/XKmV

Nexar, an Israeli developer of vehicle dashboard cameras, raised $52 million in Series C funding. Corner Ventures led, and was joined by Samsung Next, La Maison, Micron Ventures, Sompo, Atreides Management, and return backers Aleph, Mosaic Ventures, Ibex Investors, and Nationwide. www.getnexar.com

🚑 Dascena, an Oakland-based patient diagnostic tech startup, raised $50 million in Series B funding. Frazier Healthcare Partners led, and was joined by Longitude Capital and return backer Euclidean Capital. www.dascena.com

Figma, a Palo Alto, Calif.-based maker of an in-browser interface design and prototyping tool, raised $50 million in Series D funding at a $2 billion valuation. Andreessen Horowitz led, and was joined by Durable Capital and return backers Index Ventures, Greylock, Kleiner Perkins, Sequoia Capital, and Founders Fund. http://axios.link/uRHG

🚑 Robocath, a French developer of robotic systems for treating vascular diseases, raised €40 million in Series C funding. MicroPort Scientific led, and was joined by Zhejiang Silk Road Fund, Luxembourg CLIIF, CS Group, and Anaxago. http://axios.link/UgiX

Niche, a school search platform for K-12 and college, raised $35 million in Series C funding. Radian Capital led, and was joined by Salesforce Ventures and return backers Allen & Co. and Tim Armstrong. http://axios.link/v933

🚑 Taysha Gene Therapies, a Dallas-based developer of therapies to treat CNS monogenic diseases, raised $30 million in seed funding co-led by PBM Capital and Nolan Capital. http://axios.link/OwkO

InsideBoard, a Paris-based provider of organizational change management SaaS, raised €25 million in second-round funding. AXA Venture Partners led, and was joined by Orange Ventures, ISAI Cap Venture, and Entrepreneur Venture. www.insideboard.com

🚑 Vida Health, a San Francisco-based provider of virtual care software for physical and behavioral health, raised $25 million. Ally Bridge Group led, and was joined by return backers AME Cloud Ventures, Aspect Ventures, Canvas Ventures, NGP Capital, Webb Investment Network, and Workday Ventures. www.vida.com

🚑 Genespire, an Italian developer of gene therapies for patients with genetic diseases, raised €16 million in Series A funding from Sofinnova Partners. www.genespire.com

🚑 Trialbee, a Swedish clinical trial patient matching and engagement platform, raised €11 million from MTIP and return backers Industrifonden and Briban Invest. http://axios.link/yMRk

Wise, a small business challenger bank, raised $5.7 million in seed funding. Base10 Partners led, and was joined by Abstract Ventures, Backend Capital, The Fund, and Two Culture Capital. http://axios.link/Kxiy

Qorus, a Seattle-based provider of remote sales enablement and proposal management software, raised $5 million led by WestRiver Group. http://axios.link/n5uv

Finom, a European B2B challenger bank, raised €6.5 million in seed funding. Target Global led, and was joined by General Catalyst and JF Labs. http://axios.link/QjtO

Resistant AI, a Prague-based developer of anti-fraud tech for financial services and e-commerce, raised $2.75 million in seed funding co-led by Index Ventures and Credo Ventures. http://axios.link/30as

Private Equity Deals

Abu Dhabi Investment Authority (ADIA) is pausing the secondary sale process for a $2 billion strip of private equity fund stakes, per Bloomberg. http://axios.link/So3N

KKR and Henkel have paused the involvement in the auction for Coty’s (NYSE: COTY) pro hair and nail products unit, which was expected to fetch upwards of $8 billion, per Reuters. http://axios.link/xPaN

Nio, a Chinese electric vehicle startup, secured $1 billion from a group of state-owned companies in the city of Hefei. In exchange, Nio will relocate its headquarters from Shanghai to Hefei. http://axios.link/hajz

Spectrum Equity invested in OurFamilyWizard, a Minneapolis-based co-parenting app. www.ourfamilywizard.com

Public Offerings

Fortress Value Acquisition, a blank check acquisition company formed by execs at Fortress Investment Group, raised $300 million in an IPO. Fortress’ prior SPAC acquired Vivint Smart Home. http://axios.link/n1xg

Liquidity Events

MobileIron (Nasdaq: MOBL) acquired Incapptic Connect, a Berlin-based provider of mobile automation app release software that had been seeded by High-Tech Gründerfonds. www.mobileiron.com

New Mountain Capital agreed to sell Gelest, a Morrisville, Penn.-based silicones maker, to the U.S. subsidiary of Mitsubishi Chemical (Tokyo: 4188). www.gelest.com

More M&A

Chesapeake Energy (NYSE: CHK), an Oklahoma City-based shale oil giant, is prepping a possible bankruptcy filing, per Reuters. http://axios.link/5L2s

Continental (DE: CONG), a German auto parts maker, is delaying the planned spinoff of its Vitesco Technologies powertrain unit. http://axios.link/qKDX


Andreessen Horowitz raised $500 million for its second crypto-focused fund. http://axios.link/CKpU

🚑 Consonance Capital Partners, a New York-based health care private equity firm, raised $856 million for its second fund. http://axios.link/Jbkt

Eighty-Seven Capital, a new VC firm led by former NBA exec Sam Hinkie, raised $50 million for its debut fund. http://axios.link/Xvhq

Housatonic Partners, a San Francisco-based private equity firm, is raising $400 million for its seventh fund, per an SEC filing. www.housatonicpartners.com

Silverton Partners, an Austin, Texas-based early-stage VC firm, raised $144 million for its sixth fund. ww.silvertonpartners.com

It's Personnel

David Liu joined Verizon Ventures as a principal. He previously was in corporate development at Verizon and, before that, was a media and telecom banker at Citi. www.verizonventures.com

Allen Schaar and Sanjay Purohit joined PE consultancy Accordion as managing directors in its performance improvement and restructuring practice. Schaar previously was an operating partner with Highlander Partners, while Purohit was a managing director with Probot Ventures. www.accordion.com

Final Numbers
Data: The COVID Tracking Project, U.S. Census Bureau; Chart: Andrew Witherspoon/Axios

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