VC Daily : Question: How Are Startup Founders Reacting as Economy Slows?

Good day. Last week, we asked about what is driving the rush of startup mergers and acquisitions.

Stock appreciation and more private equity and SPAC buyers are contributing, wrote General Catalyst managing director Paul Kwan. "Tech companies continue to get larger and valuations are expanding such that, to move [their growth] needle, they need to make bigger acquisitions."

The need for businesses to access other businesses that are responding to shifting consumer behaviors is a driver of M&A, said Elizabeth Stewart, a partner at Alabama-based fund Fenwick Brands. "To maintain consumers and gain new customers, businesses need technology that keeps them relevant," Ms. Stewart said.

John Marthis, senior partner at investment banking firm Harbor View Advisors, said one reason could be that, with the post-Covid future unclear, startups are combining to hedge for different future business and consumer environments.

High public market valuations and high amounts of dry powder in the private markets have led companies to be open to suitable acquisition targets, said Icon Ventures general partner Preeti Rathi.

This week's question: How are startup founders reacting to concerns about the economy losing steam amid rising coronavirus cases?

Please email responses to [e-mail].

And now on to the news...

Top News

Fundraising. Venture firm Spark Capital is looking to raise $2 billion for its next two funds, building on a strong run of returns, WSJ Pro's Yuliya Chernova reports, citing people familiar with the situation.

Spark is targeting $650 million for its next main pool of capital, up from the $450 million it collected for its prior fund, Spark Capital VI, the people said. For its fourth growth fund, it is looking for $1.35 billion, up from $900 million for Spark Growth Fund III, according to the people.

As of the end of last year, Spark had generated an aggregate of 2.32 times multiple on invested capital and a 26.9% net internal rate of return across seven of its funds for one of its long-time limited partners, the Los Angeles City Employees' Retirement System. That compared with a 1.69 times multiple and an IRR of 9.6% across LACERS' venture-capital portfolio.

Spark's current portfolio of private companies includes fintech Plaid Inc., and messaging startup Discord Inc. Several of Spark's portfolio companies have gone public in the past 12 months, including fintechs Affirm Holdings, Flywire Corp., Coinbase Global Inc. and Marqeta Inc.

$6 Billion

Roughly the amount Southeast Asian gaming, e-commerce and digital-finance company Sea Ltd., plans to raise in new funds, capitalizing on investor enthusiasm for the region's fast-growing technology industry. (WSJ)

TPG Growth Is Rapidly Deploying Its Latest Fund

TPG's growth-equity group has wasted little time investing its fifth fund, after quietly wrapping up fundraising for the vehicle in mid-August with almost $3.56 billion, WSJ Pro's Preeti Singh reports. The firm has deployed nearly half of TPG Growth V LP, according to people familiar with the matter. It was TPG Growth's first fund to close since strategy founder William McGlashan Jr. stepped down as managing partner in March 2019 amid a U.S. college admissions cheating scandal. According to public documents, including a New Jersey Division of Investment report in mid-July, the firm had a target of $4 billion for the vehicle. But the fund's legal advisers at Cleary Gottlieb Steen & Hamilton LLP said in August that the fundraising goal was $3.5 billion at closing.

Battery Makers Tied to Power Grid Attract Big Investors

Big investors are charging into startups touting experimental new battery technologies that would make it possible for renewable energy sources to produce most of the country's electricity, The Wall Street Journal's Scott Patterson reports. Deep-pocketed investment firms such as TPG, Apollo Global Management and Paulson & Co. in recent months have plowed hundreds of millions of dollars into the companies, which make what are called long-duration batteries. Unlike mobile-phone or electric-car batteries that can deliver electricity for about four hours straight, long-duration batteries can discharge for longer periods, ranging from six hours to several days, and store far more power.

Industry News

Funds

AV8 Ventures launched its second fund with $180 million in commitments. The Palo Alto, Calif.-based firm makes early-stage investments focusing on healthcare, enterprise, financial services and deep tech.

TrueBridge Capital Partners closed TrueBridge Capital Partners Seed & Micro-VC Fund I LP, its first venture capital fund-of-funds focused solely on seed and micro-venture capital firms. With $170 million in commitments, the new fund surpassed its fundraising target with support from limited partners including foundations and endowments, pension funds, family offices and high net worth individuals. The Chapel Hill, N.C.-based firm manages more than $4 billion in assets, and has raised six flagship venture capital funds-of-funds as well as two direct investment funds to date.

Deep tech investor Promus Ventures raised $140 million for its fifth venture fund. Known as Orbital Ventures, the new vehicle will back startups in the space and geospatial sectors. With offices in Chicago, San Francisco and Luxembourg, Promus Ventures has made seven investments across the U.S. and Europe to date from the new fund.

People

Software investor Tola Capital named Phil Sorgen to the post of venture partner. He was most recently chief revenue officer at RingCentral. Tola's recent investments include employee communications and enablement platform Simpplr, and industrial analytics and machine monitoring startup MachineMetrics.

Consumer-focused Victress Capital appointed Taryn Jones Laeben as operating partner. She is currently president and founder of IRL Partners, and was previously at SoulCycle and Casper. With offices in New York and Boston, Victress Capital closed its second fund last summer with $21.7 million in commitments.

Exits

Payment technology and software services company Global Payments Inc. agreed to purchase MineralTree, a provider of accounts payable automation and business-to-business payments technology. Under the terms of the agreement, Global Payments will pay $500 million in cash to an investor group led by Great Hill Partners, .406 Ventures and Eight Roads Ventures.

JPMorgan Chase & Co. agreed to acquire the company behind the Zagat brand for an undisclosed sum. The Infatuation raised $30 million from WndrCo in 2018, the same year it purchased restaurant guide Zagat from Alphabet Inc.'s Google. The company also hosts a biannual food festival, Eeeeeatscon.

Mastercard Inc. agreed to buy cryptocurrency-intelligence company CipherTrace Inc. in an effort to extend its capabilities in the field of digital assets. Terms weren't disclosed. Menlo Park, Calif.-based CipherTrace is backed by Aspect Ventures, Galaxy Digital, Neotribe Ventures and WestWave Capital.

Microsoft acquired Australian video creation platform Clipchamp Inc. for an undisclosed amount. The company was backed by investors including Tola Capital and TEN13.

New Money

Snyk Ltd., a Boston-based cloud-native application security provider, scored a $530 million Series F round co-led by Sands Capital Ventures and Tiger Global Management, giving the company a valuation of $8.5 billion. New investors Baillie Gifford, Koch Industries, Lone Pine Capital, T. Rowe Price and Whale Rock Capital Management also contributed to the funding, alongside previous backers including Accel, Addition, Atlassian Ventures, funds managed by BlackRock, Boldstart Ventures, Canaan Partners, Coatue Management, Geodesic Capital, Salesforce Ventures and Temasek Holdings. In addition to the new funding, Synk added Dino DiMarino as chief revenue officer. He previously held the same position at Mimecast.

Varo Bank NA, a San Francisco-based digital banking startup, picked up a $510 million round of growth capital led by Lone Pine Capital. Other new investors Declaration Partners, Eldridge, Marshall Wace, Berkshire Partners/Stockbridge, and funds and accounts managed by BlackRock also participated in the new funding, along with returning backers including Warburg Pincus, The Rise Fund, Gallatin Point Capital and HarbourVest Partners.

Solugen Inc., a Houston-based manufacturer of chemicals such as hydrogen peroxide from plant-based materials, raised over $350 million in Series C funding. GIC and Baillie Gifford led the round, which included additional support from Temasek Holdings, funds and accounts managed by BlackRock, Carbon Direct Capital Management, Refactor Capital and Fifty Years.

Aviatrix, a Santa Clara, Calif.-based provider of networking and security services to multicloud enterprises, raised $200 million in Series E funding led by TCV, bringing the company's valuation up to $2 billion. Additional new investors Insight Partners and Tiger Global Management also participated in the round, along with existing backers CRV, Formation 8, General Catalyst, Greenspring Associates, Ignition, Liberty Global Ventures, Meritech Capital and TrueBridge Capital Partners. Tim McAdam, general partner at TCV, will join the Aviatrix board.

Scalapay, a Milan-based startup that breaks up payments to merchants into three installments with no interest, secured $155 million in Series A financing at a $700 million valuation. Tiger Global Management led the round, which included support from Baleen Capital, Woodson Capital, Fasanara Capital and Ithaca Investments.

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09-10-21 1006ET