May 16, 2022

Top of the Morning

Illustration: Annelise Capossela/Axios

Craft Ventures last Friday met virtually with 165 portfolio companies executives to help them navigate the upside down environment for tech companies.

The big message: If your company needs to raise new funding within the next two years, conserving cash should trump growth.

  • For context: Craft also held a virtual call on February 1, warning that the environment was changing, but that one was attended by 60 fewer execs.

This is a sea change. Growth at almost any cost has been the private tech market's north star for nearly a decade.

  • Having 600 employees was better than having 500 employees, even if if you couldn't quite explain how those extra 100 positions were accretive. Being a unicorn was better than not, even if it required so much funding as to be extra dilutive. Burn hot now and become profitable a few years after that massive IPO.
  • In short, size was sex. Now it can be an STD.

"If a company needs to raise, they need >2x growth to attract capital," argues Craft Ventures general partner Jeff Fluhr. "But it's even better if you don't have to raise for the next 24 months. So if growing 3x means you will have only 12 months of runway, but you can extend runway to 24+ months by only growing 2x YOY, I would strongly encourage the latter."

  • Craft believes a recession is more likely than not over the next two years, but this is more about prudence than prediction.
  • As another Silicon Valley investor said to me: Worst case scenario of slowing growth is that there's no recession and you end up a year behind schedule. Worst case of not slowing growth and there being a recession is that you're bankrupt.

Caveat: None of this really applies to companies flush with cash that have relatively slow burn rates; and those companies could end up being huge beneficiaries of the new math.

The bottom line: VC consensus is building that "wait and see" is no longer a reasonable posture.

The BFD

Door Garage GIF - Find & Share on GIPHY
Source: Giphy

KKR agreed to sell C.H.I. Overhead Doors, an Arthur, Ill.-based garage door maker, to Nucor Corp. (NYDE: NUE) for $3 billion.

Why it's the BFD: C.H.I. isn't just a massive payout for KKR, which calls it one of the firm's "largest returns in recent history," but it's also life-changing for hundreds of C.H.I. factory workers, distribution center workers and truck drivers.

  • C.H.I. was among the 25 or so KKR portfolio companies, mostly industrials, in which non-salaried workers received equity as part of the original buyout (or could buy in for a nominal amount, if they made more than $100k annually).
  • The average C.H.I. hourly worker or driver will receive $175,000 via this sale, with some earning more than $400,000. And there's even cash for recent hires, with those joining in 2022 getting around $20k and those joining last year receiving $40,000.

Backstory: KKR had been planning to launch an auction for C.H.I., which it bought in 2015, but Nucor preempted the process. Nucor doesn't have an existing overhead door business, so C.H.I. management will remain and no layoffs are anticipated.

What they're saying: "This is a superior way to run a company ... not just stock ownership, but creating a real ownership culture," says Pete Stavros, KKR's co-head of Americas private equity, who notes that employee feedback had led to air conditioning in C.H.I.'s 1 million square foot factory and an on-site health clinic. "Last Wednesday we told employees what was happening, and got to tell them about what they'd earned. It was the most rewarding moment of my career."

Venture Capital Deals

🚑 Kriya Therapeutics, a Redwood City, Calif.-based gene therapy startup, raised $270m in Series C funding. Patient Square Capital led, and was joined by Bluebird Ventures, CAM Capital, Dexcel Pharma, Foresite Capital, JDRF T1D Fund, Lightswitch Capital, Narya Capital, QVT and Transhuman Capital. http://axios.link/y0HH

Inflection AI, a Palo Alto-based ML startup led by Mustafa Suleyman (ex-DeepMind), raised $225m in new equity funding, per an SEC filing. Directors include Greylock’s Reid Hoffman. http://axios.link/g5e7

• Optibus, an Israel-based software platform for public transportation planning and operations, raised $100m in Series B funding at a $1.3b valuation from Insight Partners, Bessemer Venture Partners, Verizon Ventures, Pitango, Tencent and SOMV Momentum. http://axios.link/dQZm

Keelvar, an Irish sourcing tech startup, raised $24m in Series B funding. 83North led, and was joined by insiders Elephant, Mosaic and Paua. www.keelvar.com

TipTop, a stealthy crypto startup led by Postmates founder Bastian Lehmann, raised $23m in Series A funding led by Andreessen Horowitz. http://axios.link/pei6

Akuity, a Sunnyvale, Calif.-based provider of app delivery software for Kubernetes, raised $20m in Series A funding co-led by Lead Edge Capital and Decibel Partners. http://axios.link/IINj

Good Good, an Icelandic breakfast foods brand, raised $20m in Series B funding led by SÍA. www.goodgood.net

US Mobile, a New York-based mobile service operator, raised $19.5m in Series A2 funding led by Volition Capital. www.usmobile.com

Sencrop, a French provider of weather analytics for agriculture, raised $18m in Series B funding. JVP led, and was joined by EIT Food, Stellar Impact, IRD Management and insiders BPI France, Demeter IM and NCA Waterstart. www.sencrop.com

OtterTune, a Pittsburgh-based database maintenance automation startup, raised $12m in Series A funding. Intel Capital and Race Capital co-led, and were joined by Accel. http://axios.link/t132

Rain, a New York-based developer of voice tech experiences for brands, raised $11m led by Multiply Group. http://axios.link/BiKo

🚑 Mahmee, an LA-based maternal care startup, raised $9.2m in Series A funding. Goldman Sachs led, and was joined by Revolution Rise of the Rest, Muse Capital, Backstage Capital, The Helm and Pipeline Angels. http://axios.link/XNjv

Topship, a Nigerian provider of international shipping logistics for e-commerce, raised $2.5m in seed funding. Flexport led, and was joined by YC, Soma Capital, Starling Ventures, Olive Tree Capital, Capital X and True Capital. http://axios.link/F3MJ

Elwood Technologies, a crypto trading platform founded by British hedge fund manager Alan Howard, raised funding at a $500m valuation from backers like Goldman Sachs, Barclays, Dawn Capital, Commerzbank and Galaxy Digital. http://axios.link/8Yie

Private Equity Deals

Avant, a Chicago-based portfolio company of Pamlico Capital, bought PlanetOne, a Scottsdale, Ariz.-based provider of tech sourcing solutions. www.goavant.net

🎵 BMG, backed by KKR, and Warner Music (Nasdaq: WMG) are among the reported bidders for Pink Floyd's back catalog. http://axios.link/llgR

Carlyle agreed to buy ManTech International (Nasdaq: MANT), a Herndon, Va.-based government contractor for $4.2b, or $96 per share. http://axios.link/GMlP

Clayton, Dubilier & Rice is in talks to buy a majority stake in the process tech unit of Roper Technologies (NYSE: ROP) for upwards of $3b, per Bloomberg. http://axios.link/QREn

Cornerstone OnDemand, a portfolio company of Clearlake Capital, completed its acquisition of EdCast, a Mountain View, Calif.-based learning experience software provider that had raised over $100m from firms like Avathon Capital, REV Venture Partners, National Grid Partners, Sterling Partners and State Street Global Advisors and Cervin Ventures. http://axios.link/YGA2

CVC Capital Partners reportedly is considering a takeover bid for Australian pallet-pooling services firm Brambles (ASX: BXB), which has a A$16.6b market cap. http://axios.link/rIkd

EQT agreed to buy Redwood Capital Group, a Chicago-based apartment building owner with around $1.7b of AUM. http://axios.link/jpxP

🚑 Genesis Research, a Hoboken, N.J.-based portfolio company of GHO Capital, agreed to buy Market Access Transformation, a Short Hills N.J.-based payer research platform backed by Silversmith Capital Partners. www.genesisrg.com

Global Infrastructure Partners agreed to buy Atlas Renewable Energy, a Miami-based renewables firm focused on Latin America, from Actis for nearly $2b. http://axios.link/3YRZ

🚑 GTCR agreed to buy a majority stake in PathGroup, a Tennessee-based lab services firm, at what Axios Pro reports is a $1.2b valuation. Sellers include Pritzker Private Capital and Vesey Street Capital. http://axios.link/4nxC

🚑 Pharos Capital Group invested in Sanderling Rental Services, a Nashville-based provider of dialysis and renal telemedicine services in underserved U.S. communities. www.sanderlinghealthcare.com

Race Winning Brands, a Lexington, Ky.-based portfolio company of MiddleGround Capital, bought Haltech Engine Management, a maker of auto aftermarket engine management electronics. www.haltech.com

Public Offerings

No companies expect to price IPOs on U.S. exchanges this week. http://axios.link/prGu

SPAC Stuff

Illustration: Brendan Lynch/Axios

Digital World Acquisition Corp., the SPAC taking Truth Social public, filed its S-4 document with the SEC today. Not a ton of new info in there, except that the SPAC appears to still be under SEC investigation. We also learned a bit more about what former President Trump can and can't do, when it comes to posting on Twitter, were he to be reinstated by Elon Musk.

Grey Rock Investment Partners, a Dallas-based oil and gas private equity firm, agreed to go public at an implied $1.3b valuation via Executive Network Partnering Corp. (NYSE: ENPC), a SPAC chaired by Paul Ryan and backed by Solamere Capital.

Metaverse Acquisition, a SPAC chaired by former IBM CFO John Joyce, filed for a $150m IPO. http://axios.link/S5Al

Liquidity Events

DCP Capital is seeking a buyer for its control stake in MFS Technology, a Singapore-based flexible printed circuit maker that could be worth up to $800m, per Bloomberg. http://axios.link/6HAU

More M&A

Adani Group, the Indian infrastructure firm led by billionaire Gautam Adani, agreed to buy the Indian assets of Swiss cement giant Holcim for $10.5b, becoming the country’s second-largest cement maker. http://axios.link/AebZ

🚑 Chimerix (Nasdaq: CMRX) agreed to buy the global rights to a smallpox medicine called Tembexa from Emergent BioSolutions (NYSE: EBS) for up to $325m (including $100m of possible earnouts). www.emergentbiosolutions.com

✈️ JetBlue (Nasdaq: JBLU) launched a hostile takeover offer for Spirit Airways (NYSE: SAVE), which previously rejected its unsolicited acquisition bid in favor of an existing agreement with Frontier (Nasdaq: ULCC).

  • It's unclear if U.S. antitrust regulators would allow JetBlue to buy Spirit (despite what JetBlue argued this morning). But, if the deal happens, it could spark a series of airline industry mergers.

🍔 McDonald's (NYSE: MCD) plans to sell its Russia business to a local buyer, after more than 30 years of operating in the country.

  • In a statement, the fast food giant wrote: "The humanitarian crisis caused by the war in Ukraine, and the precipitating unpredictable operating environment, have led McDonald’s to conclude that continued ownership of the business in Russia is no longer tenable, nor is it consistent with McDonald's values.”

✈️ SMBC Aviation Capital, an aircraft lessor, is in talks to buy smaller rival Goshawk for around $7b, per Reuters. http://axios.link/u3pR

XPO Logistics us seeking a buyer for its freight forwarding unit, which could fetch between $400m and $600m, per Bloomberg. http://axios.link/YzXu

Fundraising

🚑 Apollo Global Management is investing up to €1b for a minority equity stake in Sofinnova Partners, a European life sciences VC firm. http://axios.link/QN9V

Infinity Ventures, formed by three ex-PayPal Ventures investors, raised $158m for its debut fund, per Axios Pro. http://axios.link/UheA

Pear, an SF-based VC firm, is raising up to $410m for its fourth fund, per an SEC filing. www.pear.vc

Third Point Ventures, led by hedge fund manager Dan Loeb, is raising its second fund, per an SEC filing. www.thirdpointventures.com

It's Personnel

Richard Jackson joined SK Capital Partners as a managing director and head of capital markets. He previously led Americas leveraged acquisition finance at HSBC. www.skcapitalpartners.com

Stephan Madsen joined H.I.G. Capital as a London-based managing director focused on Nordic midmarket LBOs. He previously was with BC Partners. www.higcapital.com

John Smothers (ex-Acrew Capital) joined Scribble Ventures as a general partner. www.scribble.vc

Final Numbers

AI-focused digital health funding
Data: CB Insights; Chart: Thomas Oide/Axios

Venture deals for AI startups were down in Q1, but health tech remained the hottest subsector with 17% of the total. Go deeper.

Thanks for reading Axios Pro Rata! Please ask your friends, colleagues and math teachers to sign up.