SAY GOODBYE TO FOUNDER-FRIENDLY
Good morning, Term Sheet readers.
We start this morning off with a surprise bid. Maria Contreras-Sweet, who led the Small Business Administration under President Barack Obama, has reportedly submitted an offer to acquire Weinstein Co. According to a letter to the board of directors, Contreras-Sweet said she hopes to be executive chairwoman of a majority-female board heading Weinstein Co., which would be renamed. Though the letter doesn’t disclose the offer amount, the company is reportedly valued in the low hundreds of millions.
Over the weekend, my colleague Shawn Tully published an in-depth investigation of the bruising board battles that took place inside the Weinstein Co. It details the “corporate backstory about how a group of billionaire board members let Harvey Weinstein stay in power.” How? Through a board structured in a way that curtailed the board members’ influence and augmented Weinstein’s power. “It was a structure that was incredibly investor-unfriendly,” says a board director.
Tully reports on Weinstein’s iron-clad contract:
Like its predecessors, the 2010 contract stipulated that Weinstein could be terminated only for two types of offenses, according to Maerov. The first was a conviction for a felony involving “moral turpitude,” a category that would obviously encompass sexual assault. “But being accused with convincing evidence wasn’t enough,” says Maerov. “He had to be convicted of a felony, and not just any felony, only one involving moral turpitude. If we’d had documentary evidence of sexual harassment, the absurdity of his old contract still would have prevented us from terminating him.”
Second, he could be terminated for a major misuse of TWC funds. But that condition contained a major loophole. Here’s the escape hatch: If Weinstein were caught misappropriating funds, he would be granted a “cure period” in which to refund the money. In other words, misusing company cash wasn’t sufficient to terminate him. As long as Weinstein paid TWC back, he’d remain employed under the same highly advantageous contract as if he’d done nothing wrong. “He had the right to put the genie back in the bottle,” says Maerov.
In other words, Weinstein had all sorts of safeguards in place that would work to keep him at the helm of the company. As Tully writes, “the board’s inaction helped Harvey Weinstein remain all-powerful for more than a decade, as directors from the vanguard of the business elite enabled him to stay atop the company.”
But that “founder-friendly” and “investor-unfriendly” tide is beginning to turn. The Weinstein case is reminiscent of much of what’s been going on in the tech world in recent years. Just take a look at some of Silicon Valley’s finest: Mark Zuckerberg has absolute control over Facebook. Evan Spiegel took Snap public by issuing common shares with no voting rights. Uber’s Travis Kalanick was granted three extra board seats last year in order to give “the CEO the control he needs to run the company.”
As I’ve noted previously, the period of “founder-friendly” governance is evolving into a “company-first” climate of governance. And that’s a good thing. It’s impossible to run a business the right way with zero respect for your investors’ money. In 2014, Weinstein “apologized to the board, saying that he recognized that he’d run the company poorly, that he didn’t deliver on his promises, and that the investors were disappointed. Then he said that he was starting a venture that could get all our money back.”
But we’re at a time when apologies aren’t enough. And without proper governance, empty promises and insincere apologies are all we’ll continue to get. Weinstein — who until now, was considered untouchable by even his company’s own board of directors — is just one example of many more to come.
THE LATEST FROM FORTUNE...
• Why this Christmas is make-or-break for Macy's (by Phil Wahba)
• Inside Tesla’s new electric semi-truck (by Kirsten Korosec)
• Angela Merkel's epic fail is bad for Germany, worse for Europe (by Geoff Smith)
• Bitcoin is sticking to its $8,000 high. Here's what’s keeping it afloat (by David Meyer)
...AND ELSEWHERE
Uber to buy 24,000 sport utility vehicles from Volvo to form a fleet of driverless autos. Inside Steve Jurvetson’s complicated departure from DFJ. An in-depth profile on Anne Wojcicki. Inside t he mind of Elon Musk. The Russian banker who knew too much.
VENTURE DEALS
• Deliveroo, a London-based online food delivery company, raised $98 million in Series F funding. T. Rowe Price Associates and Fidelity Management & Research Company led the round.
• Scalyr, a San Mateo, Calif.-based log management and server monitoring service, raised $20 million in Series A funding. Shasta Ventures led the round, and was joined by investors including Bloomberg Beta, Susa Ventures and Heroic Ventures.
• Oviva, a London and Zurich-based digital health company, raised $12 million in Series A funding. Investors include Albion Capital, Eight Roads Ventures, F-Prime Capital Partners, Partech Ventures and Walking Ventures.
• Ncardia, a Germany-based drug discovery and stem cell technology company, raised 10.5 million euros ($12.4 million) in Series B funding. Épimède led the round.
• Shippeo, a Paris-based provider of a supply chain visibility platform, raised 10 million euros ($11.8 million) in Series A funding. Partech Ventures and Otium Venture led the round.
• Zego, a London-based startup offering insurance products to gig economy workers, raised £6 million ($7.9 million) in Series A funding. Balderton Capital led the round, and was joined by investors including LocalGlobe.
• VidMob, a New York-based video creation platform, raised $7.5 million in Series A funding. Investors include Manifest Investment Partners, Interlock Partners, Stampede Ventures, Acadia Woods Partners and Macanta Investments.
• Diamond Orthopedic, a Charlotte, N.C.-based medical device company, raised $3.5 million in seed funding. MagnaSci Fund LP led the round.
• Visage, a San Francisco, Calif.-based startup reinventing candidate sourcing, raised $1.5 million in seed funding. Investors include Urban Innovation Fund, GrowthX, NewFund, and FundersClub.
• Peanut, a London-based app connecting like-minded mothers in an area, raised seed funding of an undisclosed amount. Sweet Capital Investment and the Female Founders Fund led the round , and investors include Greycroft, Sound Ventures, NEA, Felix and Partech.
PRIVATE EQUITY DEALS
• Edward Don & Company, which is backed by Vestar Capital, acquired Atlanta Fixture and Sales Company Inc, an Atlanta-based food service equipment and supplies distributor. Financial terms weren't disclosed.
• Teall Investments made an investment in Sunshine Beverages, a Winston-Salem, N.C.-based beverage company. Financial terms weren't disclosed.
• Alogent, which is backed by Battery Ventures, acquired Jwaala LLC, an Austin, Texas-based provider of digital banking solutions for U.S. Financial institutions. Financial terms weren't disclosed.
IPOs
• Casa Systems, an Andover, Mass.-based software-maker for cable providers, filed for a $150 million IPO. The company posted revenue of $316.1 million on income of $88.7 million in 2016. Summit Partners(52.1% pre-offering) backs the company. Morgan Stanley and Barclays are joint bookrunners in the deal. The firm plans to list on the Nasdaq as “Casa.”
• Level Brands, a Charlotte, N.C.-based consumer lifestyle brand inspired by Kathy Ireland, said it raised $12 million in an offering of 2 million shares priced at $6. In the year ending Sept. 2016, the company posted sales of $2.6 million and loss of $3.7 million. Joseph Gunnar & Co. Is sole bookrunner in the deal. The company plans to list on the NYSE American as “LEVB.”
• PogoTec, a Roanoke, Va.-based wearable camera maker, filed for a Reg A+ IPO to raise between $10 million to $32 million. The company has yet to post sales and booked loss of $5 million in 2016. WR Hambrecht is sole bookrunner in the deal. Pricing terms have yet to be disclosed. The company plans to list on the Nasdaq as “POGO.”
• AMERI Holdings, a Princeton, NJ-based company creating ERP software, raised $6 million in an offering of nearly 1.48 million shares priced at about $4.12, within its $4 6to $5 range. The company posted revenue of $36.2 million on loss of $2.8 million in 2016. Lone Star Value Management (25.7% pre-offering) backs the company. Ladenburg Thalmann is sole bookrunner in the deal. The company plans to list as “AMRH on the Nasdaq.
EXITS
• The CapStreet Group sold its stake in The Eads Company, a Stafford, Texas-based distributes valves and automation, instrumentation, filtration and separation, and plant equipment products. To FCX Performance Inc. Financial terms weren't disclosed.
• Mainstreet Health Investments agreed to acquire Care Investment Trust LLC, a New York City-based owner of senior housing and care properties, for $425 million. The seller is Tiptree Inc.
• Warburg Pincus agreed to acquire Raiffeisen’s 10% stake in Avaloq, a Zurich-based fintech company. Financial terms weren't disclosed.
• Ontario Teachers’ Pension Plan acquired Atlantic Aqua Farms, a Canada-based grower and processor of mussels, from Encore Consumer Capital. Financial terms weren't disclosed.
• Upland Software (Nasdaq:UPLD) acquired Qvidian, a Chelmsford, Mass.-based cloud RFP and sales proposal automation software platform, for $50 million. Qvidian had raised approximately $31 million in venture funding from investors including North Bridge Venture Partners, HillStreet Capital, Kodiak Ventures, and Commonwealth Capital.
PEOPLE
• Alantra named Scott W. Hadfield as a managing director. Previously, Hadfield was at G.C. Andersen Partners.
• Shasta Ventures will promote Nikhil Basu Trivedi, Jacob Mullins and Nitin Chopra from principal to partner, according to TechCrunch. Read more.
• John Swainson joined Siris Capital Group as an executive partner.
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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.
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