Term Sheet: Sep. 26, 2019

Our daily brief on deals and dealmakers. Is this email not displaying correctly? View it in your browser. follow Subscribe Send Tip September 26, 2019 When storied venture capital firm Benchmark moved to remove Travis Kalanick from the CEO role, it sent the tech press into a frenzy. The stories rolled in: "What was Benchmark thinking?" "The Era of 'Founder-Friendly' Startup Investing Is Over," and "For Uber, a Quiet Investor Becomes a Sudden Thorn." Startup founders were characterized as "nervous" about dealing with Benchmark after it sued former CEO Kalanick.  It was an unprecedented move for a firm that had touted itself as "founder-friendly." How would the Uber conflict affect its deal flow? Would founders take Benchmark's money? Could Benchmark be trusted ever again?! Well, here's the thing I find peculiar: SoftBank moved to oust a founder before his company made its public market debut, too. The difference is that no one seems to be asking those same questions of the Japanese tech behemoth. Why? Because founders and their investors already know that SoftBank money comes at a high cost. SoftBank, which has a capital war chest of $100 billion, is led by Masayoshi Son, and it has a $100 million minimum investment requirement. Its overarching strategy is to identify a market leader, pour hundreds of millions of dollars into it, and remove the constraint of capital. Once a deal is identified, several of its 80 investment professionals sit down with the company's management team, discuss the opportunity, and "essentially re-write their business plan." SoftBank plays to win—and it hasn't done that by being particularly "friendly." There have been ethical concerns over the firm's Saudi Arabia connections, allegations of pitting founders against one another, and the negotiation of strict terms that give it greater control over key decisions at the company while cutting into the value of other investors' shares. Yet time and time again we've seen it rebound and go on to invest hundreds of millions of dollars into founders who may very well suffer the same fate as WeWork's Adam Neumann. After Neumann announced he would step down as CEO of the company he founded, Founders Fund partner Keith Rabois tweeted, "Welcoming all the converts to the SoftBank is horrible position." Fellow VC Hunter Walk piled on, referencing a blog post he wrote saying, "SoftBank becomes the largest investor on the cap table, sometimes clears out the Board, and, if reporting is correct, doesn't broadly offer secondary to earlier investors." Duncan Davidson, a general partner at early-stage venture capital firm Bullpen Capital, refers to SoftBank's aggressive tactics as "the SoftBank Syndrome," claiming the firm makes "founders and venture capitalists hostage to their money." Davidson is an investor in Wag, a dog walking startup that absorbed $300 million from SoftBank's Vision Fund last year. The company was originally looking to raise $100 million in its latest round, but that amount quickly jumped to $300 million once SoftBank expressed interest. Rover, its competitor, had also been in talks with SoftBank.  "Our experience with SoftBank and their Wag investment has not been positive," Davidson told Term Sheet. "I'd be reluctant to have them in one of our deals after that." Davidson declined to divulge specific details of his experience on the record. SoftBank declined to comment. He claims there will be growing resistance to SoftBank money post-Neumann, but other VCs in Silicon Valley aren't so sure. Patricia Nakache, a general partner at Trinity Ventures, said, "Based on my conversations with founders, I don't think the ousting of Adam Neumann is going to change founder eagerness to take SoftBank's money." She explained that the WeWork fiasco is viewed as extreme in many regards and beyond the norm of founder-friendly investing. "Like the Uber/Benchmark case, the WeWork situation is a harsh reminder of the importance of responsible governance in private companies," she said. "It demonstrates once again that lax governance is not only bad for investors, it is ultimately bad for founders too." Bradley Tusk, the founder of Tusk Ventures, was one of the earliest investors in Uber and saw Travis Kalanick get pushed out of his own company. Tusk is also an investor in insurance tech startup Lemonade, which raised $300 million in a round led by SoftBank earlier this year. "There were enough examples of problematic behavior to justify the removal [of Neumann]," he said. "I think if the terms are right and the valuation is right, most founders won't hesitate to take [SoftBank's] money." But the question still looms: What is a founder to do when their largest investor wants them out due to their own financial and reputational risk? In the case of Uber and WeWork, they leave. But kicking them out isn't always in the best interests of the company, he says. Tusk believes SoftBank has yet to learn some lessons that Silicon Valley VCs have experienced firsthand.  "Maybe I'm too close to this to be objective, but while we don't know what will happen at WeWork post-Neumann, we know things have gone poorly at Uber," Tusk said. "The lesson that SoftBank should take from Uber/Benchmark is that you can’t replace an innovator with just a really good manager." Read the story on Fortune.com FOUNDERS' TAKE: If you're a founder of a venture-backed startup looking to raise more capital in the future, would you be reluctant to take SoftBank's money? Email me at polina.marinova@fortune.com with the subject line "Softbank Money" and let me know your thoughts. (Note that your comments might be included in a future Term Sheet.)  DIRECT LISTINGS: Bill Gurley is one of the loudest proponents of so-called direct listings, an alternative to the IPO that's gaining momentum in Silicon Valley. In traditional IPOs, bankers spend weeks (and earn hefty fees) lining up big institutional investors to buy shares. The newly public company gets the publicity of a splashy launch, and a large infusion of cash to boost growth. But many of today's startups, rich already with private capital, don't need cash—they're primarily looking for an efficient way for early investors to sell some of their stakes. My colleague Michal Lev-Ram reports:  The bottom line is that while investment bankers can still make money via direct listings (there are some benefits to them, too, like the lack of a lockup period), they're not as enthusiastic as VCs. It's simple to understand why: Fewer banks will be involved, and those lucky few that are will make less money.  But longer term, perhaps direct listings will actually be a catalyst for more companies to go public, or to go public faster, which could have benefits for all involved—VCs, founders, investment bankers, and other shareholders. As John Tuttle, vice chairman and chief commercial officer of NYSE, puts it: "In a world awash with private capital and people not necessarily talking about the benefits of being a public company, this is one more avenue companies have to come to market." Read more here. PELOTON IPO DAY: Fitness equipment maker Peloton priced its IPO at $29 a share, the top of its original range between $26 and $29. The offering raises $1.16 billion and values the digital fitness company at $8.1 billion. My colleague Anne Sraders will be following the story. Follow her on Twitter here. . . VENTURE DEALS - Divvy, a San Francisco-based tech enabled real estate platform, raised $43 million in Series B funding. GIC and Lennar led the round, and were joined by investors including Andreessen Horowitz, Caffeinated Capital, and Max Levchin. - Catasys Inc, a Santa Monica, Calif.-based AI and tech-enabled healthcare company, raised $45 million in funding from Goldman Sachs.  - Duda, a Palo Alto, Calif.-based web design platform for digital agencies and SaaS platforms, raised $25 million in funding, from Susquehanna Growth Equity. - Yerdle, a San Francisco-based technology and logistics resale platform, raised $20 million in Series C funding. Investors include Three Cairns Group, Commerce Ventures, DGNL, Prologis Ventures, Prelude Ventures, Claremont Creek Ventures, Lybra, and The Westly Group. - Fidel, a U.K.-based fintech company, raised $18 million in Series A funding. Nyca Partners and QED Investors co-led the round. - Terminal, a company that builds and manages remote teams, raised $17 million in Series B funding. 8VC led the round, and was joined by investors including Atomic, Cathay Innovation, Cherubic Ventures, Craft Ventures, Kleiner Perkins, and Lightspeed Venture Partners. - BEAT81, a Germany-based fitness tech companies, raised €6.4 million ($7.01 million) in Series A funding. EQT Ventures led the round. . - Okapi, a New York-based commercial real estate-focused artificial intelligence platform, raised $5.5 million in Series A funding. Marius Nacht led the round. - Tastewise, an Israel-based AI-powered food trends prediction and intelligence startup, raised $5 million in Series A funding. PeakBridge led the round.  - Axuall, a Cleveland-based digital network for verifying identity, credentials, and authenticity in real-time, raised $3 million in seed financing. JumpStart led the round. - Noom, a New York-based mobile health coaching software solution, raised funding of an undisclosed amount from Serena Ventures. HEALTH & LIFE SCIENCES DEALS - Tacalyx, a Germany-based biotech company focused on the discovery and development of novel anti-TACA cancer therapies, raised 7 million euros ($7.6 million) in seed funding. Boehringer Ingelheim Venture Fund and Kurma Partners led the round, and were joined by investors including Idinvest Partners, High-Tech Gründerfonds, coparion and Creathor Ventures. PRIVATE EQUITY DEALS - L Catterton agreed to acquire Del Frisco's Restaurant Group (Nasdaq:DFRG) for about $650 million. In conjunction with the deal, L Catterton has agreed to sell Del Frisco's Double Eagle Steakhouse and Del Frisco's Grille assets to Landry's Inc for an undisclosed amount. - Strattam Capital made a majority investment in MHC Software, a Minneapolis-based provider of enterprise content automation and document management software solutions. Financial terms weren't disclosed.  - Spectrum Equity and Institutional Venture Partners led a C$515 million ($388.73 million) recapitalization of Verafin, a Canada-based provider of financial crime management software.  - Vista Equity Partners invested in Acquia, a Boston-based open digital experience company. Financial terms weren't disclosed.  - Bertram Capital made an investment in Solo Stove, a Dallas, Texas-based provider of portable, low-smoke fire pits and camping stoves. Financial terms weren't disclosed.  - Red River, a portfolio company of Acacia Partners, acquired CWPS, a Washington, D.C.-based managed service provider. Financial terms weren't disclosed.  OTHER DEALS - Foot Locker, Inc. (NYSE: FL) invested $3 million in NTWRK, a Los Angeles-based youth culture e-commerce and content platform. IPOs - Latitude Financial, an Australian loan services firm, plans to raise up to $925.42 million in an IPO that would give KKR, Deutsche Bank, and Varde about 35% of the company. Most of the proceeds are expected to go toward repaying equity and loans to the trio. Read more. - Oportun Financial, a San Carlos, Calif.-based provider of installment loans to those with a limited credit history, plans to raise $94 million in an IPO of 6.3 million shares (25% insider sold) priced at $15, the low end of its range. The company posted revenue of $497.6 million and income of $16.6 million in 2018. Fidelity(8.5%), Greylock(14.7%), and Institutional Venture Management (13.4%) back the firm. It plans to list on the Nasdaq as "OPRT." Read more. . EXITS - Kodiak Gas Services, a portfolio company of EQT Infrastructure, agreed to acquire Pegasus, a Texas-based provider of contract compression and related services for the oil and gas industry in North America, from Apollo Global Management. Financial terms weren't disclosed.  - Council Capital and Baird Capital sold their stakes in emids, a Franklin, Tenn.-based provider of healthcare technology expertise and consulting services, to New Mountain Capital. Financial terms weren't disclosed.  - KidPass acquired Mommy Nearest, a New York-based mobile communities for parents looking for child-friendly places. Mommy Nearest raised $4.4 million in funding. The investors were not named.  . Email Us Subscribe share: . This message has been sent to you because you are currently subscribed to Term Sheet. 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