Aug 7, 2017

Axios Pro Rata

By Dan Primack
Dan Primack
Top of the Morning

500 Startups did not inform its limited partners of sexual harassment allegations against firm founder Dave McClure, nor that he had stepped down from running day-to-day operations of the firm, until after the situation was made public in early July by The New York Times. This is according to conversations with two limited partners – and from comments made by current 500 Startups CEO Christine Tsai, speaking confidentially on a recorded LP call that was obtained by Axios.

500 Startups declined to comment on what it did, or didn't, tell LPs before the allegations were made public. So, let's go to the audiotape, which was recorded just a few days after this mess broke out into the open:

  • "Many of you were disappointing with the way the messaging and perspectives were shared with you… And I deeply apologize for the trouble we have caused all of you."
  • "In late 2016 the management team was made aware of inappropriate comments that Dave had made to a potential investment team candidate, prior to her entering a formal interview process back in 2014. At the time we believed we addressed it appropriately with Dave. In April of this year we were informed of an incident involving Dave and an employee. Upon investigation we felt we needed to take significant action."
  • "The only person who had the legal authority to make Dave resign was Dave himself."
  • "We communicated this transition to our entire staff in an all-hands meeting and email in May. We did not disclose the reason for this transition to respect privacy. We told the team at this meeting of our intention to communicate this transition to our LPs and the general public later this year."
  • "In retrospect these moves were insufficient. We failed to anticipate that Dave would be so resistant to pulling back from the company in the way we had requested despite repeated, direct requests by me to disengage from day-to-day direct communications within the firm."
  • "We also failed to recognize the damage we'd be inflicting on ourselves, our business partners and the women who had come forward by allowing him to continue representing 500."

• Corporate venturing: Rumi Morales is stepping down as head of CME Ventures, the early-stage investment unit of futures and options trading platform CME Group (Nasdaq: CME), Axios has learned. Also leaving CME Ventures is senior director Brandon Gath. No word yet on what prompted the shakeup, but a CME spokesman insists that the "the focus for CME Ventures will not change."

• Recommended reading: Alexandra Stevenson on how Diane Hendricks, America's second-richest self-made woman, is working to convert a troubled Wisconsin city into a startup mecca:

"Her activities on Beloit's behalf are complicated by the fact that not everyone agrees with Ms. Hendricks's political views. She was an early supporter of Donald J. Trump's presidential campaign here in Wisconsin, a state with a history of progressive politics, and that has pitted her against some current and former students at Beloit College, a liberal arts school and one of Beloit's other big employers."

• Today in SoftBank: Masa this morning said that while SoftBank is indeed interested in investing in Uber, it may instead pursue an investment in Lyft. Reads to be me like a negotiation ploy with Uber. (yeah, we're single-naming Masa now – he's our Kanye or Madonna).

• Academia: Researchers from Stanford and University of British Columbia have found that "official" later-stage startup valuations are significantly inflated, largely because they ignore structure and presume that all company shares are priced where the most recently-issued shares are priced: "

"Using data from legal filings, we show that the average highly-valued venture capital-backed company reports a valuation 49% above its fair value, with common shares overvalued by 59%... In our sample of unicorns – companies with reported valuation above $1 billion – almost one half (53 out of 116) lose their unicorn status when their valuation is recalculated and 11 companies are overvalued by more than 100%."

The BFD

Elliott Management on Friday disclosed a 6% stake in NXP Semiconductors (Nasdaq: NXPI), the Dutch chip-maker that recently agreed to be acquired by Qualcomm (Nasdaq: QCOM) for $38 billion in cash. The activist investment firm added that it paid around $1.2 billion for the position.

  • Why it's the BFD: Elliott said in a regulatory filing that it believes NXP stock is "significantly undervalued and represent an attractive investment opportunity." Given that NXP has been trading around the $110 per share takeover price for months, this means Elliott wants to push Qualcomm for a richer deal.
  • Bottom line: Qualcomm/NXP already was set to be the largest semiconductor merger of all time, and Elliott's agitation already has helped add more than half a billion dollars to NXP's market cap.
Venture Capital Deals

• WeWork, a New York-based co-working space operator, has raised $500 million in new equity funding from undisclosed investors, for the purpose of expanding in Southeast Asia and Korea. In related news, WeWork has acquired Singapore-based co-working company Spacemo. http://tcrn.ch/2vvApXI

• Gu Sheng Tang, a franchisor of traditional medicine clinics in China, has raised around $150 million in Series B funding from Capital Risk Investment Fund, China Life Insurance Co., CMB International and China Orient Asset Management. http://bit.ly/2uyHXnX

• iFlix, a subscription video-on-demand service for emerging markets, has raised $133 million in new VC funding. Hearst led the round, and was joined by EDBI, BDS private bank clients and return backers Evolution Media, Sky PLC, Catcha Group, Liberty Global, Jungle Ventures and PLDT Inc.

🚑 Neuros Medical, a Cleveland-based neuromodulation startup, has raised $20 million in Series A funding. U.S. Venture Partners led the round, and was joined by Boston Scientific, Aperture Venture Partners, Osage University Partners and JumpStart. www.neurosmedical.com

• Primary Data, a Sandy, Utah-based data management company, has raised $20 million in Series C funding. Pelion Venture Partners led the round, and was joined by Accel and Battery Ventures. The company also secured $20 million via a new credit line. http://bit.ly/2vvnpkF

• T2 Cloud, a Beijing-based provider of cloud platform products for IT infrastructure assessment and operations, has raised nearly $14 million in Series B funding from backers like Sinosoft. http://bit.ly/2flilJ7

🚑 Quanterix, a Lexington, Mass.-based company that digitizes biomarker analysis, has raised $8.5 million in new VC funding from T. Rowe Price. http://bit.ly/2vcvqZa

• Universal Standard, a -based plus-sized women's clothing startup, $1.5 million in seed funding led by Red Sea Ventures. http://bit.ly/2uThh1P

• Winky Lux, a New York-based beauty brand aimed at Gen Z, has raised $2 million in seed funding. Female Founders Fund led the round, and was joined by BBG Ventures, GGV, SoGal Ventures and TGZ Capital. http://usm.ag/2ueb5nK

Private Equity Deals

Brynwood Partners has acquired Cold Spring Brewing Co., a Cold Spring, Minn.-based maker of energy drinks, carbonated waters and beer. No financial terms were disclosed. http://on.sctimes.com/2wfzdVH

• EnableComp, a Franklin, Tenn.-based provider of workers' compensation claims billing solutions, has secured an undisclosed amount of growth equity funding from Primus Capital. http://bit.ly/2uhC1EJ

• e-Shang Redwood, an Aisa-focused logistics facilities owner backed by Warburg Pincus, is in advanced talks to purchase Sabana Shari'ah Compliant Industrial REIT, a Singapore-listed real estate investment trust with a current market cap just north of US$378 million, according to Reuters. http://reut.rs/2ugBnmL

• General Atlantic has agreed to become a "significant shareholder" in Karvy Computershare, an India-based provider of investor and issuer services for the asset management industry and Indian corporations. No financial terms were disclosed http://bit.ly/2uakfTx

• Interface Security Systems, a provider of IP managed security services with offices in St. Louis and Texas, has raised $125 million in new equity funding from SunTx Capital Partners and Prudential Capital Partners. http://bit.ly/2wkXFoC

• Resolute Industrial, a Wheeling, Ill.-based portfolio company of One Equity Partners, has acquired Tioga HVAC Rentals, a Minneapolis-based provider of heating and small-tonnage cooling equipment. No financial terms were disclosed. Sellers include Hunter Equity Capital and Mangrove Equity Partners. www.tioga-inc.com

• Thoma Bravo has agreed to acquire a majority stake in Frontline Education, an Exton, Penn.-based provider of K-12 education software, from Insight Venture Partners (which will maintain a minority equity stake). No financial terms were disclosed. http://bit.ly/2vBZEbd

• Xella International, a German portfolio company of Lone Star Funds, has agreed to acquire URSA, a Madrid-based insulation provider, from KKR. No financial terms were disclosed, except that URSA generates around €450 million in annual revenue. www.xella.com

Public Offerings

• Three companies are expected to price IPOs this week on U.S. exchanges: Contura Energy, Ranger Energy Services and Zealand Pharma. http://bit.ly/2vbBov9

Liquidity Events

• Permira has agreed to sell Netafim, an Israel-based provider of smart drip and micro-irrigation solutions, to Mexichem for $1.895 billion in cash. http://on.ft.com/2wzOjVk

More M&A

• Eros Group, an Indian entertainment company, is in early talks to sell its entire film and music content library to Apple, Amazon or Netflix, according to Reuters. http://reut.rs/2vEY1IZ

🚑 Fresenius Medical Care, a Germany-listed dialysis products and services company, has agreed to acquire NxStage Medical (Nasdaq: NXTM), a Lawrence, Mass.-based maker of treatment products for end-stage kidney disease and acute kidney failure, for around $2 billion, or $30 per share (29.65% premium over Friday's closing price). http://on.ft.com/2fl6sTw

• Tremor Video (NYSE: TRMR) has sold its demand-side platform for $50 million to Taptica (AIM: TAP), an Israel-based mobile ad platform. http://on.wsj.com/2vbRBQY

Fundraising

• March Capital Partners, a Santa Monica, Calif.-based VC firm, is raising up to $150 million for its second fund, per an SEC filing. It also is raising another $150 million for a new "opportunities" fund. www.marchcp.com

• Thoma Bravo is raising up to $750 million for its first credit fund, per an SEC filing. www.thomabravo.com

It's Personnel

• David Grim is stepping down as director of the SEC's division of investment management. No word yet on his successor or future plans. www.sec.gov

• Anand Subramanian has joined Macquarie Capital as a San Francisco-based managing director and co-head of private capital markets. He previously was with Qatalyst Partners.

Final Numbers
Dan Primack