THE END OF FOUNDER-FRIENDLY
Good morning. Below is my Boom With a View column from Coins2Day’s upcoming print edition. (See all past columns here.)
💥 At the dawn of the Age of Unicorns, a venture capital firm called Felicis Ventures announced it would forgo its right to vote against the founders of its portfolio companies. Giving up those rights was a curious move; the New York Times declared it as evidence that venture capitalists were “coddling entrepreneurs as royalty.”
Inside startup circles, though, the announcement was applauded as another positive step for “founder-friendly” investing. In the past, boards of directors would push aside startup founders when the top job outgrew them. The new approach, ushered in by Mark Zuckerberg, prevents venture investors from forcing a future Steve Jobs out of his or her startup for reasons of, say, immaturity or a total lack of management experience. Instead, those founders get to keep their CEO jobs and simply “hire a Sheryl Sandberg” to deal with the tedious matter of running a company.
Venture firm ffVC even named itself after the concept; the “ff ” stands for “founder-friendly.” The stance has become so popular that I’m waiting for a venture firm to declare it will let founders literally get away with murder: “Seriously, try it—just kill someone! We don’t even care, just take our money.”
Why are venture capitalists so eager to seem like “cool moms” to founders? Because competition hurts leverage. (Or in VC parlance, there’s too much money chasing too few deals.) That dynamic isn’t likely to change, but I predict recent events might bring strong governance back into fashion.
See the disappointing stock performance of Blue Apron and Snap, two companies with share structures that deny voting rights to investors and in Snap’s case, give total control to the founders. Blue Apron slashed its proposed IPO price by 34% before its June offering; six weeks later, its shares were trading 50% below that. Meanwhile Standard & Poor’s and FTSE Russell declared that, because of Snap’s nonvoting class of common shares, they would exclude the company from their indexes, blocking its access to an entire class of passive investors.
And then there’s Uber. Despite years of misbehavior, CEO Travis Kalanick was pressured to resign by the board only after a messy, public fight. He still owns a 10% stake and 16% of the voting power. In August, early investor Benchmark took the extraordinary step to sue Kalanick for fraud and breaching his fiduciary duty to investors by advancing “his own selfish ends.” (A spokesperson for Kalanick said the suit is “riddled with lies and false allegations.”)
Investors are finally realizing they went too far with the “founder-friendly” thing. And founders may be realizing that if they want their companies to go public, they need to give up some control. The Age of Unicorns did these companies a disservice by allowing them to stay private and avoid scrutiny. The Age of Startup Sobriety suggests it’s time they grow up.
Recently, publishers have been churning out books about “adulting,” meant to deliver tough love to immature millennials. Maybe they should consider selling a startup edition.💥
(Find this column online here.)
***
And just when you thought it couldn’t get any worse, the Uber-fighting continued over the weekend. One group of shareholders publicly condemned Benchmark for the lawsuit and Uber’s board responded with a “Can’t we all get along?” Statement. Given how much leaking, gossiping and speculating that’s happening each day on this situation, it makes sense that the key players would want to set the record straight about which side they’re taking.
First the condemners: This group is calling itself the Uber Shareholder Alliance and includes Shervin Pishevar, Ron Burkle of Yucaipa Cos., and Adam Leber of Maverick. Key part:
“We do not feel it was either prudent or necessary from the standpoint of shareholder value, to hold the company hostage to a public relations disaster by demanding Mr. Kalanick’s resignation, along with other concessions, on a few hours’ notice and within weeks of a personal tragedy, under threat of public scandal. Even less so your escalation of this fratricidal course – notwithstanding Mr. Kalanick’s resignation – through your recent lawsuit, which we fear will cost the company public goodwill, interfere with fundraising and impede the critical search for a new, world-class Chief Executive Officer.
If you can get through that sea of commas and clauses, they’re arguing that Kalanick should not have been pushed out and that they oppose the lawsuit. Also, fratricide! The letter calls for more fratricide; its authors “hereby request” that Benchmark sell some shares and step down from the board. Together they don’t own enough shares to actually do anything about it, but they’re trying to recruit more Travis-lovers to their side.
Then the kumbaya: The five remaining members of Uber’s board – Ryan Graves, Garrett Camp, Arianna Huffington, Wan Ling Martello, Saudi Arabia’s Yasir Al-Rumayyan and TPG’s David Trujillo, provided a bland statement noting that they are “disappointed” about the lawsuit and urging both parties to “resolve the matter cooperatively and quickly.” The statement reiterates the board’s top priority of finding a new CEO. In other words, enough of this Steve Jobs-ing it garbage, kids, Travis isn’t coming back.
Lastly, a deal might be in the offing: Three groups, including one led by Pishevar and another one from Dragoneer Investment Group, are in talks to buy Uber shares, either from employees or not had a chance to cash out yet, or from Benchmark.
What more can I say? This situation is a big ugly mess. It is one person’s fault. It is the fault of many people for letting it get to this point, but it is ultimately one person’s fault.
***
While we’re on bad behavior, a former employee of banking unicorn SoFi has sued the company, according to the New York Times. Brandon Charles only worked for the company for a few months, but says he was fired after he saw male managers harassing female employees and reported it. The suit also accuses SoFi managers of improperly recording loans and cancelling applications unethically.
SoFi still has not received a copy of the complaint. A company spokesperson said the company investigated the claims and found no merit to them. The company will defend itself against the claims. Further, the company said managers cannot un-assign loan applications once assigned to a reviewer, and loan applications cannot be cancelled except by the applicant themselves or by time expiration.
THE LATEST FROM FORTUNE...
• Bitcoin breaks $4000.
• What happened this weekend, and how our President responded.
• Deepak Chopra on how Trump is stifling entrepreneurship.
• Markets are poised for a good day after a week of North Korea fears.
• One in five Americans believe their workplace is hostile.
• Google isn’t the tech company facing discrimination suits from white men.
…AND ELSEWHERE
The damaging myth of the loner genius nerd. Cool, fleas in Arizona have the plague. The incredible shrinking Sears. The alt-right and Charlottesville. Regulation-free Sinclair. Shonda Rhimes goes to Netflix.
VENTURE DEALS
• SoundCloud, a Berlin-based music and audio platform, raised approximately $170 million in funding from The Raine Group and Temasek. Read more at Coins2Day.
• Dragos Inc, a Fulton, Md.-based industrial control system cybersecurity company, raised $10 million in Series A funding. Energy Impact Partners and Allegis Capital led the round, and were joined by DataTribe.
• FilmTrack, a Studio City Calif.-based provider of end-to-end rights management solutions for media and entertainment companies, raised $5.5 million in Series C funding from Insight Venture Partners.
• Flo, a San Francisco-based AI-driven women's health platform, raised $5 million in Series A funding. Flint Capital led the round, and was joined by Natalia Vodianova.
• Green Bits Inc, a San Jose, Calif.-based retail management platform for the legal cannabis industry, raised $2.2 million in funding. Investors include Casa Verde Capital.
• Ocular Data Systems Inc, a Pasadena, Calif.-based developer of a camera that combats drug and alcohol-impaired driving, raised funding of an undisclosed amount from Pasadena Angels.
• CRäKN, a Cincinnati-based provider of a software solutions for the death-care industry, raised funding of an undisclosed amount from Queen City Angels.
• Kill Cliff, a maker of clean sports beverage products, raised funding of an undisclosed amount from Sunrise Strategic Partners.
PRIVATE EQUITY DEALS
• NextEra Energy and Global Infrastructure Partners are among at least seven companies looking into buying renewable energy assets from NRG Energy Inc (NYSE:NRG). Blackstone Group LP, GIC Pte, Borealis Infrastructure Management, John Hancock Life Insurance Co. And KKR & Co. Are also considering bids, according to Bloomberg. Read more.
• Lexitas, a portfolio company of Trinity Hunt Partners, acquired Deitz Court Reporting, a New York City-based service for deposition reporting and legal videography. Financial terms weren’t disclosed.
OTHER DEALS
• A coalition of investors led by General Atlantic and the Dragoneer Investment Group approached Uber for an offer to buy stock from the company’s existing shareholders . Uber is also considering offers from Sofbank and from a consortium led by Shervin Pishevar. Read more at Coins2Day.
• Facebook acquired Fayteq, a German-based video editing tools startup, for an undisclosed amount, according to Variety. Read more.
• A unit of China's Fosun Group and Shanghai Pharmaceuticals Holding Co are among bidders for a stake in Arbor Pharmaceuticals, an Atlanta-based specialty pharmaceutical company, according to Reuters. A potential deal could value Arbor at around $3 billion. The bidders are reportedly seeking to buy 20% to 30% of Arbor. Read more.
• Andeavor Logistics LP will buy rival Western Refining Logistics LP (NYSE:WNRL) in a deal valued at $1.5 billion, according to Reuters. Read more.
• Deposit Solutions acquired Savedo, a Berlin-based platform for retail deposits. Financial terms weren’t disclosed.
• VF Corp will buy Williamson-Dickie Mfg. Co, a Fort Worth, Texas-based owner of Dickies and Workrite workwear, for about $820 million in cash, according to Reuters.Read more.
• STX Entertainment, which is backed by TPG, Hony Capital, Tencent, acquired Lalela Music, a production music library for film, TV and other media. Financial terms weren’t disclosed.
IPOs
• Rovio, the Finnish mobile gaming studio and maker of the Angry Birds game, is reportedly close to an IPO as early as next month. Carnegie Bank, Danske Bank, and Deutsche Bank have been named advisors in the deal. The IPO could net Rovio about $400 million in a local IPO. According to news site The Information, the company is 70% owned by venture capitalist Kaj Hed, who is also co-founder Niklas Hed’s uncle. Read more at Coins2Day.
EXITS
• Oaktree Capital is mulling the sale of Eolia Renovables de Inversiones SCR SA, a Spain-based wind-power firm. A sale could value the company at more than 1 billion euros ($1.2 billion), according to Bloomberg. Read more.
• Hike acquired Creo, an India-based software company that previously released smartphones, streaming devices and an operating system. Creo previously raised $3 million in venture funding from investors including Sequoia Capital, BEENEXT, and India Quotient. Financial terms weren’t disclosed. Read more.
• DuPont agreed to acquire Granular, a San Francisco-based software and analytics platform for the farming industry. Financial terms weren’t disclosed. Granular raised more than $24 million in venture funding from investors including Tao Capital Partners.
• The Hut Group acquired Glossybox, a Berlin-based cosmetics subscription service provider, for an undisclosed amount. Glossybox had raised approximately $72 million in venture funding from investors including Rocket Internet and Kinnevik Online.
• Yellow Wood Partners acquired Freeman Beauty, a Los Angeles-based specialty beauty company, from Champlain Capital. Financial terms weren’t disclosed.
• TPG will acquire Transplace Holdings, a Frisco, Texas-based transportation management and logistics technology services company, from Greenbriar Equity. Financial terms weren’t disclosed.
FIRMS + FUNDS
• ClearSky, a venture capital firm with offices in Florida, New York, Boston, and San Francisco, raised $168.3 million for its debut security fund, according to an SEC filing. The fund’s target is $300 million.
• Growth Catalyst Partners, a Chicago-based private equity firm, raised $57 million for its inaugural fund, according to an SEC filing. The fund’s target is $100 million.
• Carmel Ventures, an Israel-based venture capital firm, set out to raise a fifth venture fund, according to an SEC filing. No target size was listed.
PEOPLE
• Brian W. Haklisch joined Angelo, Gordon & Co. As a managing director focusing on North America. Previously, Haklisch was at Structured Portfolio Management.
• David Leeney joined LightBay Capital as a managing director and head of business development. Previously, Leeney was at The Gores Group.
• Sumeru Equity Partners promoted Kevin Cheng to vice president and hired Jack McCabe as an associate.
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Polina Marinova produces Term Sheet, and Lucinda Shen compiles the IPO news. Send deal announcements to Polina here and IPO news to Lucinda here.
