Axios Pro Rata
March 29, 2017
Behind the fall of Quixey
Earlier this month came reports that mobile search startup Quixey was in the process of shutting down, after blowing through over $130 million in VC funding. What wasn't reported, however, was the key role that investor Alibaba Group played in the "deep-linking" company's ultimate demise.
Neither the Silicon Valley-based company nor its backers are publicly discussing what went wrong, but we've put together a timeline after speaking with multiple sources:
October 2013: Quixey raises $50 million in Series C funding at around a $130 million pre-money valuation, led by Alibaba. Existing investors like Atlantic Bridge Capital and U.S. Venture Partners also participated. Several months later, Quixey signed a separate $100 million commercial contract with Alibaba (which could have grown larger depending on implementation with Alibaba partners).
September 2014: Alibaba goes public, in the largest tech IPO of all time. Changes to the corporate structure mean that Quixey is now working with different people (Alibaba's Joe Tsai, for example, is no longer directly involved), and quarterly road-maps are soon supplemented by weekly deliverables (sometimes sent directly to Quixey engineers from Alibaba engineers, as the latter company's various fiefdoms become more pronounced). Quixey finds the changes disruptive and doesn't believe Alibaba is holding up its end of the monetization bargain.
March 2015: Quixey raises $60 million in Series C-1 funding at a reported pre-money valuation of $540 million. Alibaba again is the lead investor, bringing its total investment in the company to around $80 million. Other new shareholders include Goldman Sachs and SoftBank.
April 2016: Quixey founder Tomer Kagen is replaced as CEO by serial chief executive Mark Lazar (LoopNet, etc), but remains on the board of directors. It appears that Quixey's displeasure with Alibaba is now mutual, particularly as the burn rate continues to soar and the tech is behind schedule.
Summer 2016: Quixey believes it is owed around $37 million from Alibaba on the commercial contract. Alibaba, on the other hand, doesn't believe terms of the agreement have been met.
The two sides reach a private settlement whereby Alibaba pays Quixey $10 million in cash and agrees to provide a $30 million secured loan (the latter of which gets reported, but without specific mention of Alibaba). The loan terms include 18-month repayment, a 2.2x liquidation preference and effectively gives Alibaba veto power over future equity investments into Quixey. Alibaba also switched up its board representative, replacing chief strategy officer Zeng Ming with a U.S.-based investment officer named Peter Stern.
November 2016: Mark Lazar is fired as Quixey CEO, and replaced by John Foster (ex-CEO of Zed USA). The company also begins fundraising again.
February 2017: Insiders, led by Atlantic Bridge Capital, agree to effectively recap the company with around $10 million of new equity. It's not enough to repay the Alibaba loan (due in November), but Quixey hopes it will provide enough runway to secure a big new customer contract (it was in early talks with Lenovo) or a new outside investor. Internal belief is that the much-delayed tech is finally ready for prime-time.
Negotiations on the new round had begun several months earlier but, in the end, Alibaba refuses to allow the new investment. Soon after, layoffs are announced and Quixey hires an outside firm to help find a buyer for Quixey's IP.
March 2017: In a statement, Alibaba says: "Unfortunately, the development of the company did not meet expectations and the board made a decision to end the business." It declined to elaborate further, and no other company investors nor employees would go on the record.
- Debt can be a very dangerous game for VC-backed startups, as we discussed last week with Modcloth. Just because the check clears like equity doesn't mean the cash is equal, and taking a large amount of secured debt can make it prohibitively difficult to solicit a new outside equity investor.
- Commercial partnerships with strategic investors may feel like aligned interests, but they just aren't if one company is worth $265 billion and the startup is still seeking unicorn status. This goes double if there are inherent cultural differences, such as with a seat-of-your-pants Silicon Valley company and a much more disciplined Chinese conglomerate where deadlines are sacrosanct.
BuzzFeed is planning to go public in 2018, per a report from Axios colleague Mike Allen. The New York-based media site has raised nearly $500 million in VC and strategic funding, most recently at a $1.7 billion post-money valuation (which was a flat round). Three years ago, BuzzFeed turned down a $1 billion takeover offer from Disney.
Why it's the BFD: There have been a lot of well-funded content plays (yes, including Axios), but this would be the first one to ask the public markets for valuation validation. It would be particularly interesting to see if Wall Street analysts would use legacy media companies as comps, or if it also would include user-generated social media sites that share a lot of tech DNA with BuzzFeed.
Bottom line: Consider this to be a "best intentions" sort of situation. It's very easy for a company in 2017 to tell folks that it plans to go public in 2018, and even easier if some at BuzzFeed are interested in kicking M&A tires. Until it hires IPO bankers and/or submits a confidential filing with the SEC, keep and eye on this but don't assume it's coming.
Venture Capital Deals
• Rigetti Computing, a Berkley, Calif.-based developer of quantum computing for AI and computational chemistry, has raised $40 million in Series B funding. Vy Capital led the round, and was joined by return backers Andreessen Horowitz, Y Combinator Continuity Fund, Data Collective, FF Science, AME Cloud Ventures, Morado Ventures and WTI. The company has now raised a total of $64 million. http://bit.ly/2mPcS0l
• Inocucor Technologies, a Montreal-based developer of biological crop inputs, has raised C$38.8 million in a first close of its Series B funding round. TPG ART led the round, and was joined by Cycle Capital Management, Desjardins Innovatech and Closed Loop Capital. www.inocucor.com
• MasterClass, a San Francisco-based online education platform known for celebrity-taught classes, has raised $35 million in Series C funding. IVP led the round, and was joined by GSV Acceleration, Sam Lessin and return backers like New Enterprise Associates (NEA), Javelin Venture Partners, Bloomberg Beta, Advancit Capital and Novel TMT. http://bit.ly/2og0UKc
• Freightos, a Hong Kong-based online freight marketplace, has raised $25 million in new Series B funding led by GE Ventures. The company has now raised more than $50 million in total funding, from firms like Aleph Venture Capital, Annox Capital, Israel Cleantech Ventures MSR Capital and Sadara Ventures. http://tcrn.ch/2nzMbeE
• Icertis, a Bellevue, Wash.-based provider of cloud-based enterprise contract management solutions, has raised $25 million in Series C funding. B Capital Group led the round, and was joined by return bakers Ignition Partners, Greycroft Partners, e.ventures and Eight Roads Ventures. http://bit.ly/2oxpOnG
• Antiva Biosciences, a South San Francisco-based developer of topical therapeutics for the treatment of pre-cancerous lesions caused by HPV infections, has raised $22 million in Series C funding. Brace Pharma Capital led the round, and was joined by NS Investment, Osage University Partners, Alexandria Venture Investments and return backers Canaan Partners and Sofinnova Ventures. http://bit.ly/2ovPiBV
• Creamfinance, a Latvian provider of short-term personal finance products, has raised €21 million in Series B funding from Capitec Bank (South Africa). www.creamfinance.com
• Sliver VR, a Cupertino, Calif.-based eSpoirts virtual reality platform, has raised around $16 million in VC funding from backers like Danhua Capital, per an SEC filing. The company previously raised $6.2 million in seed funding led by DCM. www.sliver.tv
• Tiger Brokers, a Beijing-based online brokerage, has raised $14 million in new Series B funding. China Growth Capital led the round, and was joined by return backer Zhen Fund. http://bit.ly/2nuv0tj
• Bustle, a New York-based media site for millennial women, has raised $12 million in Series D funding. GGV Capital led the round, and was joined by fellow return backers Time Warner, Social Capital, General Catalyst and Saban Capital. http://bit.ly/2oxrrSq
• Cognoa, a Palo Alto, Calif.-based digital health startup focused on diagnosing and supporting children with developmental delays, has raised $11.6 million in new VC funding led by existing shareholder Morningside. http://bit.ly/2o73BAZ
• ShapeShift, a digital currency exchange platform, has raised $10.4 million in Series A funding. Earlybird Venture Capital led the round, and was joined by Access Venture Partners, Pantera Capital, Lakestar, Blockchain Capital and return backers FundersClub and Digital Currency Group. http://bit.ly/2nu0jVi
• ControlUp, a provider of IT ops analytics and management software, has raised $10 million in Series B funding co-led by K1 Capital and JVP. www.controlup.com
• Carbon Health, a San Francisco-based mobile healthcare network, has raised $6.5 million in first-round funding. BuildersVC led the round, and was joined by Javelin Venture Partners, Two Sigma Ventures and Bullpen Capital. www.carbonhealth.com
• Smyte, a San Francisco-based provider of online fraud prevention software, $4 million in VC funding. Avalon Ventures led the round, and was joined by return backers Baseline Ventures, Founder Collective, Harrison Metal, Upside Partnership and Y Combinator. http://bit.ly/2nvgfrJ
• Nosopharm, a French developer of new antimicrobial molecules, has raised €2.4 million in new VC funding from firms like Auriga Partners, Kreaxi and Alto Invest. www.nosopharm.com
• Gamee, a Prague-based social gaming network, has raised €2 million in seed funding from Credo Ventures and Initial Capital. www.gameeapp.com
• Coras, an Ireland-based event ticketing platform, has raised €1.9 million in VC funding. Atlantic Bridge University Fund led the round, and was joined by Elkstone Capital, Hambro Perks and angels like U2 guitarist The Edge. http://bit.ly/2nuSFKk
• Reputation.com, a Redwood City, Calif.-based online reputation management platform, has raised an undisclosed amount of new funding from Heritage Group. The company previously raised over $100 million, including a $20 million Series E round earlier this year led by Ascension Ventures. www.heritagegroupusa.com
Private Equity Deals
• Borealis and Canada Pension Plan Investment Board are prepping a bid for German smart metering company Ista, which is currently owned by CVC Capital Partners, according to Reuters. Allianz, GIC and Ontario Teachers Pension Plan also are considering offers for Ista, which is expected to be worth upwards of €4 billion. http://reut.rs/2nuAEf5
• Magnate Worldwide, an asset-light logistics platform sponsored by CIVC Partners and Magnate Capital Partners, have acquired Premium Transportation Logistics, a Toledo, Ohio-based provider of expedited domestic ground and freight brokerage services. No financial terms were disclosed. www.magnateworldwide.com
• Pamplona Capital has agreed to acquire Legacy.com, an Evanston, Ill.-based online digital memorialization site, from Great Hill Partners. No financial terms were disclosed.
• Point Resources, a Noway-based oil company owned by private equity firm HitecVision, has agreed to acquire the Norwegian upstream oil business of Exxon Mobil (NYSE: XOM) for an undisclosed amount. http://reut.rs/2ngEab5
• TPG Capital is considering a takeover offer for Fairfax Media (ASX: FXJ), publisher of the Sydney Morning Herald, according to the Fairfax-owned Australian Financial Review. TPG recently acquired a 4.9% stake in the company, which has a market cap of around A$2.5 billion. http://bit.ly/2mPkFuO
• Antero Midstream, a Denver-based holder of GP interests in natural gas master limited partnership Antero Midstream Partners (NYSE: AM), has filed for a $100 million IPO. It plans to trade on the NYSE under ticker symbol AMGP, with Morgan Stanley listed as left lead underwriter. http://bit.ly/2ogbyAv
• The Carlyle Group and Hellman & Friedman are in talks to sell minority stakes in joint portfolio company Pharmaceutical Product Development, a Wilmington, N.C.-based contract research org for drug developers, based, according to Reuters. Potential new investors include GIC and Abu Dhabi Investment Authority. http://reut.rs/2ogc6q3
• Nippon Shokubai (Tokyo: 4114) has agreed to acquire Sirrus Inc., a Loveland, Ohio-based developer of electron deficient monomers and derivatives. No financial terms were disclosed. Sirrus has raised over $35 million in VC funding from firms like Braemar Energy Ventures, General Motors, Arsenal Venture Partners, Mitsui Global Investments and CincyTech USA. www.sirruschemistry.com
• Amer Sports, a Finland-based maker of Salomon and Atomic ski equipment, has agreed to acquire U.S. ski brand Armada for $4.1 million. http://reut.rs/2nj4qCA
• China Energy Co. (CEFC) has agreed to acquire around a 19.9% stake in U.S. financial firm Cowen Group (Nasdaq: COWN) for approximately $100 million. CEFC also is providing Cowen with an additional $175 million in debt financing. http://reut.rs/2nj8qmF
• European Union antitrust regulators have blocked The London Stock Exchange's proposed $31 billion-tie up with the Deutsche Boerse. http://nyti.ms/2nuk2nv
• Arrowroot Capital, a Santa Monica, Calif.-based growth equity firm focused on the software sector, is raising up to $175 million for its third fund, per an SEC filing. Probitas is serving as placement agent. www.arrowrootcapital.com
• Canada Pension Plan Investment Board reportedly has agreed to acquire a portfolio of "pre-crisis" private equity fund positions from Ardian, which reportedly are worth more than $1 billion. http://bit.ly/2niLZhq
• Gauge Capital has closed its second mid-market private equity fund with $500 million in capital commitments. Campbell Lutyens served as placement agent. www.gaugecapital.com
• South Korea's government is setting up a $102 million fund focused on early-stage biotech companies. http://bit.ly/2nLnU63
• Brian Cooper has left Atlantic Street Capital in order to join Tengram Capital Partners as a principal. Tengram also has promoted Kris Parks to principal and Michael Zappala to senior associate. www.tengramcapital.com
• Hamilton Lane said that Lydia Gavalis is being promoted to general counsel, succeeding the retiring Robert Cleveland. The firm also said that managing director Frederick Shaw will assume the role of chief compliance officer. www.hamiltonlane.com
• Matt Klinger has joined Twin Bridge Capital Partners as a principal. He previously was an SVP with iCapital Network. www.twinbridgecapital.com
• Howard Shore is stepping down as CEO of British asset management firm Shore Capital Group.