Axios Pro Rata: As FTX turns

Plus, the Feds attack DWAC. | Friday, June 30, 2023

Open in app View in browser   Presented By Silicon Valley Bank   Axios Pro Rata By Dan Primack · Jun 30, 2023     Top of the Morning Illustration: Brendan Lynch/Axios   It's been nearly eight months since FTX collapsed, but the cleanup is far from over. Three major developments from the past week: 1. FTX sued K5, a Miami-based venture capital firm co-founded by "super-connector" Michael Kives, alleging that it "aided and abetted" breaches of fiduciary duty. In short, Sam Bankman-Fried invested around $700 million into K5 and FTX wants its money back. That would include around $300 million that SFB invested for a 33% stake in K5 itself (i.e., the general partnership) and another $400 million for limited partner stakes in various K5 funds (most, if not all, of which seems to have since been invested in private companies like SpaceX). The complaint leaves a lot open to interpretation. For example, FTX claims that SBF invested $214.5m for a stake in a fund whose only asset was a 42% ownership in a Kendall Jenner-backed tequila brand whose gross asset value was just $2.94 million as of March 2022. That sounds bad, but it's also possible that the $214.5 million was a commitment to a blind pool whose only asset at the time was into the tequila brand, but which subsequently made other investments. It also claims that K5 inflated other values, including of itself, but doesn't provide evidence. K5 declined to answer several specific questions from Axios, citing the litigation and the firm's status as a registered investment adviser, including if it segregated uninvested FTX commitments after the crypto exchange went bust. But spokesperson Elizabeth Ashford did say: "K5 is a venture capital firm with over $1 billion in assets under management, apart from any funds from SBF and his affiliates, and has investments in 148 companies ... K5 was under the impression — like many others — that SBF was completely legitimate and they were entering into a fair, long-term, and mutually beneficial business relationship. Our belief is that the lawsuit is without merit ... K5 believes in the quality of its investments." 2. FTX has begun the process of rebooting its flagship exchange, with CEO John Ray saying it is "soliciting interested parties." OK, but why does Ray believe anyone would want anything to do with crypto's most toxic brand? Let alone in the midst of a crypto exchange crackdown by U.S. regulators? The WSJ reports that Ray may seek to incentivize certain existing FTX clients with an equity stake in the reorganized entity, which is likely to drop the FTX name, but even that still feels like a long shot for institutional investors who'd have to answer to their own clients. 3. FTX halted the sale of its stake in buzzy AI startup Anthropic, according to Bloomberg. San Francisco-based Anthropic had raised a $580 million Series B round in April 2022, ostensibly led by Bankman-Fried, with Alameda Research CEO Caroline Ellison also participating. Anthropic raised $450 million in Series C funding last month, at a reported $5 billion post-money valuation, and FTX reportedly expected to more than double its money via the stake sale.     The BFD Illustration: Allie Carl/Axios   Inflection AI, a Palo Alto, Calif.-based developer of a personal chatbot called Pi, raised $1.3 billion at a reported $4 billion valuation from Nvidia and insiders Microsoft, Reid Hoffman, Bill Gates and Eric Schmidt. Why it's the BFD: This is the year's largest venture round for a U.S.-based company, and also a reminder that generative AI models can be very expensive to build. Some of the money is likely in the form of compute credits, much like part of Microsoft's investment in rival OpenAI. Elsewhere in AI: Runway, a generative AI video startup, raised $141 million in Series C funding from Nvidia, Google and Salesforce Ventures. Meituan co-founder Wang Huiwen agreed to pay $234 million to buy Light Years Beyond, a Chinese generative AI company founded just four months ago. The bottom line: Inflection AI is led by Mustafa Suleyman, co-founder of DeepMind, and claims to be building the world's largest GPU cluster for AI applications.     Venture Capital Deals • Anzu, an Israeli in-game advertising startup, raised $48m in Series B funding. Emmis Corp. led, and was joined by PayPal Ventures, Evolution, Simon Equity Partners and Bandai Namco Entertainment 021 Fund. https://axios.link/46ty5Pq • Unit21, an SF-based fraud detection startup, raised $45m in Series C funding co-led by Tiger Global and South Park Commons, per Axios Pro. https://axios.link/3CXc65K • Everytable, a Los Angeles-based subscription meal service startup, has raised a $25m Series C-2 preferred stock financing led by the Dohmen Company Foundation. Existing investors Creadev, Gullspang, Re:foods and Kaiser Permanente Ventures are also participating. https://axios.link/3NoG080 • Causely, a Boston-based "casual AI" platform for IT, raised $8.8m in seed funding. 645 Ventures led, and was joined by GlassWing Ventures, Tau Ventures and insider Amity Ventures. www.causely.io • Speakeasy, an SF-based API infrastructure startup, raised $7.6m in seed funding. GV led, and was joined by Quiet Capital, Firestreak Ventures, Flex Capital and StoryHouse Ventures. www.speakeasyapi.dev • Bdeo, a Madrid-based visual intelligence solution for insurers, raised €7.5m from Armilar, Hollard, The Centre for the Development of Industrial Technology (CDTI) and Íope Ventures. https://axios.link/433O8Ar 🚑 Fertifa, a London-based provider of fertility and reproductive health care employee benefits, raised £5m in seed funding co-led by Notion Capital and Triple Point Ventures. https://axios.link/3NT7aVR • Revcast, a Raleigh, N.C.-based revenue planning platform, raised $3m in seed funding. CRV led, and was joined by Coughdrop Capital, Firsthand Alliance, IDEA Fund Partners, Lorimer Ventures and Tiferes Ventures. https://axios.link/46rQMTw     A message from Silicon Valley Bank The future of climate tech     Climate tech valuations remain resilient, even more so than other technology sectors. In its latest report, The Future of Climate Tech, Silicon Valley Bank explores the trends in valuations, funding and promising technologies that impact net-zero goals. Get the report.     Private Equity Deals • KKR has again sweetened its takeover offer for Circor (NYSE: CIR), a Burlington, Mass.-based maker of industrial flow control products, this time to $56 per share. That nearly matches a $57 per share rival offer from Arcline Investment Management, which has gotten political blowback due to Arcline's ownership of a Circor rival called Fairbanks Morse Defense. KKR's original offer was $49 per share, later raised to $51 per share. • Alberta's government ended a partnership with Chinese PE firm CCGRF, signed in 2016 to target $10b in natural resource sector investments. https://axios.link/433RBiI • Apax Partners is among those circling listed Nordic credit information provider Enento Group, per Bloomberg. https://axios.link/46rjzYu • Cardenas Markets, owned by Apollo Global Management, acquired El Rancho Supermercado, operator of 27 stores in Texas and one in Kansas. https://axios.link/3NvgtKn 🌎 Carlyle agreed to acquire a majority stake in Anthesis, a London-based sustainability advisory. https://axios.link/3NyfF7F • Gurobi Optimization, a Beaverton, Ore.-based portfolio company of Thompson Street Capital Partners, acquired October Sky, a Japanese provider of mathematical optimization services. www.gurobi.com • Red Oak Compliance Solutions, an Austin, Texas-based provider of compliance software, raised $51m from Mainsail Partners. www.redoakcompliance.com • Silver Lake said it's secured a 63% stake in German business software firm Software AG and that it will move toward a delisting. https://axios.link/3pqE5rF     Public Offerings 🚀 Elon Musk told Bloomberg earlier this week that it "would not be legal for me to speculate about a Starlink IPO," referencing the satellite-broadband business of SpaceX. Different lawyers advise different levels of caution but, in general, it only would be illegal were Starlink to have filed for an IPO (confidentially or otherwise). Then again, Musk has always had a questionable grasp of securities law. • Shein, a fast-fashion giant valued at $66b in the private markets, is denying a Reuters report that it has filed confidentially for a U.S. IPO.     SPAC Stuff Illustration: Annelise Capossela/Axios   Federal authorities yesterday arrested and charged three men with insider trading, tied to Digital World Acquisition Corp.'s (Nasdaq: DWAC) planned merger with Trump Media & Technology Group, the parent company of Truth Social. Details: The charges do not implicate Trump, but do stem from investigations that have prevented his company from going public. Prosecutors allege that the defendants learned that DWAC had agreed to purchase TMTG prior to a public announcement, and bought shares of DWAC on that information. The merger announcement caused DWAC shares to spike, after which the men allegedly generated $22 million in "illegal profits" by selling their stock. One of the defendants, Bruce Garelick, was a director of DWAC, whose shares have fallen more than 40% over the past year and more than 85% from their all-time closing high. Look ahead: The complaints, one from the DOJ and one from the SEC, suggest that more charges could be forthcoming for material misstatements in DWAC's IPO registration documents. The DOJ alleges that the SPAC sponsor had talked with Trump and other TMTG representatives as far back as March 2021. The SEC adds that, by June 2021, DWAC knew it "planned to pursue a merger with Trump Media & Technology Group Corp." However, the DWAC IPO registration from September 2021 states: "We have not, nor has anyone on our behalf, initiated any substantive discussions, directly or indirectly, with any business combination target." The SEC declined comment. 🚑 Tevogen Bio, a Warren, New Jersey-based immunotherapy biotech, agreed to go public at an implied $1.2b equity value via Semper Paratus Acquisition Corp. (Nasdaq: LGST), a SPAC led by former UPS chief financial officer Richard Peretz. https://axios.link/3PyPDnl     Liquidity Events • The Naked Market, an SF-based food maker whose backers include Palm Tree Crew Investments, agreed to acquire low-alcohol aperitif brand Haus, which had raised over $8m from firms like Coatue, Haystack, Great Oaks VC, Wheelhouse 360, Hakam Capital and Scribble Ventures.     More M&A JPMorgan edged out Goldman Sachs as the top advisor for global M&A during the first half of 2023, per data from Refinitiv, making it the first time in five years that Goldman wasn't the league table leader. 🚑 Bausch + Lomb (NYSE: BLCO) agreed to pay $1.75b for a dry-eye drop product from Novartis (NYSE: NVS). https://axios.link/46sxL3u ⚡Chevron (NYSE: CVX) is seeking to sell "several oil and gas properties in New Mexico and Texas," per Reuters. https://axios.link/3JBSZlH • Kinross Gold (TSE: K), a Canadian miner with a C$7.5b market cap, rejected a takeover approach from rival Endeavor Mining (LSE EDV), per Bloomberg. https://axios.link/3NTYVZT • Laser Digital, the digital asset subsidiary of Nomura, agreed to acquire Chicago-based trading firm Elysium Technology Group. https://axios.link/3JCcJ8W • Monster Beverage Corp. (Nasdaq: MNST) is in advanced talks to buy rival energy drink maker Bang Energy out of bankruptcy for $362m. https://axios.link/46t7Atk     Fundraising • Cathay Capital raised $270m for its fourth small-cap PE fund. https://axios.link/3NSVt1q 🌎 Prithvi Ventures, a Boston-based climate tech VC firm, is targeting $50m for its second fund, per Axios Pro. https://axios.link/3NVLsAU 🚑 Varsity Healthcare Partners, a PE firm focused on midmarket health services companies, raised $700m for its fourth fund. www.varsityhealthcarepartners.com     It's Personnel • Fontinalis Partners promoted Gabe Cunningham and Dan Ratliff to partners, and hired Tanya Bega (ex-Horizon Capital) as IR director. www.fontinalis.com • Jason Mok, a former a16z operating partner and SVB managing director, joined Brex as head of startups. https://axios.link/3O2HypX • Eva Maria Wiecko left Goldman Sachs after 17 years to join Rothschild & Co. as head of Germany and Austria equity market solutions. https://axios.link/3NWgrNb     Final Numbers Data: Yahoo Finance; Chart: Axios Visuals All three major U.S. stock indices have increased during President Biden's time in office, but the gains are smaller than those of his last two predecessors. Why it matters: Biden this week signaled plans to run for re-election on his economic record, embracing the term "Bidenomics." Go deeper.     A message from Silicon Valley Bank The latest investment trends in climate tech     U.S. VC investment in climate tech increased by 80% between 2020 and 2021, with energy and power experiencing the fastest growth. Get up to date: The Future of Climate Tech, Silicon Valley Bank's latest report, explores net-zero targets, exit activity and more. Download the report.   Thanks for reading Axios Pro Rata, and to copy editors Mickey Meece and Bryan McBournie! Please ask your friends, colleagues and July 4th BBQ hosts to sign up. Dive deeper into VC, PE and M&A Axios Pro is your personal deals analyst, with industry-specific coverage of companies, trends and funding rounds that other outlets miss. Subscribe today.   Axios thanks our partners for supporting our newsletters. Sponsorship has no influence on editorial content. 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