May 11, 2017

Axios Pro Rata

Top of the Morning

• Gentlemen, start your freakout: There has been a growing private equity consensus that the deductibility of interest is no longer part of tax reform conversations, but a new Economist interview with President Trump and Treasury Sec. Mnuchin suggests it remains on the table:

Will you keep interest deduction in the corporate tax? Will corporate interest payments…Trump: Do you want to answer?Mnuchin: We're contemplating it. We're contemplating it.Contemplating getting rid of it?Mnuchin: No, we're contemplating keeping it. That's our preference. But we'll look at everything.So what would your preference be Mr President? You know about that very well.Trump: No, I would say probably…I think we're contemplating is the word. And it hasn't been determined yet, but we're contemplating.

• A spectacular miss: Is it really fair to say that Snap released a quarterly "earnings" report yesterday when the headline-grabbing number was a $2.2 billion loss? Some quick thoughts:

  • Like a stone: The Q1 disaster pushed Snap's shares down more than 25% at one point in after-hours trading yesterday, which put it below the company's $17 per share IPO price. It subsequently recovered slightly, opening trading this morning at $17.96 per share. It's a remarkable drop, particularly given how many of the large holders remain locked up.
  • Ouch: Speaking of paper value losers, Snap co-founders Evan Spiegel and Bobby Murphy were down over $1 billion each from yesterday's closing price. Benchmark Capital "lost" over $500 million, while Lightspeed Venture Partners' value fell by around $400 million.
  • Underlying concern: Snap management has always been clear that it's in this for the long haul, and that it isn't going to sweat short-term losses so long as it continues to see increased user growth and engagement (which it did). But there's also the reality that a company should never disappoint in its first post-IPO earnings. This isn't to say it can't miss, but this sort of shortfall can create a credibility gap. How can investors trust management's strategic vision when it can't get close to correctly modeling its own performance?
  • Bigger picture: Do not expect this to have any real impact on upcoming tech IPOs, as Snap was always an outlier in terms of both size and sub-sector. In fact, the only tangible change may be that Snap's underwriters may use a different example when hawking their wares to potential issuers.

• Alumni miserabilis: The botched Time Inc. M&A process just got a bit sadder.

• Venture ballers: Three of the four teams in this year's NBA Conference Finals will feature primary owners with VC bonafides, no matter who wins the two remaining semifinals series. We already have the Golden State Warriors (Joe Lacob, ex-Kleiner Perkins) and Dan Gilbert (Detroit Venture Partners), plus the winner of Boston Celtics (Wyc Grousbeck, ex-Highland Capital Partners) and the Washington Wizards (Ted Leonsis, Revolution Partners).


Verizon (Nasdaq: VZ) has agreed to acquire Straight Path Communications (NYSE MKT: STRP), a Glen Allen, Va.-based owner of nationwide rights to millimeter-wave spectrum, for $3.1 billion in stock.

  • Why it's the BFD: This is a massive premium. AT&T had originally agreed to acquire Straight Path in April for $95.63 per share, which was nearly triple where Straight Path had been trading ($36.48 per share). Verizon's big-foot puts that stock price multiple north of 5x. And that doesn't even include the $38 million termination fee that Verizon will pay to AT&T, on Straight Path's behalf.
  • Bottom line: "Straight Path is so sought after because it has high-frequency airwaves that will be crucial to building out 5G networks. Both AT&T and Verizon are working on building out 5G technology and need those airwaves, which travel short distances, to support robust coverage." ― Kim Hart, Axios
Venture Capital Deals

• Gainsight, a Redwood City, Calif.-based provider of customer success management software, has raised $52 million in fifth-round funding led by insider Lightspeed Venture Partners. Cisco came in as a new investor, while other return backers included Battery Ventures, Bain Capital Ventures, Bessemer Venture Partners,Insight Venture Partners and Salesforce Ventures.

• Podium, a Lehi, Utah-based online review platform for local businesses, has raised $32 million in Series A funding. Accel led the round, and was joined by Summit Partners, GV and Y Combinator.

• Cockroach Labs, a New York-based provider of an open-source database for developers, has raised $27 million in Series B funding. Redpoint Ventures led the round, and was joined by Benchmark, FirstMark Capital, GV and Index Ventures.

• Opcity, an Austin, Texas-based real-time matching platform for real estate agents, buyers and sellers, has raised $27 million in Series A funding. Icon Ventures led the round, and was joined by Georgian Partners and LiveOak Venture Partners.

• Mya Systems, a San Francisco-based developer of an AI recruiter, has raised $11.4 million in Series A funding led by Emergence Capital.

• Sidecar Interactive, a Philadelphia-based provider of e-commerce marketing solutions, has raised $11 million in Series C funding. Harbert Growth Partners led the round, and was joined by The Yard Ventures and return backers Ascent Venture Partners and Osage Ventures.

• Latch, a New York-based enterprise smart lock maker, has raised $10 million in new Series A funding led by new investor RRE Ventures. The company has now raised a total of $26 million.

• OnTruck, a Madrid-based on-demand logistics platform for freight trucking, has raised $10 million in Series A funding. Atomico and Idinvest co-led the round, and were joined by Point Nine Capital, La Famiglia, and Samaipata Ventures.

• Sun Basket, a San Francisco-based organic meal kit startup, has raised $9.2 million in new VC funding led by Unilever Ventures.

• Bunker, a San Francisco-based digital business insurance platform, has raised $6 million in Series A funding. Omidyar Network led the round, and was joined by Comcast Ventures and Route 66 Ventures.

• Ceres Imaging, an Oakland-based agricultural geo-imaging startup focused on crop stress, has raised $5 million in Series A funding led by Romulus Capital.

• Nutrafol, a New York-based developer of a hair growth nutraceutical supplement for women and men, has raised an undisclosed amount of Series A funding from CircleUp and Unilever Ventures.

Private Equity Deals

• 3M (NYSE: MMM) has agreed to sell the tolling and automated license/plate recognition business of its traffic safety unit to Neology, a Poway, Calif.-based subsidiary of One Equity Partners portfolio company Smartrac. No financial terms were disclosed.

• Actis, Brookfield Asset Management and State Power Investment (China) are among the bidders for 706 MW of wind farms owned by Brazil's Casa dos Ventos Energias Renovaveis, according to Bloomberg. The deal could be worth more than $1.5 billion.

• Engie (Paris: ENGIE) reportedly is advanced talks to sell its oil and gas E&P business to Neptune Oil & Gas, a North Sea-focused E&P company formed in 2015 by The Carlyle Group and CVC Capital Partners.

• Eurazeo and Goldman Sachs Merchant Banking have agreed to acquire Dominion Web Solutions, a Norfolk, Va.-based platform of branded marketplaces and digital marketing solutions for the powersport, RV, commercial truck and equipment industries. The deal is valued at $680 million.

• IZI Medical Products, an Owing Mills, Md.-based portfolio company of Shore Capital Partners, has acquired the vertebroplasty family of products from Cook Medical, which includes needles, injectors and cements. No financial terms were disclosed.

• KPS Capital Partners has agreed to acquire California-based golf equipment and apparel company TaylorMade Golf Co. from Adidas for $425 million (including possible earnouts).

• LKCM Headwater Investments has acquired a majority stake in TestEquity, a Moorpark, Calif.-based distributor of electronic test and measurement equipment, from First Atlantic Capital. No financial terms were disclosed.

• Macquarie Group and Australian pension fund manager AMP have won the auction to acquire power grid operator Endeavour Energy for A$7.62 billion from the New South Wales government.

• North Castle Partners has invested in Full Swing Golf, a San Diego-based provider of golf simulation technology. No financial terms were disclosed.

• PAI Partners has entered into exclusive talks to acquire ELITech, a French manufacturer of in-vitro diagnostics equipment and reagents, from Ergon Capital Partners.

Public Offerings

• Kinder Morgan's (NYSE: KMI) Canadian unit will seek to raise upwards of C$1.75 billion via a Toronto IPO.

• US LBM Holdings, a Buffalo Grove, Ill.-based building materials distributor backed by Kelso & Co., has filed for a $100 million IPO. It plans to trade under ticker symbol LBM, with Barclays listed as left lead underwriter. The company repots a $48 million net loss on around $2.66 billion in revenue for 2016.

Liquidity Events

• Google has acquired Owlchemy Labs, an Austin, Texas-based VR gaming studio that had raised $5 million in seed funding from groups like Capital Factory and Qualcomm Ventures. No financial terms were disclosed.

More M&A

• Clean Harbors (NYSE: CLH) has agreed to acquire Lonestar West (TSX: LSI), an Alberta-based provider of vacuum and hydro-vacuum services to oil and gas companies, for C$44.1 million.


Delta-v Capital, a Dallas-based private equity firm, has closed its latest private equity fund with $232 million in capital commitments.

• GoldPoint Partners, a unit of New York Life, has closed its fourth mezzanine fund with $1.3 billion in capital commitments.

• SAIF Partners is raising its third India-focused VC fund with a target of between $350 million and $400 million, per The Economic Times.

It's Personnel

• Bowery Capital, a New York-based VC firm, has promoted Nic Poulos from principal to general partner.

• Scott Kupor, managing partner at Andreessen Horowitz, has been named 2017-2018 chair of the National Venture Capital Association. He succeeds Venky Ganesan of Menlo Ventures.

• Josh Mandel-Brehm, a former business development exec with both Biogen and Genzyme, has joined Polaris Partners as an entrepreneur-in-residence.

• Heather Smith has joined the capital markets group of Houlihan Lokey as a managing director and head of structured equity. She previously was a managing director and head of private financing solutions at Sagent Advisors.

Final Numbers