Oct 23, 2019

Axios Pro Rata

Top of the Morning

Source: Giphy

WeWork last night made it official: SoftBank will pump $9.5 billion into the beleaguered company, including a $3 billion stock tender, $5 billion of new debt, and $1.5 billion that is being accelerated from an existing equity commitment.

  • SoftBank will hold an 80% stake in WeWork on a fully-diluted basis, but apparently will not have a majority of votes on the to-be-expanded board. As such, SoftBank is claiming it does not control WeWork.
    • However... When I spoke to an internal WeWork spokesperson today, she directed most questions about future board structure, appointments, etc. to SoftBank.
  • The press release does not make any reference to the Adam Neumann payoff, perhaps to avoid rubbing further salt in employee wounds.
  • My understanding of the tender is that all company shareholders, including both employees and investors, can tender up to 33% of their shares at $19.19 each. Were more than $3 billion to be tendered, it's likely that the company would reduce payoffs on a pro rata basis.
    • That scenario could be impacted by how much Neumann himself tenders, as he's eligible to reap more than $900 million.

There's been lots of talk of how this mess will impact startup valuations, business models, and IPO opportunities. But far too little on how it should impact board oversight and founder control.

  • Remember, SoftBank had two directors on the WeWork board. But then decided, more than a year later, that it had to bring in Marcelo Claure to figure out what was really going on. What were those directors doing all this time?
  • The board either wasn't paying attention, or was paying attention but powerless to fix problems before it was too late. And, if the latter is true, then what was the point of having a board in the first place? Optics?

Venture capital has spent more than a decade bending over backwards to appease founders, often with positive results. But along the way they've too often abdicated fiduciary obligations to limited partners, believing that their job ends at "making the deal" and then "helping out when needed," such as with introductions to potential new hires.

Investors can be founder-friendly while still packing some emergency parachutes into term sheets. And if an entrepreneur objects to even the loosest of restraints, then maybe it's not a deal worth winning.


β€’ Tax talk: I've spent the past few days in Washington, D.C., and someone the other night noted that while none of the Democratic presidential candidates have talked much about carried interest taxation, many would seek to effectively eliminate the delta between capital gains and ordinary income rates for high earners.

  • In other words, carried interest could have its favorable treatment changed without being explicitly targeted.
  • Reminder: Both Presidents Obama and Trump campaigned on specifically targeting tax treatment of carried interest. Neither accomplished it.

β€’ Postmates has considered a direct listing as an alternative to an IPO, according to a Delaware stock authorization filing related to its recent $225 million Series G funding.

  • The filing, flagged to us by Prime Unicorn Index, shows that the Series G shares can convert at a 15% discount in the case of an IPO or a direct public listing. Normally such clauses only cite IPOs.
  • Also worth noting that the 15% applies for one year, and then increases by 2.5% each six months until hitting a max discount of 25%. And the discount is inapplicable if it results in a higher number than the original issue price (i.e., Series G holders get lower of the two).

🎧 Pro Rata Podcast double-shot:

  • Our regular episode dug into impeachment at Day 30, and I was joined by Axios' Alayna Treene. Listen here.
  • An afternoon pop-up focused on Fortune Magazine's decision to keep Kirstjen Nielsen on its Most Powerful Women conference program, despite widespread "image rehab" accusations and the loss of other high-profile speakers like Hillary Clinton. My guest was Fortune's Michal Lev-Ram. Listen here.

Databricks, a San Francisco-based data analytics SaaS company, raised $400 million in Series F funding led by Andreessen Horowitz at a $6.2 billion valuation.

  • Why it's the BFD: Because this one can legitimately lay claim to all the hottest enterprise software buzzwords, from open-source to machine learning to cloud. In short, its big promise is to help customers add AI to existing business software β€” kind of SaaS-upon-SaaS. Plus, it just added the CFO who helped take Splunk public.
  • Other investors include Alkeon Capital Management, BlackRock, Coatue, Dragoneer, Geodesic, Green Bay Ventures, NEA, T. Rowe Price, and Tiger Global.
  • Bottom line: "Databricks' platform is used by enterprises to analyze data, build data pipelines across siloed storage systems and prepare labeled datasets for model building. The idea is that organizations can then use the platform to train machine learning and other AI models using their existing data." β€” Mike Wheatley, SiliconAngle
Venture Capital Deals

β€’ Fabric, a San Francisco-based provider of automated retail logistics, raised $110 million in Series B funding. Corner Ventures led, and was joined by Aleph, CPPIB, Innovation Endeavors, La Maison, Playground Ventures, and Temasek. http://axios.link/M6bW

β€’ PeerNova, a San Jose, Calif.-based provider of end-to-end digitization for financial institutions, raised $31 million. Mosaik Partners led, and was joined by Medici Ventures and Intuitive Venture Partners. http://axios.link/731M

β€’ Disperse, a London-based construction tech startup, raised $15 million in Series A funding led by Northzone. www.disperse.io

β€’ EV Connect, a Los Angeles-based provider of EV charge management software, raised $12 million in Series B funding from Mitsui & Co. and Ecosystem Integrity Fund. http://axios.link/xkWW

β€’ Firedome, a New York-based endpoint cybersecurity startup, raised $10 million in Series A funding. Two Sigma Ventures led, and was joined by World Trade Ventures and Silvertech Ventures. www.firedome.io

πŸš‘ LabGenius, a London-based startup focused on robotic automation for protein drug discovery, raised $10 million in Series A funding. Lux Capital and Obvious Ventures co-led, and were joined by Felicis Ventures, Inovia Capital, and Air Street Capital. http://axios.link/M50M

β€’ Winnie, a San Francisco-based childcare and preschool marketplace, raised $9 million in Series A funding. Rethink Impact led, and was joined by Impact America Fund, Unusual Ventures, Ludlow Ventures, Afore Capital, Day One Ventures, Kairos, and April Underwood. http://axios.link/luHO

β€’ Beam, a Boston-based provider of CBD products, raised $5 million in seed funding led by Obvious Ventures. www.beamtlc.com

β€’ Koan, a Portland, Ore.-based corporate leadership platform, raised $5 million in seed funding co-led by Uncork Capital and Crosslink Capital. www.koan.co

β€’ Logixboard, a Seattle-based freight logistics startup, raised $4.2 million in seed funding led by Social Leverage. http://axios.link/ZAyy

Private Equity Deals

β€’ Cerberus Capital Management agreed to buy Kellermeyer Bergensons Services, an Oceanside, Calif.-based industrial and commercial facilities management firm, from GI Partners. www.kbs-services.com

β€’ Platinum Equity agreed to buy Chicago-based business information company Cision (NYSE: CISN) for $2.74 billion in cash. Sellers would include GTCR, which has a 34% stake. www.cision.com

Public Offerings

β€’ Paysafe, a London-based payments processor owned by The Blackstone Group and CVC Capital Partners, is prepping an IPO that could value the company north of $10 billion, per Reuters. http://axios.link/mYn7

β€’ PropertyGuru, a Singapore-based property listings firm backed by KKR, canceled its planned A$245 million Australian IPO. Last week, KKR pulled an Australian IPO for portfolio company Latitude Financial Group. http://axios.link/w8jj

β€’ Reynolds Consumer Products hired bankers for a planned 2020 IPO that could value the company at around $7 billion, per Bloomberg. http://axios.link/w80d

Liquidity Events

β€’ Banijay, a French media company, reportedly is nearing an agreement to buy Endemol Shine, the Dutch TV production company behind The Voice and Black Mirror, from Apollo Global Management for around €250 million. http://axios.link/YW3m

πŸš‘ Cerberus Capital Management is seeking a buyer for Covis Pharma, a Swiss drugmaker that could fetch around $800 million, per Bloomberg. http://axios.link/ieH1

β€’ Vacasa, a Portland, Ore.-based vacation rental management startup, completed its $162 million purchase of Wyndham Vacation Rentals from Wyndham Destinations (NYSE: WYND). Vascasa has raised over $200 million in VC funding from Riverwood, Level Equity, Assurant and NewSpring Capital. www.vacasa.com

More M&A

β€’ APG Groep agrees to acquire a 39% stake in European car park operator Interparking from Canada Pension Plan Investment Board. http://axios.link/LOrt

β€’ Hop Lun, a Hong Kong-based lingerie supplier, is seeking a buyer for between $400 million and $500 million, per Bloomberg. http://axios.link/T0tt


β€’ Avenue Capital Management is seeking to raise $1 billion for an aircraft leasing fund, per Bloomberg. http://axios.link/D2e6

It's Personnel

β€’ Travis Bryant, a former sales exec with Optimizely and Salesforce, joined Redpoint Ventures as a partner and β€œhead of founder experience.” http://axios.link/AIOu

β€’ Highland Capital Partners hired Claire Fauquier (ex-Corigin Ventures), Rob Toews (ex-Bain & Co. and Zoox), and Caty Rae (ex-Rough Draft Ventures). www.hcp.com

Final Numbers: VC survey
Source: Morgan Stanley survey

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