Monday! Hope you had a stellar weekend.:)
WeWork’s parent organization The We Company officially withdrew the S-1 filing for its IPO today in the least surprising development to come out of the company in weeks.
Venture capitalists and executives from hundreds of private companies will reportedly meet tomorrow in Silicon Valley to discuss whether traditional IPOs still work after a year in which many of the biggest deals flopped.
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In the Dual-Class Shares Debate, the Exchanges Should Get Off the Sidelines
Adam Neumann’s fall from grace was astonishingly swift once his company, WeWork, filed to go public in August. Even while his spending was fairly well-documented across time (as were his apparent conflicts of interest), he was humiliated for enriching himself, then ultimately kicked out of the corner office before the company, in the least surprising turn of events in recent weeks, today yanked its S-1 registration.
Neumann never exactly hid who he is or how he operates, so what suddenly sparked the ire of reporters — and investors — around the world? What, exactly, in an ultimately unsurprising IPO filing, had people coughing up their morning coffee? Boiled down to the worst offense (including selling his own company the trademark “We” for $5.9 million in stock) was very likely the lock on control that Neumann had set up through a multi-class voting structure that aimed to cement his control. And by ‘cement,’ we mean he would enjoy overwhelming control for not just for 5 or 10 years after the company went public but, unless Neumann sold a bunch of of his shares, until his death or “permanent incapacity.”
Given that Neumann is just 40 years old and (mostly) abstains from meat, that could have been an awfully long time. Yet this wasn’t some madcap idea of his. There are plenty of founders who have or who plan to go public with dual or multi-class shares designed to keep them in control until they kick the bucket. In some cases, it’s even more extreme than that.
Consider at Lyft, for example, Logan Green and John Zimmer hold high-voting shares entitling them to twenty votes per share not until each is dead but both of them. If one of them dies or becomes incapacitated, Lyft’s so-called sunset clause enables the remaining cofounder to control the votes of the deceased cofounder. Even more, after the lone survivor bites the dust, those votes still aren’t up for grabs. Instead, a trustee will retain that person’s full voting powers for a transition period of 9 to 18 months.
The same is true over at Snap, where cofounders Evan Spiegel and Bobby Murphy have designated the other as their respective proxies. Accordingly, when one dies, the other could individually control nearly all of the voting power of Snap’s outstanding capital stock.
Unbelievably, that’s not the worst of it. Many dual class shares are written in such a way that founders can pass along control to their heirs. As SEC Commissioner Robert Jackson, a longtime legal scholar and law professor, told an audience last year, it’s no academic exercise.
Said Jackson, “[N]early half of the companies who went public with dual-class over the last 15 years gave corporate insiders outsized voting rights in perpetuity. Those companies are asking shareholders to trust management’s business judgment—not just for five years, or 10 years, or even 50 years. Forever. So perpetual dual-class ownership—forever shares—don’t just ask investors to trust a visionary founder. It asks them to trust that founder’s kids. And their kids’ kids. And their grandkid’s kids — some of whom may or may not be visionaries. It raises the prospect that control over our public companies, and ultimately of Main Street’s retirement savings, will be forever held by a small, elite group of corporate insiders—who will pass that power down to their heirs.”
Dave, a three-year-old, L.A.-based personal finance management app, has raised $50 million in fresh funding from Norwest Venture Partners, at a post-money valuation of $1 billion. TechCrunch has more here.
Amboss, a four-year-old, Berlin-based knowledge platform for medical professionals, has raised €30 million in Series B funding co-led by Partech and Target Global, with participation from earlier investors Cherry Ventures, Wellington Partners, and Holtzbrinck Digital. TechCrunch has more here.
Digit, a six-year-old, San Francisco-based popular AI-powered automated financial health tool, has raised $27.5 million in Series C funding led by by earlier investor General Catalyst. Other participants in the round — which brings the company’s total funding to $63.8 million — include Citi Ventures, Financial Venture Studio, and Earnest cofounder Louis Beryl. More here.
Kenna Security, a nine-year-old, San Francisco-based enterprise company focused on risk-based vulnerability management, has raised $48 million in Series D funding, including from Sorenson Capital and Citi Ventures. SiliconAngle has more here.
Khatabook, a year-old, Bangalore, India -based startup that helps small regional businesses record financial transactions digitally and accept online payments, has raised $25 million in Series A funding led by GGV Capital, with participation from partners of DST Global, RTP Ventures, Sequoia Capital India, Tencent, and Y Combinator. The company has now raised $29 million. TechCrunch has more here.
Stipe Therapeutics, a 1.5-year-old, Denmark-based immune-oncology startup, has raised €20 million in Series A financing. Novo Seeds and Arix Bioscience co-led the round, joined by Wellington Partners and Sunstone Capital. More here.
PathogenDx, a nearly six-year-old, Scottsdale, Az-based pathogen testing technology for cannabis, hemp, agriculture and food safety industries, has raised $7.5 million in Series B funding led by Cresco Capital. Other participants in the round include Altitude Investment Management, Arcadian Investment Partners, Panther Opportunity Fund, Salveo Capital, and Flatiron Venture Partners. More here.
Food52, 10-year-old, New York-based online store that was launched by two food reporters from the New York Times and today sells upscale home goods, has sold a majority stake to venture firm TCG for $83 million in a deal that values the company at roughly $100 million. Food52 tells the WSJ it generated about $30 million in revenue last year but isn’t profitable. The company had previously raised $13 million from investors, including Lerer Hippeau Ventures, Bertelsmann Digital Media Investments and Scripps Networks Interactive, which was acquired by Discovery last year. More here.
Forever 21 is the newest victim of the retail apocalypse, filing for bankruptcy late last week so it can continue operating while it tries to figure out how to pay its creditors. Fortune has more here.
Orphan Biovitrum, a publicly traded, Sweden-based drugmaker focused on rare diseases, has agreed to acquire the publicly traded, Durham, N.C.-based company Dova Pharmaceuticals for up to $915 million in cash. Reuters has more here.
Chinese social media and gaming giant Tencent is taking a 29 percent stake in Oslo-based Funcom, an indie games developer that has made numerous titles based on the “Conan the Barbarian” character. Tencent, which becomes Funcom’s biggest outside shareholder, agreed to acquire all the shares belonging to the Norway-based KGJ Capital AS. TechCrunch has more here.
The former Asia Pacific head of ride-hailing major Uber, Amit Jain, has joined venture capital firm Sequoia Capital India as a managing director based out of the firm’s Singapore office. More here.
Jennifer Lum has joined Harvard University as an entrepreneur-in-residence, per Axios. She previously co-founded and served as chief product officer for Forge.ai.
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Block.one, a blockchain company that conducted a year-long ICO beginning in June 2017, raising several billion dollars in the process, today agreed to pay a $24 million civil fine to settle SEC charges that it didn’t properly register its 900 million-token offering or seek an exemption from registration. Tweeted industry observer Mike Dudas afterward: “The fine that @block_one_ is paying for the illegal EOS offering is less than the interest they’ve earned on the proceeds.” Reuters has more here.
Delivery startup Postmates had planned to file to go public this month. Then WeWork happened, and now its IPO is MIA, says Business Insider.
The cross-border venture firm GGV, which has focused almost exclusively on China and the U.S. for two decades, is now looking to India. “We are seeing the same movie played out a little differently in emerging economies,” said managing director Hans Tung to Bloomberg. “India can be very big over the next 10 years.” As much as 20 percent of the $1.9 billion fund raised by the venture firm last year will be allocated to India, as well as Southeast Asia. More here.
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