Nov 3, 2017

Axios Pro Rata

By Dan Primack
Dan Primack

Quick reminder that Axios and the U.S. Conference of Mayors are hosting an event in LA at 8am this morning on the impact of tech and innovation on city infrastructure. More info here.

Top of the Morning

Venture capitalist David Lee has sued former partner Ron Conway for millions of dollars Lee feels is being improperly withheld by Conway, according to a complaint filed last week in Marin County Superior Court.

Backstory: Lee is the former co-founder and managing partner of SV Angel, a seed-stage investment firm that backed such companies as Airbnb, Pinterest and Snapchat. Conway, who co-founded SV Angel with Lee but later handed over sole management, is a Silicon Valley investing legend, having pumped early money into companies like Google and PayPal.

In 2015, Lee left SV Angel in what was publicly portrayed as an amicable split – born largely of geography (Lee had moved his family to Los Angeles, and was tired of commuting north). Behind the scenes, however, Conway felt that Lee had been pilfering SV Angel funds (albeit legally, via "fee waiver" agreements Lee had included in fund documents that Conway never read too carefully). I detailed the entire saga in a May 2016 story for Fortune that is featured prominently in Lee's complaint.

Complaint: Lee, who now runs a firm called Refactor Capital, is suing Conway for breach of contract and payment of the estimated $3.5 million he says he's owed via the settlement agreement reached upon his departure ($1.5m of which he claims Conway is holding in escrow). Lee also wants declaratory relief, which could address the $15 million to $20 million he expects to be owed in the future, once companies like Airbnb go public.

  • Lee's statement to Axios: "When I left SV Angel, Ron Conway and I reached a settlement regarding my departure. Many of the terms we agreed upon were proposed by Ron. I wish Ron no ill will. I simply want him to honor the agreement we signed."
  • Conway's statement to Axios: "In connection with his departure, the SV Angel funds and David entered into a settlement agreement. Recently a dispute has arisen regarding compliance with some settlement agreement terms. Before we could resolve our differences David filed a lawsuit insisting upon money that SV Angel does not believe he is entitled to receive. It is very disappointing that David is trying to pressure SV Angel to pay monies that do not belong to him, and the SV Angel funds intend to vigorously defend against David's meritless claims."

• No fun: Shares of novelty figurine maker Funko (Nasdaq: FNKO) fell 41% yesterday, making it the worst first-day return for an IPO in 17 years (per Renaissance Capital).

• Feedback: A lot of you disagreed with my open letter to Travis Kalanick. In short, critics think I'm discounting the value of having institutional knowledge and TK's product/strategy expertise on the board.

• Tax talk: The House GOP yesterday rolled out a 422-page tax plan, in which carried interest was mentioned exactly zero times. There is some talk that it could be added during mark-up procedures but, for now, fund managers can rest easy knowing that their fees for service will continue to be taxed as capital gains. More:

  • Speaking of things that didn't make the final cut: There is no mention of allowing startup employees to defer taxes on exercised stock options until there is a liquid market, despite an FT op-led yesterday by House Majority Leader Kevin McCarthy saying that it was in there. Again, expect this to be added later, as it seems McCarthy, et al opted for political expediency over policy exactness.
  • As expected, the 100% corporate interest deduction has been cut to 30% (excluding small biz).
  • As we first previewed yesterday, there is a new investment excise tax on private college and university endowments.
  • Tax-exempt municipal bonds for pro sports team stadiums are banned.
  • Full list of winners and losers.

• Have a great weekend... Happy 7th birthday E! Thank you J! The two of you are everything to me.

The BFD

The U.S. Justice Department "is preparing for litigation in case it decides to sue to block" AT&T's proposed $85 billion takeover of Time Warner, according to the WSJ.

  • Why it's the BFD: Because when this mega-deal was first announced, it appeared likely to sail through due to a relative lack of competitive overlap. But this sort of press leak suggests that regulators are, at the very least, going to ask for significant concessions.
  • Flashback: "As an example of the power structure I'm fighting, AT&T is buying Time Warner and thus CNN, a deal we will not approve in my administration because it's too much concentration of power in the hands of too few." – Donald Trump, 10/22/16
Venture Capital Deals

• GetYourGuide, a Berlin-based travel activities platform, has raised $75 million in Series D funding. Battery Ventures led the round, and was joined by return backers KKR, Spark Capital, Highland Europe, Sunstone Capital and Nokia Growth Partners. http://axios.link/xPze

• Onica, a Los Angeles-based provider of Amazon Web Services consulting and managed services, has raised $20 million from Sunstone Partners. http://axios.link/hifS

🚑 Ranger Health, a San Antonio-based provider of on-demand healthcare services, has raised $10 million in VC funding from firms like HOLT Ventures. www.rangerhealth.com

• Rallyteam, a San Francisco-based talent development platform, has raised $8.6 million in Series A funding. Norwest Venture Partners and Storm Ventures co-led the round, and were joined by Cornerstone OnDemand and Wilson Sonsini Goodrich & Rosati. http://axios.link/ZpmP

• Reaction Commerce, a Santa Monica, Calif.-based open-source commerce platform for retailers and brands, has raised $8.5 million in Series A funding. GV led the round, and was joined by CrossCut Ventures, Double M Partners, Joanne Wilson and Female Founders Fund. http://axios.link/g969

• Testim, a San Francisco-based autonomous testing startup, has raised $5.6 million from Lightspeed Venture Partners. www.testim.io

• Lunar Wireless, a Detroit-based "pay as you use" mobile carrier, has raised $4.1 million in funding led by 8VC. http://axios.link/kRJa

Private Equity Deals

• Apollo Global Management is among the final bidders for Qdoba, a Mexican fast-food chain owned by Jack in the Box (Nasdaq: JACK), according to the NY Post. http://axios.link/BEmx

• Axios Industrial Group (no relation to us here at Axios), a Texas-based industrial services company owned by White Deer Energy, has acquired Sky Industrial Services, an Augusta, Ga.-based scaffolding and insulation company. www.skyindustrialservices.com

• Cedarlake Capital of China has acquired a control stake in Swiss ropeway manufacturer BMF Group. www.bmf-ag.ch

• Dynamo Software, a Watertown, Mass.-based portfolio company of Francisco Partners, has acquired HoldingsInsight, a provider of portfolio investments data capture and reporting. www.holdingsinsight.com

• Leonard Green and Partners has agreed to acquire British fitness club chain Pure Gym from CCMP Capital Advisors. Sky News had earlier reported an asking price of around £600 million. http://axios.link/wVoY

Public Offerings

ACM Research, a Fremont, Calif.-based provider of single-wafer wet cleaning equipment, raised $11 million in its IPO. The company priced 2 million shares at $5.60 (below range), and will trade on the Nasdaq under ticker symbol ACMR. Roth Capital Partners served as lead underwriter. The company reports a $3 million net loss on $14.4 million in revenue for the first half of 2017. Shareholders include Shanghai Science and Technology Venture Capital (18.2% pre-IPO stake). www.acrmrsch.com

• En+ Group, a Russian aluminum and hydropower conglomerate, has raised $1.5 billion in a London IPO that values that company at around $8 billion. http://axios.link/uXQQ

• Vencore, a Chantilly, Va.-based provider of IT and consulting services to U.S. government customers, has withdrawn registration for a $250 million IPO. The company, owned by Veritas Capital, recently announced that it would merge with a unit of DXC Technology (NYSE: DXC).

Liquidity Events

• Ctrip.com (Nasdaq:CTRP) has acquired Trip.com, a Palo Alto, Calif.-based travel platform that had raised nearly $40 million in VC funding from HomeAway, Battery Ventures, Juvo Capital and Redpoint Ventures. http://axios.link/IYZj

• VMware (NYSE: VMW) has agreed to acquire VeloCloud Networks, a Mountain View, Calif.-based provider of cloud-based networking services. VeloCloud has raised over $80 million in VC funding from Telstra Ventures, Khazanah, NEA, Venrock, March Capital Partners, Cisco Investments and Hermes Growth Partners. http://axios.link/mfZu

• Synopsys (Nasdaq: SNPS) has agreed to acquire Black Duck Software, a Burlington, Mass.-based provider of open-source software deployment and management solutions, for $565 million. Black Duck has raised over $90 million in VC funding since 2004, from firms like Split Rock Partners, Volition Capital, Flagship Ventures, General Catalyst Partners, SAP, Sapphire Ventures, Intel Capital, Focus Ventures, Red Hat and Siemens Venture Capital. http://axios.link/1Tik

More M&A

• Westpac Banking (ASX: WBC) has agreed to sell its Hastings fund management unit to UK-based Northill Capital. Hastings has around A$12.6 billion in AUM. http://axios.link/pumx

Breakfast Deals

☕ Nestlé (Swiss: NESN) has acquired Chameleon Cold-Brew, an Austin, Texas-based coffee maker that had been backed by BFG Partners and Fortitude Capital. http://axios.link/PEJL

☕ Unilever has agreed to buy Tazo tea from Starbucks (Nasdaqq: SBUX) for $384 million. http://axios.link/qNZb

Fundraising

• Permira is targeting $1.5 billion for its first Asia-focused fund, according to PE International. www.permira.com

• Providence Equity is raising its third growth equity fund, according to SEC filings. www.provequity.com

It's Personnel

• Stan Koss has joined M&A investment bank Bamoral Advisors as a Chicago-based managing director. He previously co-founded TTK Partners. www.balmoraladvisors.com

• Burke Norton and Greg Myers have joined Vista Equity Partners as co-head of Vista's longer-hold strategy and global head of IR, respectively. Norton previously was chief legal officer and head of corporate and government affairs for Salesforce.com, while Myers was a senior managing director with Eton Park Capital Management. www.vistaequitypartners.com

Final Numbers
Dan Primack