Term Sheet — Friday, March 31

By March 31, 2017Bitcoin Business
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Yesterday the startup community was buzzing over a story by Business Insider’s Alyson Shontell about Wiley Cerilli, an entrepreneur and venture partner at First Round Capital, and President Trump’s son-in-law Jared Kushner. Cerilli’s startup, Good Uncle, took a small seed investment from Kushner. (Not to be confused with his brother Josh Kushner, who is a much more active venture investor through his firm Thrive Capital.)

Last year Cerilli, who disagreed with the political stances of Trump and was uncomfortable with Kushner’s role the presidential campaign, did something unusual. He gave the money back. You can read the details of how that exchange went down here.

Outside of a proper exit (selling or going public), it’s very uncommon for startups to return an investor’s money. When it does happen, it’s usually for two reasons:

  1. The company is a failure and has some money left in the bank. It’s a gesture that’s meant to show goodwill by giving investors a partial refund. Secret, the anonymous social media app, returned some money to investors when it shut down.
  2. The company has decided to pivot. Many startups dramatically change course. If the company raised venture capital for, say, an on-demand delivery service, and suddenly becomes a photo-sharing company, it only seems fair to offer those VC’s the chance to re-assess the opportunity.

There are practical reasons beyond the bait-and-switch: The startup may have pivoted to a business model that competes with other companies in the investor’s portfolio. The most famous example of this is Instagram, which Andreessen Horowitz backed when it was a check-in service. Once it pivoted to become Instagram, it directly competed with another Andreessen Horowitz portfolio company. No money was ever returned, but Andreessen Horowitz declined to invest in future rounds because of the conflict.

Usually it goes the other way, as happened with Nextdoor. The company started out as a sports site called Fanbase. Two years later, when it pivoted to its current product, the founders asked its investors at Greylock if they wanted their money back. Greylock said no – they invested in the team, regardless of what product they eventually build.

The logistics of returning investor money can be complicated, because the startup and all of its investors must unanimously agree. It’s not just the company and the single investor that wants out – every other investor needs to be offered the same deal, and they all have the ability to veto such a transaction. The more money the startup has spent, the more complicated the transaction becomes.

What Cerilli did – returning the money on principle -- is much rarer. The fact that his company had enough money in the bank and its investment from Kushner was small made the break-up easier.

I asked Founders Fund, Peter Thiel’s venture firm, whether it had encountered anything similar, given Thiel’s association with Trump. A firm spokeswoman said no portfolio companies have asked to divest.

If they had, they probably would have had a harder time than Cerilli. Founders Fund tends to lead deals, meaning the startup would be attempting to return the bulk of the capital it raised. That also means the companies would have already spent a bigger chunk of the money they’re trying to return. For now, the Good Uncle give-back appears to be an isolated event. “Wiley is the most principled founder I’ve ever met,” one investor said.

LeEco, the Chinese technology and entertainment conglomerate, raised $2.2 billion in funding from Tianjin Jiarui Huixin Corporate Management Company and Sunac China Holdings, according to Variety. It will use a portion of the funds to acquire film production company Le Young Pictures. Read more.

Decisely, a Alpharetta, Ga. HR and benefits platform for small businesses, raised $60 million in funding from Two Sigma Private Investments and EPIC Insurance Brokers and Consultants, a portfolio company of The Carlyle Group (Nasdaq:CG).

Arralis, an Irish space technology startup, raised €50 million ($53.4 million) in funding from an unnamed Hong Kong investor, according to Tech.eu. Read more.

PharmEasy, an Indian developer of an app for ordering medicines and diagnostic tests, raised $17 million in Series B funding, according to the Economic Times. Bessemer Venture Partners led the round, and was joined by Orios Venture Partners and Aarin Capital. Read more.

Pepper, a Kansas City, Kan. IoT platform and service provider, raised $8.5 million in Series B funding. Investors include Leawood Ventures, the KCRise Fund, Royal Street Ventures, OpenAir Equity Partners, and Comporium Communications.

Echo, a San Diego, Calif. maker of a hybrid microscope, $7.5 million in Series A funding. Dolby Family Ventures and Tech Coast Angels led the round.

Ledger, a Paris-based bitcoin security startup, raised $7 million in Series A funding, according to TechCrunch. Investors include MAIF Avenir, XAnge, Wicklow Capital, GDTRE, Libertus Capital, Digital Currency Group, The Whittemore Collection, Kima Ventures, BHB Network, and Nicolas Pinto. Read more.

Clarke Industrial Engineering, a North Kingstown, R.I. developer of shutter valves, raised $1 million in funding from New World Angels.

Promentis Pharmaceuticals, a Milwaukee biopharmaceutical company focused on developing drugs to treat central nervous system disorders, raised $26 million in funding in Series C funding. OrbiMed led the round, and was joined by F-Prime Capital Partners, Aisling Capital, Black Pearl GmbH, the Golden Angels Investors, and angel investors.

Silver Lake Partners and Broadcom have made a ¥2 trillion yen ($17.9 billion) bid to acquire Toshiba’s (TSE:6502) chip unit. Read more at Fortune.

California Medical Evaluators, a Los Angeles provider of medical examination services,raised $6.4 million in funding from TCF Capital Funding.

Opus Equity Partners has invested in, and merged, Simplex Supplies and Lightcap Industries.

DCI Design Communications, which is backed by Light Beam Capital, agreed to acquire the assets and operations of EthoStream, a Milwaukee provider of Internet access networks for the hospitality industry, from Telkonet. Financial terms weren’t disclosed.

Creat Group, a Chinese investor, offered to buy Biotest (DB:BIO3) for about €1.2 billion ($1.3 billion) including debt, according to Reuters. Read more.

Canadian Imperial Bank of Commerce (TSX:CM) upped its bid for PrivateBancorp (PVTB.O) by 20 percent to about $4.9 billion, according to Reuters. Read more.

OrCam, an Israeli startup that designs visual sensors to help visually impaired individuals interact with their surroundings, is considering a 2018 IPO, according to founder Amnon Shashua (who just sold his other startup, Mobileye, to Intel for $15 billion). Read more Fortune.

Dropbox, a San Francisco-based cloud-storage and file-sharing service, secured $600 million in credit from a group of banks led by JPMorgan (NYSE:JPM) ahead of its expected IPO, according to Bloomberg. Read more.

Beijing BDStar Navigation (SZSE:002151) agreed to acquire Rx Networks, a Vancouver-based mobile positioning technology company, for C$31 million ($23.3 million), according to Reuters. Rx Networks raised $5.3 million in funding from investors including Discovery Capital and Telus Ventures. Read more.

Epiris agreed to sell Treetops Nurseries, a U.K. operator of a chain of nurseries, to Busy Bees for £93 million ($116 million).

Progress (Nasdaq:PRGS) acquired DataRPM, a Redwood City, Calif. provider of cognitive predictive analytics solutions. DataRPM raised around $6 million from backers including InterWest Partners.

Panasonic Corporation (TSE:6752) is launching a venture capital arm, Panasonic Ventures. With initial investments of around $100, the California-based firm will invest in U.S. startups.

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