Apr 8, 2020

Axios Pro Rata

By Dan Primack
Dan Primack

🎧 Listen up: Pro Rata Podcast features a conversation with Axios' Felix Salmon on the complexity of reopening America.

  • I also joined Anthony Pompliano on his latest pod, focused on the PPP loan program and if VC-backed and PE-backed companies should be allowed to participate. Listen or watch.
Top of the Morning

Illustration: Aïda Amer/Axios

Staples recently informed landlords that it will not pay April rents for its U.S. stores, even though the locations remain open, Axios has learned.

Why it matters: Commercial landlords are stuck in a tightening vise, forgiving or deferring payments from shuttered tenants while still needing to meet their own mortgage obligations.

  • Staples, whose private equity owner Sycamore Partners took out a $1 billion dividend last year, is only making a bad situation worse.

What they're saying: Multiple landlords tell Axios that Staples reached out within the past 72 hours to inform them of its decision. It didn't propose any sort of deferred payments, nor would it pledge to pay May rents. At the same time, the landlords remain expected to maintain such services as utilities and sanitation.

  • "They basically told me it was my problem," one landlord explained. "They're taking advantage of a crisis — we're not allowed to do evictions right now and, even if we could, imagine the PR nightmare of kicking out an 'essential service.'"
  • "I could stop sweeping the parking lot, but I've got a supermarket in the same plaza," adds another landlord. "I also have an Office Depot in a different property, which is Staples' closest competitor, and they paid their April rent. ... Staples as an anchor tenant pays less per square foot than the smaller stores, which we're working with because their revenue went to zero, but apparently they don't care at all about those mom-and-pops or the smaller [landlords] that have only one or two anchors."

Standard commercial property leases do not allow for tenants to stop paying their rent due to the current situation, nor are the tenants typically covered via interruption-of-business insurance. Likewise, commercial landlords remain on the hook for their own debt obligations.

  • But, again, Staples remains open (albeit with slightly shortened hours).

Background: Private equity firm Sycamore Partners took Staples private in 2017 for $6.9 billion. It also split the company into three independent operating entities — U.S. retail, Canada, and corporate supply.

  • Sycamore last year refinanced its buyout via $3.2 billion in new debt, out of which it paid itself a $1 billion dividend. Or, put another way, Staples took on $1 billion in additional debt, thus reducing its financial flexibility in a crisis.
  • It's unclear if the loans were taken out by the umbrella "Staples Inc." or by the corporate supply unit (which is stronger than Staples U.S. retail). Either way, the $1 billion dividend went to Sycamore, which owns all of Staples, and limited partners in its funds.

For the record: I spoke briefly on Monday with a Staples spokeswoman, who said she'd respond soon to Axios' inquiries. She never did, nor replied to follow-up emails and calls. Sycamore Partners declined comment, as it always does.

The bottom line: Most American businesses are struggling, and the pain is particularly acute in physical retail. No one ever made a model for this. At the same time, so many are pulling together to alleviate pain when possible. Staples and Sycamore are an exception, choosing instead to make it worse.


SoFi, a personal finance company most recently valued at $4.8 billion, agreed to buy Galileo, a Salt Lake City-based financial services API and payments platform, for $1.2 billion in stock and cash.

  • Why it's the BFD: This reflects how SoFi has expanded far beyond its student loan refinancing roots, and also how fintech remains relatively immune to the pandemic's economic impact.
  • Details: Multiple reports are that SoFi financed the deal via $875 million in equity, $75 million in cash, and $275 million in debt.
  • ROI: Galileo last year announced a $77 million Series A round led by Accel, but was founded in 2000 and previously raised from such firms as Mercato Partners and Kickstart Seed Fund.
  • Bottom line: "The acquisition will, in theory, give SoFi leverage over the likes of Robinhood and Chime, which compete with SoFi, since they depend on Galileo for day-to-day operations. Among the services Galileo provides are account setup, funding, direct deposit, early paycheck direct deposit, and bill pay." — Jeff John Roberts, Fortune
Pro Rata for Kids

Today's project is for your kid(s) to make a stained glass window. You'll need painter's/masking tape, some sort of washable paint (including watercolors), a paint brush, and a bit of dish soap. Oh, and a window. Here's a quick explainer.

  • Per usual, send me photos of what they make.

Yesterday I asked your kid(s) to create a movie theater. And a bunch of them did:

Fred and Margo run the snack counter
John's daughter got particularly creative.
Venture Capital Deals

Cato Networks, an Israeli cloud security platform for remote workforces, raised $77 million. Lightspeed Venture Partners led, and was joined by Aspect Ventures, Greylock, Singtel Innov8, USVP, and Shlomo Kramer. http://axios.link/nC2E

🚑 Tyto Care, a New York-based telehealth platform, raised $50 million. Insight Partners, Olive Tree Ventures, and Qualcomm Ventures were joined by return backers Orbimed, Echo Health, Qure, and Teuza. http://axios.link/xtcg

SafetyCulture, an Australian provider of corporate security and compliance checks, raised $35.5 million at an $800 million valuation. TDM Growth Partners led, and was joined by Blackbird Ventures, Skip Capital, and Malcolm Turnbull. http://axios.link/af54

Shippo, a San Francisco-based provider of shipping software, raised $30 million in Series C funding. D1 Capital Partners led, and was joined by return backers Uncork Capital, Union Square Ventures, and Bessemer Venture Partners. http://axios.link/mupB

Neat, a Hong Kong-based provider of cross-border trade software, raised $11 million in Series A funding. Pacific Century Group led, and was joined by return backers Dymon Asia Ventures, Linear Capital, and Sagamore Investments. http://axios.link/c78e

Universe, a Brooklyn-based mobile website builder for commerce, raised $10 million in Series A funding from GV. http://axios.link/kcqE

Arturo, a provider of real estate characteristic data and predictive analytics, raised $8 million in Series A funding. Crosslink Capital led, and was joined by IAG Firemark Ventures. www.arturo.ai

Sila, a Portland, Ore.-based payments and banking API infrastructure startup, raised $7.7 million in seed funding from Madrona Venture Capital and Oregon Venture Fund. http://axios.link/xIek

🚑 Lionrock Recovery, a Redwood City, Calif.-based provider of telehealth services for substance abuse, raised $7 million from the Wasserstein Family Trust and Big Spruce Holdings. http://axios.link/DrR4

Spot & Tango, a direct-to-consumer pet food brand, raised $4.2 million in seed funding led by Guild Capital. http://axios.link/Mt3c

WorkClout, a Walnut, Calif.-based provider of manufacturing performance support software raised $2.3 million in seed funding. Spider Capital led, and was joined by YC, Liquid 2 Ventures, Soma Capital, Pioneer Fund, and Mehta Ventures. http://axios.link/MC8I

Private Equity Deals

AEgis Technologies, a Huntsville, Ala.-based portfolio company of Arlington Capital Partners, acquired Excivity, a Chantilly, Va.-based developer of security apps and situational awareness tools.

🚑 EQT Partners agreed to pay €900 million to buy Germany-based Schülke, whose products include hand sanitizing liquids and hospital disinfectants, from Air Liquide (Paris: AI), per the FT. http://axios.link/Y8FD

  • EQT is terminating its NZ$1.49 billion take-private buyout of New Zealand retirement village operator Metlifecare, which it had agreed to in December. http://axios.link/Vdea

Gateway Partners of Dubai paid around $50 million for a 40% stake in the Gulf region’s franchise of Tim Hortons restaurants, per Reuters. http://axios.link/Adru

KKSP Precision Machining, a Glendale Heights, Ill.-based portfolio company of Mill Point Capital, acquired PRO Manufactured Products, Inc. (“PRO”), a manufacturer of stainless steel, aluminum, and other metal alloy custom components. www.kksp.com

Macquarie Infrastructure agreed to buy an 88% stake in Australian data center operator AirTrunk for more than A$3 billion from Goldman Sachs and Sixth Street Partners. http://axios.link/vXub

🚑 Therapeutic Research Center, a Stockton, Calif.-based portfolio company of Levine Leichtman Capital Partners, acquired drug compounding training and consulting groups CriticalPoint and Clinical IQ. www.trchealthcare.com

Public Offerings

China Three Gorges, a state-owned renewable energy producer, filed to raise upwards of $3.5 billion in a Shanghai IPO. http://axios.link/ZpZF

🚑 Keros Therapeutics, a Lexington, Mass.-based drug startup focused on neuromuscular diseases, raised $96 million in its IPO. The company priced 6 million shares at $16, versus plans to sell 5 million at $14-$16, for an initial market cap of $291 million. It will trade on the Nasdaq (KROS), used Jefferies as lead underwriter, and had raised over $90 million in VC funding from Pontifax (32.6% pre-IPO stake), Arkin Bio Ventures (14.4%), Foresite Capital (9.9%), Partners Innovation Fund (8.7%), and OrbiMed (8.5%), Global Health Sciences Fund, and Medison Pharma. http://axios.link/dMDm


American Pacific Group raised $450 million for its debut fund. The San Francisco-based firm focuses on complex situations, and is led by Fraser Preston (ex-H.I.G. Capital). www.americanpacificgroup.com.

Crescent Capital Group of Los Angeles raised €1.6 billion for its second European specialty lending fund. www.crescentcap.com

Golding Capital Partners of Germany raised €710 million for its latest private equity infrastructure fund, which focuses on both Europe and North America. http://axios.link/abRT

StepStone Group raised $2.1 billion for its fourth private equity secondaries opportunity fund. www.stepstoneglobal.com

It's Personnel

Cambridge Innovation Capital promoted Carol Cheung to principal. She joined in 2016 after serving as commercial director of speech recognition startup Speechmatics. www.cic.vc

Aaron Epstein (CEO of Creative Market) and Harj Taggar (ex-CEO of Triplebyte) are joining Y Combinator as a visiting partner and partner, respectively. www.ycombinator.com

Final Numbers
Source: Renaissance Capital. Data through April 7, 2020.
Dan Primack

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