Wednesday, January 30, 2019

Term Sheet: Jan. 30, 2019

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January 30, 2019
WHEN A STARTUP GOES BUST

Good morning, Term Sheet readers.

When a startup goes out of business, it's typically a line item in a newsletter like Term Sheet about how much capital it had raised and from whom.

 
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That's exactly what happened when we reported last week that Munchery had officially ceased operations. The San Francisco-based food delivery startup had raised more than $125 million in venture funding and reached a valuation of $300 million at its peak. Investors included Menlo Ventures, Sherpa Capital, Greycroft, and e.ventures.

But to a small business owner like Lenore Estrada, the startup's shutdown is more than just a line item — it's payroll.

Estrada, who owns a San Francisco-based bakery business called Three Babes Bakeshop, published a Medium post that claims she's owed more than $20,000 — most of which was for an order she had delivered to Munchery prior to Thanksgiving that remained unpaid.

Other small business owners also went without payment — Charles Farrier, the owner of Crumble & Whisk Patisserie, is waiting on a $1,700 payment from Munchery. Melissa Cohen of Salty Sweet Cookies, Jennifer Roy of Dandelion Chocolate and Jennifer Nguyen of Native Baking Co. are expecting a total of $16,417.50.

And now, Estrada is calling out the venture capitalists behind the company. She went to the Menlo Ventures office and reportedly left a letter outlining her concerns on the windshield of every car in the parking lot. Yesterday, she protested outside Sherpa Ventures' SF office, holding a sign that reads: "Startup idea: Don't steal pies!"

Estrada is asking that the VCs who backed Munchery write a check to cover the money the defunct startup owes to its vendors. "It's not a lot of money to you, but to us it's missed rent payments, layoffs, and waiting another year to expand to offer benefits," she writes.

According to a source familiar with the situation, Munchery investors had known the company was in financial trouble since early last year. Some had reportedly encouraged the startup to wind down operations, but the company's management team chose to forge ahead.

Munchery did not respond to a request for comment. Menlo Ventures told Term Sheet that the firm took action in October 2018 and its managing director Pravin Vazirani resigned from the company board. (Term Sheet has learned that Vazirani left Menlo Ventures early last year to join Owl Rock as a partner.)

Sources tell me that Menlo Ventures and e.ventures stepped down from their board seats, while Sherpa Capital stayed on. Sherpa has not responded to a request for comment.

Estrada asks, "Why is nobody holding the VC firms accountable for providing oversight? How is it ok to accept that they may have just 'abandoned the seat' because they thought the investment was a loser?"

And this question brings us to the point of today's column: When startups dissolve into obscurity, it's important to remember that it's not only deep-pocketed investors who lose out when a bet goes bad. A lot of vendors and suppliers do too — and unlike the shareholders invested in the business, it's not something they can just write off and walk away from.

Read this column on Fortune.com

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THE LATEST FROM FORTUNE...

Fortune's Blue Ribbon Companies 2018 (by Fortune Editors)

Why Goldman Sachs Thinks a Catastrophic No-Deal Brexit Is Now More Likely (by David Meyer)

Sears Lost $318 Million During the Holiday Season (by Chris Morris)

Intel Plans an $11 Billion Expansion in Israel (by Erik Sherman)

...AND ELSEWHERE:

Facebook paid users to install a "Facebook Research" app. Pinterest taps Goldman Sachs, JPMorgan to lead IPO. Silicon Valley's favorite charity is asking for a second chance. The murky ethics of the ugly-produce business. Angela Ahrendts' plan to fix retail. Why The Laundress founders sold to Unilever.

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VENTURE DEALS

Kinestral Technologies Inc., a developer and manufacturer of smart-tinting glass product for buildings and homes, raised more than $100 million in Series D funding. SK Holdings led the round, and was joined by investors including 5AM Ventures, Alexandria Real Estate, Capricorn Investment Group and Versant Ventures.

Forge Global Inc, formerly known as Equidate Inc, a marketplace for pre-IPO securities, has increased its Series B funding round to $85 million. Munich Re led the round.

FabFitFun, a Los Angeles-based lifestyle membership and subscription commerce company, raised $80 million in Series A funding. Kleiner Perkins led the round, and was joined by investors including NEA and Upfront Ventures.

Madison Reed, a San Francisco-based hair color beauty company, raised $51 million in Series D funding. Norwest Venture Partners and True Partners co-led the round, and were joined by investors including Comcast Ventures and Meaningful Partners.

Pliops, an innovator in cloud storage solutions, raised $30 million in Series B funding. Softbank Ventures Asia led the round, and was joined by investors including Intel Capital, State of Mind Ventures, Viola Ventures, Western Digital Capital and Xilinx.

Mimiro (fka ComplyAdvantage), a London-based provider of a machine-learning platform for analyzing financial risk, raised $30 million in Series B funding. Index Ventures led the round, and was joined by investors including Balderton Capital.

Verbit, a provider of transcription and captioning solutions, raised $23 million in Series A funding. Viola Ventures led the round, and was joined by investors including Vertex Ventures, HV Ventures, Oryzn Capital, Vintage Venture Partners and Clal-Tech.

Lively, a developer of hearing aids, raised $16 million in Series A funding. Declaration Capital led the round, and was joined by investors including Tiger Management.

Medigate, a New York City-based medical device security and asset management platform, raised $15 million in Series A funding. U.S. Venture Partners led the round, and was joined by investors including YL Ventures and Blumberg Capital.

Kuali, a Salt Lake City-based higher education-focused cloud technology company, raised $12 million in Series A-1 funding. Investors include Mercato Partners and Owl Ventures.

Filevine, a Provo, Utah-based provider of legal case management software, raised $8.3 million in Series A funding. Signal Peak Ventures led the round.

Returnly, a post-purchase payments company for retailers and brands focused on customer loyalty, raised $8 million in Series A funding. Mundi Ventures and The Venture City co-led the round, and were joined by investors including Novel TMT Ventures and CoVenture.

LoanSnap, a San Francisco-based smart loan startup, raised $4.7 million in funding. Investors include Thomvest Ventures.

Packback, a Chicago-based education technology company, raised $2.5 million in funding. University Ventures led the round, and was joined by investors including Hyde Park Angels.

Oxygen, a provider of a digital banking service, raised $2.3 million in funding. Investors include Y Combinator, Digital Horizon Capital, Cynthia Chen, ZMT Capital, Locus Ventures, Endure Capital, PioneerFund, Magic City, Light Bridge, Strawberry Creek, Base Ventures, The House Fund, and Sam Yam.

Zestful, a Denver-based company enabling employers to offer customizable employee perk programs, raised $1.1 million in funding. Investors include Bessemer Venture Partners, Day One Ventures, Matchstick Ventures, and Shrug Capital.

HeyTutor, an online marketplace connecting students with local tutors, raised $1 million in Series A funding from ScOp Venture Capital.

CrossEngage, a Germany-based marketing tech firm, raised a "seven-digit" Series A funding round. Investors include Vorwerk Ventures, Earlybird Venture Capital, Project A, Kreativwirtschaft managed by IBB Beteiligungsgesellschaft, Cavalry Ventures, 42CAP and Columbia Lake Partners.

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HEALTH AND LIFE SCIENCES DEALS

Dewpoint Therapeutics, a company translating the emerging area of biomolecular condensates into drug discovery, raised $60 million in Series A funding. Polaris Partners led the round, and was joined by Samsara BioCapital, 6 Dimensions Capital, EcoR1 Capital, Alexandria Venture Investments, and Leaps by Bayer.

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PRIVATE EQUITY DEALS

Arlington Capital Partners acquired Intellectual Technology Inc, a Carlsbad, Calif.-based provider of solutions for motor vehicle agencies. Financial terms weren't disclosed.

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IPOs

Pinterest, the image search company, has reportedly hired Goldman Sachs and J.P. Morgan to lead its IPO later this year, Reuters reports citing sources. Read more.

Harpoon Therapeutics Inc, a South San Francisco-based clinical-stage immunotherapy company, plans to raise $76 million IPO(53% insider) in an offering of 5.4 million shares priced between $13 to $15. The firm posted revenue of $708,000 in 2017 and loss of $16.8 million. MPM Capital (23.2% pre-offering), the UBS Impact Fund (20.1%), and New Leaf Venture Partners (13.8%) back the firm. Citi and SVB Leerink are underwriters. It plans to list on the Nasdaq as "HARP." Read more.

Alector, a South San Francisco-based biotech building therapies for neurodegeneration, plans to raise $176 million (48% insider) in an IPO of 9.3 million shares priced between $18 to $20. The firm posted revenue of $18.5 million in the nine months ending September, and loss of $34.9 million. Merck's Venture fund (6% pre-offering), OrbiMed Private Investments (21.4%), and Polaris Venture Management (21.7%) back the firm. Morgan Stanley, BofA Merrill Lynch, Cowen, and Barclays are underwriters. It plans to list on the Nasdaq as "ALEC." Read more.

Remora Royalties, an oil and natural gas royalties firm in Austin, Texas, withdrew plans to raise $105 million in an IPO of 5.3 million shares priced between $19 to $21. The firm posted revenue of $36.1 million in 2017. RBC Capital Markets, Wells Fargo Securities, and UBS Investment Bank were joint bookrunners. It planned to list on the Nasdaq under the symbol "RRI." Read more.

Banco Agibank, the Brazilian online lender, is weighing a U.S. IPO, its CEO said. Read more.

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EXITS

Unity Technologies acquired Vivox, a Natick, Mass.-based provider of cross-platform voice and text communication tools for games. Financial terms weren't disclosed. Vivox had raised approximately $22.6 million in venture funding from investors including Peacock Equity, Benchmark, Ridge Ventures, Canaan Partners, and GrandBanks Capital.

Triumph Group Inc agreed to sell Triumph Fabrications, an operator of businesses offering forming, assembly, and special processing solutions, to Arlington Capital Partners. Financial terms weren't disclosed.

Hg agreed to acquire a majority interest of Transporeon Group, a Germany-based cloud-based business network for industrial logistics, from TPG Capital. Financial terms weren't disclosed.

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PEOPLE

New Heritage Capital promoted Mike O'Brien to director.

Allison Baum joined Trinity Ventures as principal. Previously, Baum co-founded Fresco Capital.

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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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