Industry News Update – Week of 10/16/2017

Last week, HelloFresh, a Berlin-based meal kit delivery service, announced its intent to raise $353 million in its IPO on the Frankfurt Stock Exchange and is expected to be valued at $1.8 billion when the company goes public later this month.

The Information reported Spotify’s mid-year financials on October 12th 2017. The company earned $2.2 billion in revenue during the first half of the year and is expected to earn $4.9 billion in 2017. The company's losses were between 100 million to 200 million euros in the first half of 2017.

Spotify also launched a real-time music-streaming and audience analytics mobile app for its music artists called Spotify for Artists. This app will allow music artists to view the number of streams of their new singles and albums in real-time and obtain critical information about their audience such as gender, location, age and more.

Lyft reached a major milestone on October 11, 2017 by surpassing 500 million overall rides.

SpaceX successfully launched two Falcon 9 rockets in 3 days. The company launched the SES-11/EchoStar 105, a satellite intended to provide HD and Ultra HD television service across US, and the 10 Iridium NEXT satellites, satellites intended to provide broadband to remote regions across the world,  into orbit. So far, the company has completed 15 launches in 2017.

The news articles and links presented below are available for your reference.

HELLOFRESH

"Blue Apron Competitor HelloFresh planning to Raise up to $353 Million in IPO"

LYFT

“Lyft has Now Delivered Half a Billion Rides"

SPACEX

"SpaceX Successfully Launches 2nd Rocket in 3 days"

SPOTIFY

“Spotify Launches an App for Artists With Real-time Streaming Data, Audience Demographics"

“Spotify Records Surging Revenues, Continued Losses in First Half of 2017"

Industry News Update – Week of 10/9/2017

Last week, Ola, the India-based ride hailing company, received $2 billion in a funding round led by Softbank and Tencent. The use of proceeds is primarily for the purpose of further development of Ola’s electric vehicle technology. The post-money valuation of the round was $3.8 billion.

Shazam disclosed its 2016 financials in which the company increased its revenue by 14.5% to £40.3m ($53.7m) in 2016. The company reduced its net loss from £16.7m ($22.2m) in 2015 to £3.7m ($4.9m) in 2016.

Stripe launched its new Elements feature which allows companies to create a tailored checkout process. This new feature is intended to reduce shopping cart abandonment by enhancing the checkout procedures.

Airbnb partnered up with WeWork to allow business travelers to easily reserve a WeWork location in order to solicit more business from business travelers.

The news articles and links presented below are available for your reference.

AIRBNB

"Airbnb Will Offer Business Travelers Spots at WeWork Locations"

OLA

“Cab Aggregator Ola Raises $2 Billion from Tencent, Softbank"

SHAZAM

"Financials Reveal Shazam Narrowed its Losses to £3.7m in 2016"

STRIPE

"Elements, Stripe’s New Check-out Toolkit, Aims to Boost E-commerce Sales Completions"

Industry News Update – Week of 10/2/2017

Last week, Roku's IPO raised $219 million and the shares were priced at $14. Roku's shares opened at $15.78 and closed at $23.50 on its first day of trading which represents a 68% increase compared to its original share price.

Meituan-Dianping raised $3 billion to increase its offline retail offerings such as an offline store where customers can purchase grocery items using the company’s app. This push in the offline retail market will help the company compete with Alibaba’s brick-and-mortar stores. As a result of this funding round, the company's valuation rose to $28 billion.

Uber's CEO planned to meet with the Transport for London commissioner this upcoming Tuesday (10/3/2017) to discuss the company's license withdrawal.

Spotify's valuation rose to $16 billion after a series of private trades. This latest valuation is $3 billion higher than Spotify's last valuation that occurred in June in a previous series of similar private trades.

TaskRabbit was acquired by IKEA for an undisclosed price to assist customers in assembling their IKEA furniture. IKEA hopes to compete with Amazon which has bolstered its home installation offerings. Following the acquisition, TaskRabbit will operate as an independent subsidiary of IKEA.

The news articles and links presented below are available for your reference.

MEITUAN-DIANPING

"Tencent-Backed Meituan Close To $3 Billion-Plus Funding"

“China's Meituan-Dianping Aims To Raise Up To $5 Billion From Tencent, Others: Source”

ROKU

“Roku Closes Up 68% In Stock Market Debut"

SPOTIFY

"Spotify Is Now Valued At $16 Billion — And It Could Be Worth A Lot More When It Goes Public"

TASKRABBIT

"IKEA’s Latest Acquisition Will Help Assemble Your Ikea Furniture"

UBER

"Uber CEO To Meet London Transport Chief After License Loss"

Industry News Update – Week of 9/25/2017:

Last week, Uber’s operating license was withdrawn by the City of London after London officials cited Uber’s failure to address serious crime and perform thorough driver background checks. Uber’s new CEO drafted an open letter to the London officials that addresses outstanding issues and mistakes the company has made to advocate Uber’s petition asking for a reversal of its license withdrawal. London is a large market for Uber as the city represents roughly 5% of Uber’s userbase.

In its ongoing lawsuit with Uber, Waymo is asking for $2.6 billion from Uber for the theft of its autonomous vehicle design files. The trial is expected to start on October 10th 2017.

Didi Chuxing invested $200 million in Renrenche.com, used cars company, to provide Didi’s mobile app users with access to second-hand vehicles. 

SpaceX has officially named its low-cost satellite Internet network ‘Starlink’ and is actively hiring skilled professionals for this project.

Pinterest is beta-testing its new Sections feature which allows users to divide their boards into various subcategories. This new feature is intended to assist Pinterest users organize their pins.  For example, a user with a board composed of recipes can places their pins in the Salad, Soups, Dessert and Pasta categories.

The news articles and links presented below are available for your reference.

DIDI CHUXING

“China’s Used Car Deals Speed Up As Didi Chuxing Invests $200M In Renrenche.com”

PINTEREST

"Pinterest’s New Sections Feature Begins Beta testing, Public Launch in ‘Weeks’”

SPACEX

“SpaceX Might Name its Satellite Broadband Internet Service ‘Starlink’”

UBER

"Uber Tries Compromise With London Regulators”

“Uber CEO Apologizes for “Mistakes” After London License Blow”

“Waymo Wants $2.6 billion From Uber for a Single Trade Secret”

Industry News Update – Week of 9/18/2017

Last week, SoFi's CEO announced he is resigning at the end of 2017 following his participation in and lack of supervising several instances of sexual harassment between managers and female colleagues in an ongoing lawsuit. The lawsuit was brought up by an employee who claims that he was terminated from the company for reporting these sexual harassment occurrences.

On September 14th 2017, Pinterest reached 200 million monthly active users which represents a 14.3% increase when compared to the 175 million monthly active users in April 2017.

Slack's valuation rose to $5.1 billion after the company raised $250 million in a funding round led by Softbank. The company released its cross-organization teams feature which allows team members of different departments to work with one another within the company's platform. The company also has surpassed 6 million daily active users and generated more $200 million in annual recurring revenue.

Magic Leap is raising more than $500 million to further develop its prototype. After this funding round, the company's valuation is expected to rise to $6 billion. The product is expected to be priced between $1,500 and $2,000.

Lyft is in discussions with Alphabet to raise $1 billion to further develop its autonomous vehicle technology.

The news articles and links presented below are available for your reference.

LYFT

“Alphabet Reportedly Considers a $1 Billion Lyft Investment”

MAGIC LEAP

"Magic Leap is About to Land Another $500 Million to Build its Competitor to Microsoft HoloLens"

PINTEREST

“Pinterest Crosses 200 Million Monthly Active Users"

SLACK

"With More Than 6M Daily Users, Slack Opens up Cross-organization Teams"

“Slack is Officially Worth $5.1 Billion After Raising a Monster $250 Million Round”

SOFI

"SoFi Board Says C.E.O. Is Out Immediately Amid Sexual Harassment Scandal"

Industry News Update – Week of 9/11/2017

Last week, it was announced that Uber is under FBI investigation for using its Hell program to track Lyft drivers’ activities such as pricing, availability and dual-app usage.

23andMe is raising $200 million from Sequoia and Fidelity to enhance its genetic research and create new products. The company’s valuation is expected to increase to $1.7 billion.

Spotify and Hulu have teamed up to offer their services as a bundle to students for $4.99 per month.

Magic Leap partnered with Berkeley Labs to release a research paper that discusses using advanced metamaterials that redirect light to create digital lightfields. This research will assist Magic Leap in developing its upcoming product.

The news articles and links presented below are available for your reference.

23ANDME

"23andMe is Raising About $200 Million, Led by Sequoia"

MAGIC LEAP

“ Berkeley and Magic Leap Worked Together to Develop a New Metamaterial”

SPOTIFY

“Spotify, Hulu Team up for Low-priced $4.99 Student Plan"

UBER

"FBI Will Investigate Uber's Use Of 'Hell' Software To Surveil Lyft Drivers"

Women Breaking Barriers: Rainmaker Securities CCO, Amy Boyet

Amy Boyet serves as the CCO at Rainmaker Securities, a FINRA-registered broker-dealer offering clients diversified investment opportunities in private securities. She brings a wealth of executive experience to her role, having worked formerly as the COO of Electio Investments; the COO of Pulse Therapeutics, Inc.; and a principal for BioGenerator. She has a strong background in science which lends itself to her meticulous eye for compliance, as well as to her ability to examine technology company offerings. She holds both an MBA and an MS in cellular and molecular biology.

Ms. Boyet graciously agreed to a 30-minute interview in June 2017, which has been edited for length and clarity.

INTERVIEW QUESTIONS

[OnlineEducation.com] Can you tell me a little bit about your career history? How did you move from earning your master’s of science in biology to working in finance and later as a VC?

[Ms. Boyet] I’ve always been interested in science. I graduated high school at 16 and got a biology degree from Culver-Stockton College and a chemistry minor. I thought I wanted to go to medical school because there wasn’t a lot of education about potential careers in science where I grew up, a small suburb right outside of St. Louis. I ended up not getting into medical school, which was fine because medicine isn’t actually a good fit for my personality. I earned a master’s in molecular biology right after finishing my bachelor’s program. After working in molecular biology in research, I realized that I don’t really love everything about science; I don’t like sitting at the bench designing experiments. I wanted to find other applications for data.

I worked with brilliant PhDs at Wash U. I ran a lab for seven or eight years in flow cytometry, which is using light to identify different cell populations, sorting and isolating them. I did that while I was getting my MBA, and Wash U pays for half of your tuition if you’re employed there. So, I got my MBA, focusing more on entrepreneurship than finance, and worked in the Office of Technology Transfer. I learned about negotiating contracts, working with big corporations, perfecting intellectual property, researching intellectual property, and working with attorneys to create a patent. And I hate to say it, but university-developed technologies are really hard to commercialize because it’s not just the discovery; there’s so much that goes into the commercial development of an idea that may or may not fit into some big corporation’s patent portfolio. To create start-ups out of university research is very difficult.

From there, I moved into my first role as a principal at BioGenerator, a non-profit created in St. Louis by John McDonnell, formerly of McDonnell-Douglas-Boeing. He noted that the scientific talent was leaving St. Louis, so he created an ecosystem of entrepreneurial technology and life science companies. That was our mission. So I spent three years learning due diligence, working with investments, having the support of the community, and sitting in high-level board meetings.

Then I wanted to strike out on my own. In 2008—awful timing—I joined a medical device startup here in St. Louis as chief operating officer. As a member of management, I went out and raised the first round of funding, and you know what, I realized I really enjoyed the finance piece. My family was surprised I was stepping away from my biology background, but I wasn’t really. I was still working in technology.

I left the biomedical start-up and joined Electio Investments and worked on the early conceptual phases of creating a financial vehicle offering a mutual fund approach to private investment in early-stage companies. So you can write a check for $50,000, and diversify it into 5-10 companies. It’s a novel approach to mitigate some risk in that early stage environment through diversification.

Eventually I met Glen Anderson, the President of Rainmaker, and it made sense to work in compliance considering my personality. It’s pretty OCD work and I use my science and due diligence background to examine our technology offerings. We do a lot with fintech, AI, novel materials, plant and ag-science, medical devices, and solar; since I’ve had the training and framework of a scientist, I’m able to understand the science behind these offerings.

[OnlineEducation.com] I want to ask about your experience as a principal at BioGenerator. What are some of the factors that you evaluated in deciding which companies to fund?

[Ms. Boyet] We used a diligence package as a base for local VCs and other investors starting their own diligence process. I helped put together these reports, evaluating the likelihood that we could get together money to get a specific company to their next milestone, where they could raise capital outside of us.

The other item that we always looked at was job creation. It had to create jobs here in St. Louis, and I think it really contributed to the entrepreneurial explosion. This city now ranks high in desirability for Millennials because of the entrepreneurial community and resources.

[OnlineEducation.com] How different is it working, for example, in your previous role as the principal at BioGenerator, and now working in private securities?

[Ms. Boyet] To me, working in private securities is really a continuation. I look at solid legal documents to ensure that a company is suitable for an investor. For example, if we look through the documentation and find outrageous fees, we’re not going to approve investments in that offering on our platform. With BioGenerator, it was a similar process: looking at companies and business plans, trying to be proactive. I helped to diagnose issues and help the companies understand the milestones necessary to procure funding. I brought that experience over as a broker-dealer, where again, I’m doing diligence as if I were a principal help companies and investors.

I’ve got a good toolbox; I’ve looked at hundreds and hundreds of offerings, and I think that’s part of the key of getting into finance—building up that experience, having some war wounds. In a broker-dealer world, you get those quickly.

[OnlineEducation.com] What are some of the most common problem areas when you’re running compliance checks or using the diligence checklist?

[Ms. Boyet] I have some common issues with these firms, and it really depends on the stage they’re at in their development. The number one problem area is definitely pro forma projections. It’s very rare that a company’s financials are conservative, so that’s usually where I find issues. Some of these are so early stage that assessing a valuation can be difficult. Those are probably the two biggest areas.

Part of what I do now is investor protection, making sure conflicts of interest are disclosed, banking fees, and other factors. We do our best to promote best market practices.

[OnlineEducation.com] What are the demographics like in the industry? Do you work with a lot of men and women?

[Ms. Boyet] It is mainly men. Definitely.

[OnlineEducation.com] I’m not surprised. There’s a lot of research showing the gender disparity among VCs and in finance. In your former experience as a principal or now in your current role, have you ever had any situations where you think things would have been different had you been a man?

Well, I’ve always chosen my jobs not by what they pay, but by the experience I’m going to obtain. I’ve been very strategic in joining groups where I have a good mentor, and so thankfully, I’ve worked for a lot of men that have been staunch advocates for an equal seat at the table. I show up; I know my stuff; I’m prepared—overly prepared; I crank out copious amounts of work. I think because I’m qualified for what I do and am very meticulous in my work, I’ve always had an advocate. There’s always been a culture of respect in the places I’ve worked.

Actually, in academic science, I would say that I saw a lot more sexism than what I’ve seen in finance. Ultimately, I’m now a chief compliance officer, so everyone has to get approval from me that activities do not violate FINRA or SEC Rules; my bosses are very supportive. Ultimately in my role I deliver difficult news all the time, but I try to do it really nicely and help people with next steps.

[OnlineEducation.com] You mentioned that there’s more sexism in science. Can you elaborate on that? Is it mainly with publications or finding mentors?

[Ms. Boyet] Yes, in academic science, that would probably be the experience of many of my friends who publish. In certain situations, the lead author credit is given to someone who didn’t do as much work. Of course, this is hearsay and their opinion, but it’s not an isolated complaint. Certain specialties for MDs, for example, still have an “old boys’ club” in place, but I think things are changing. They can’t afford to have a culture which results in lawsuits.

[OnlineEducation.com] Of the top 100 venture firms, around only 7 percent of the partners are women. Why do you think that there is this long-standing gender disparity?

[Ms. Boyet] Well, the hours are not exactly fun. I’m a single mom. I have a three-and-a-half year old son I co-parent with his dad. It’s a wonderful experience, but it’s difficult to achieve a work-life balance with these hours. This works for me because I’m a virtual employee and I have a lot of flexibility. But the traditional model of going to the office, sitting from 8:00 am to 5:00 pm, going out after work sometimes for business dinners, travel, is how business usually works. This is a “belly-to-belly business;” you don’t get deals done over the phone. You need to be there in person and that can be hard to balance for anyone.

[OnlineEducation.com] In addition to the challenging hours and any family-related commitments, can you think of any other unique challenges that women face as VCs or working in private securities?

[Ms. Boyet] I think some members of the older generation can be difficult with their memories of a time when it was appropriate to speak disparagingly of women, the martini lunches and an “old boys club” women weren’t invited to. That generation is leaving the workforce.

[OnlineEducation.com] I learned that a majority of VC funds go to companies that are either started or owned by men. Do you think that is strictly because there are more companies being started by men, or do you think that there are some other factors at play?

[Ms. Boyet] We have an offering on our platform right now with Arria, an artificial intelligence company. The CEO is Sharon Daniels and they’re doing great. I do see more women having roles in senior management, even in the tech companies. If you’re qualified, you’re qualified. If you have the experience and you’re the best person for the job, that’s what investors are looking for.

I’ve also made choices to work with people who aren’t assholes, and I don’t come from a typical Wall Street background; I come from science, so I may have a different approach to finance compared to a lot of my colleagues who have worked as research analysts or lived in New York or San Francisco. I’d never had a corporate job; I’d always worked in non-profits, and then I went straight into banking.

[OnlineEducation.com] Was that a challenging leap or did it just feel natural for you?

[Ms. Boyet] I want to be challenged at work; I found finance to be very interesting. There are various financial vehicles you can construct to create a return for investors, who then support that whole entrepreneurial ecosystem.

[OnlineEducation.com] Do you have any advice for women who are aspiring to join high leadership or work as VCs?

[Ms. Boyet] I would say find good mentors! Find someone who’s willing to help you down the career path and open up their network. Have lunch every once in awhile to bounce your ideas off of them because they’ve got the experience. Anytime you’re trying to learn something new, find someone who already knows something about it and you’re going to get to the heart of what you really need to learn much faster. You can’t look up everything online; you need to find someone who can help you.

Industry News Update – Week of 9/5/2017

Last week, Dara Khosrowshahi accepted the role of Uber's CEO and plans to take the company public within the next 18 to 36 months.

SpaceX successfully completed the testing of its Falcon Heavy's first stage cores (boosters that contain 27 Merlin engines intended to thrust the rocket upward). The first Falcon Heavy's launch is expected to happen in November 2017.

Magic Leap recently filed for a patent that details its latest prototype. The new prototype is a pair of glasses with several cameras that is connected to an external unit attached to the user's belt. The product will project digital light fields into the user’s eye and allow users to interact with 3D figures in the real world.

Coupang received a 300 billion won ($267.26 million) loan from Goldman Sachs.

The news articles and links presented below are available for your reference.

"Coupang Receives W$30B Loan From Goldman Sachs"

MAGIC LEAP

“Latest Magic Leap Patent Shows Off Prototype AR Glasses Design"

SPACEX

"SpaceX has Completed Testing on the First Stage Cores for its Falcon Heavy Rocket"

UBER

“Uber's New CEO Promises Change to Culture and Board, Signals IPO Plans"

Industry News Update – Week of 8/28/2017

Last week, Uber offered Dara Khosrowshahi, the current CEO of Expedia, its CEO position. Prior to working at Expedia for 12 years, Khosrowshahi spent 7 years at IAC as the company's CFO. He received his Bachelor's degree from Brown University in Electrical and Electronics Engineering.

Spotify renewed its long-term licensing contract with Warner. Spotify now has long-term licensing contracts with Sony, Universal and Warner. Signing long-term licensing contracts with these major record labels is essential to support the business model in providing stability around access to Spotify’s content.

WeWork received $4.4 billion ($3 billion in new funding and $1.4 billion investments in WeWork China, WeWork Japan and WeWork Pacific) from Softbank to expand its presence in Asia.

The news articles and links presented below are available for your reference.

SPOTIFY

"Spotify Closes Final Label Deal in Preparation to go Public”

UBER

“Uber Picks Expedia's Dara Khosrowshahi as New CEO”

WEWORK

"WeWork Just Raised Another $4.4 billion From SoftBank”

News Update – Week of 8/21/2017

Last week, Bloom Energy and PowerSecure obtained one of the largest fuel cell contracts from Equinix to install 37-megawatt fuel cells at 12 data centers.

Flipkart launched the Flipkart Global platform which will allow its products to be sold to 190 international countries.

Prosper released its second quarter financials which revealed that the company became cash flow positive in Q2 2017. Prosper generated $775 million in loan originations which represents a 74% increase year on year, and the company's transaction revenue increased to $35.4 million which represents a 84% increase year on year. The company's revenue increased marginally to $30.5 million which is a 12% increase compared to Q2 2016 and the company's net loss increase to $41.4 million which represents a 16% increase compared to Q2 2016.

Uber is in talks to raise between $1 billion and $1.5 billion from SoftBank Group Corp, Didi Chuxing, Dragoneer Investment Group and General Atlantic at last year’s valuation. The amount of funding raised will depend on the outcome of the Benchmark lawsuit since the new investors want to become board seat members. A second part of deal will allow investors to buy between $2 billion to $10 billion worth of Uber shares.

The news articles and links presented below are available for your reference.

BLOOM ENERGY

"Bloom Energy and PowerSecure Land Country’s Biggest Fuel Cell Deployment to Date"

FLIPKART

“ Flipkart Rolls Out Global Selling Programme for its Vendors”

PROSPER

"Prosper Reports Strong Second Quarter Growth; Closes $500 Million Securitization Transaction"

UBER

“Uber’s Possible $12 Billion Deal Hangs on Outcome of Courtroom Brawl"

RAINMAKER SECURITIES THOUGHT LEADERSHIP SERIES: INVESTMENT IN PRE-IPO UNICORNS VIA THE SECONDARY MARKET

Saeid Hamedanchi, is a registered representative of Rainmaker Securities, LLC, a FINRA/SIPC registered broker-dealer. He can be contacted at shamedanchi@rainmakersecurities.com.

Traditionally, investors seeking exposure to corporate securities gain such exposure through investments in publicly traded companies, where transaction execution is standardized and liquid markets exist. In the past, the universe of investment opportunities traded on public exchanges has been broad enough where investors have been able to find a full spectrum of risk/ reward opportunities that match their portfolio strategies.

However, the investment universe has undergone a sea of change since the Great Recession. A low interest rate environment, combined with a collapse of equity prices, led capital that was formerly invested exclusively in the public sphere to seek opportunities for yield in private securities. The result has been that companies that have reached a developmental milestone where listing their securities on a public exchange was their only path to raise sufficient capital for growth could now access large pools of investment capital without the necessity of a public listing. Consequently, given the regulatory overheads associated with being a public company, along with talent retention challenges that surface once employees can freely trade their equity compensation, many companies that in a prior era would be publicly listed, have chosen to remain private. Evidencing this trend, on inception, the Wilshire 5000 Index tracked 5,000 constituent securities; however, as of the date of this publication, the Wilshire 5000 Index now comprises only 3,465 constituents.

A corollary result is that investors seeking equity investments in many of the world’s fastest-growing technology companies cannot use the public secondary market to participate. In reaction, the private equity secondary market has been experiencing rapid growth. Like the public equity secondary market, investors are buying already issued stock in companies. However, because private companies are not publicly traded, the mechanisms by which to transact, the pricing environment and the amount of information available to investors are not standardized.

THE UNICORN CLUB

The seminal event in the growth of the private secondary market was the trading marketplace that developed around the first ‘unicorn’ prior to its public listing – that unicorn was Facebook.

In the subsequent five years since Facebook’s IPO, the ‘unicorn club’, which comprises all venture capital-backed private companies which have been valued in their last venture financing round at a valuation of US$1 billion or more, has grown from one member (Facebook) to 197 members as of the date of this publication, according to CB Insights. These companies have collectively raised a staggering US$127 billion via private venture capital funding rounds, with well-publicized mega rounds by the likes of Airbnb (US$3.9 billion in total), Didi Chuxing (US$8.5 billion in total) and Uber (US$12.5 billion in total), according to Venture Beat.

Importantly, this means there are 197 leading companies, comprising a diverse array of disruptive technologies, holding dominant positions in their respective verticals and/or geographies, with proven business models and rapid revenue growth that cannot be transacted via a public exchange.

These leading companies cover a broad variety of industries such as ride-sharing, home-sharing, office-sharing, space exploration, cloud computing, artificial intelligence, financial technology, mobile computing and others. Consequently, the secondary market for shares in unicorns is booming. According to recent estimates, the market value of secondary share transactions involving the unicorn club was US$35 billion in 2016 compared with US$11 billion in 2011, according to SharesPost.

INVESTMENT CASE

According to the Cambridge Associates Growth Equity Index, funds that employ late-stage venture investing strategies have produced 10.57% and 14.3% returns for the past 10 and 25-year periods respectively, versus 6.95% and 9.17% for the S&P 500 index respectively. Several unicorns have turned into household names, dominating new markets that didn’t even exist 10 years ago. A sample case in point is the ride-sharing market. Ride-sharing companies have raised approximately US$25 billion since 2010 and enjoy a combined market capitalization of US$120 billion and the estimated size of the ride-sharing market is expected to reach US$600 billion, according to NASDAQ. Five ridesharing companies dominate the global marketplace and they are expanding rapidly in major geographies including the US, Asia and Europe. The rapid growth is due to offering innovative and disruptive technology focused on providing high customer satisfaction and competitive pricing, leading consumers to opt out of traditional transport services (such as taxis) and even car ownership. This value case has fueled the rapid growth of ride-sharing companies around the globe.

INVESTMENT CONSIDERATIONS

Key considerations of investing in late-stage companies via the private secondary market are:

Investor benefits:

  • Invest in mature companies with proven business models and well-funded business plans.
  • Get exposure to the equity earlier in the company’s growth cycle.
  • Shorter expected holding period versus investing as an early-stage venture investor.
  • Higher likelihood of allocation of IPO shares in a public listing.

Seller motivations:

  • For employee shareholders, allows the employee to obtain the benefits of paper wealth, ahead of a traditional liquidity event, such as an IPO or company sale. Approximately 84% of secondary sellers are current or former employees, according to NASDAQ.
  • For institutional shareholders, allows for portfolio diversification and earlier redemption by limited partners.

Issuer motivations:

  • Secondary sale liquidity programs can improve the ability of the company to attract, retain and reward top talent by allowing their employees some limited liquidity. This can allow them to compete with other private and public companies with similar programs.
  • A broader investor base can be advantageous leading up to a public listing.
  • Provides the opportunity to attract strategic investors outside of a formal funding round.

Challenges:

  • The secondary market is illiquid compared to its public counterpart. Brokerages that specialize in the secondary market match buyers and sellers and create a market in the shares; however, the depth and transparency of the market is typically limited.
  • Transfer of shares must be approved by the company, which may or may not be granted if liquidity is sought at a future date that is prior to a traditional liquidity event.

COMMON TRANSACTION STRUCTURES

The two most common structures for transacting in late-stage secondary shares are:

  1. Direct method: In this method, investors purchase shares from the selling shareholders by getting the approval of the company to transact in their shares. Brokers organize/ match buy and sell orders. After that, the seller notifies the company of the proposed sale and once approval is granted, then the seller and investor sign a purchase agreement. The buyer then funds the transaction. As a final step, the company updates their share ledger and transfers the shares to the buyer, providing the buyer proof of ownership, closing the trade.
  2. SPV method: In this method, the broker identifies a group of matching trades in the same security and then creates an SPV (offshore or onshore) to take custody of the shares. An offering memorandum is prepared and investors subscribe and send funds to the SPV. Once all the funds are received, the SPV informs the company to allow the SPV to transact as a single buyer. Once the company approves the transfer, the SPV purchases the shares from the selling shareholder(s), and the company updates its share ledger and provides the SPV proof of ownership, closing the trade.

The two common structures have the following advantages and disadvantages:

  1.  Direct method: In the direct method, because the shareholder has a direct relationship with the company, the investor has the less counterparty risk, versus an SPV trade, where the investor is subject to a third party to handle the funds and securities. The shareholder may also receive preferred treatment vis-a-vis an IPO allocation. However, because a direct transfer requires notice to the company in any future private sale, liquidity options can be more limited versus an SPV transaction.
  2. SPV method: Because the investor holds a limited partnership (LP) interest in an SPV, as opposed to the underlying shares directly, in most cases the LP interest can be sold without approval of the company. This conveys the advantage that liquidity may be gained prior to a company liquidity event, by a sale of the LP interest to a new buyer. The disadvantage of the SPV method is that the shareholder holds an indirect relationship to the sharers, so the investor must rely on a third party to manage their holdings, and the position doesn’t hold benefits such as preferential treatment for an IPO allocation.

CONCLUSION

Investing in unicorns is likely to be a higher beta strategy than investing in a broad equity strategy such as the S&P 500 Index. Additionally, because secondary markets in unicorn shares are non-standardized in terms of execution and available data, and markets are opaque in nature, transacting is more complicated, and liquidity options are fewer versus transacting in the public equity marketplace. However, investing in unicorn shares can be a powerful alpha in a well-diversified portfolio. Many unicorn companies dominate their respective markets, with proven revenue models, extraordinary revenue growth and correspondingly strong value creation.

DISCLOSURES

Private equity involves risk-sharing between investors, entrepreneurs and company management. Also, from our analysis, many verticals are in Shariah permissible business activities such as office-sharing, ride-sharing, home-sharing, information technology and mobile computing, among others.

Shariah compliant investing requires that certain financial ratios are tested to ensure that the companies are compliant with Islamic investing principles. In the global public equity markets, companies are required to disclose their financial statements to regulators and the investing public in a transparent manner. However, in private equity secondary markets, due to a lack of disclosure requirements, conducting ratio analysis can be very challenging. However, based on our research, we believe that most unicorns do not use a high amount of leverage, and so on this metric, would likely be compliant. However, we are not in a position to attest to Shariah compliance for many unicorns because of a lack of required financial information. We believe that investors should do their own analysis to determine which of these companies are indeed Shariah compliant.

Newport Global Summit Held By Rainmaker Securities Representative, Katharine Cushing, Connects Investors And Entrepreneurs

NEWPORT, R.I., Aug. 16, 2017 /PRNewswire/ -- Rainmaker Securities, LLC, member FINRA/SIPC, is proud to announce that one of our registered agents, Katharine Cushingof 7Sisters, LLC, is hosting the Newport Global Summit on August 16-17, 2017. The Newport Global Summit is a leadership retreat that has been held at the Pell Center for International Relations and Public Policy since 2009.

"The Summit is intended to be like Davos at its infancy, encouraging active collaboration among the participants to facilitate new business relationships," says Founder, Katharine (Kitty) Cushing, Managing Principal of 7Sisters, LLC.

Successful entrepreneurs, notable investors and family business enterprises from around the world will gather for a two-day leadership forum to share knowledge and explore possibilities for economic prosperity. Speakers include:

  • Glen Anderson, Founder and President of Rainmaker Securities, a leader in secondary transactions for late stage private securities.  Each year Rainmaker Securities facilitates hundreds of secondary transactions over dozens of late-state equity issuers.
  • Richard Beleutz, Managing Partner of Alternative Investment Resource; on the topic of investing in life settlement assets.
  • Sharon Daniels, CEO of ARRIA NLG, partner to IBM Watson, and leader in NLG (natural language generation) technology, the keystone of Artificial Intelligence.  Sharon is co-founder of Diligent, a U.S. based SaaS company that listed on NZX in 2007 and recently sold to Insight Venture Partners for U.S. $624 million.
  • John LeBoutillier, nationally recognized political commentator and former U.S. Congressman.
  • John Messervey, Private Advisor to America's Leading Families, President of National Family Business Council.
  • Kevin Raidy, Managing Director of Cowen, Inc., a leading equity underwriter for life sciences, biopharmaceutical and healthcare companies.
  • Joseph A. Stanislaw - co-founder and former president of Cambridge Energy Research Associates, an energy research consultancy that was acquired in 2004 by IHS Energy.

About 7Sisters, LLC

7Sisters specializes in fostering and developing relationships between U.S. companies with international partners, helping U.S. companies and family enterprises broaden global business relationships. With more than 90% of economic growth now occurring outside of the U.S., it is critical for businesses and families to adapt to a global business world.

SEAN CLEMENS OF RAINMAKER SECURITIES & PARK LANE ADVISORS - WINNER OF THE 8TH ANNUAL EMERGING LEADERS AWARDS

LOS ANGELES, Aug. 14, 2017 /PRNewswire/ -- Rainmaker Securities is pleased to announce that The M&A Advisor has chosen Sean Clemens as one of the winners of the Emerging Leaders Awards. The Annual M&A Advisor Emerging Leaders Awards was born as the 40 Under 40 Awards in the United States in 2010 to recognize and celebrate the achievements of young M&A professionals.

Sean is Senior Vice President of Sports Investment Banking at Park Lane Advisors and registered agent of Rainmaker Securities. Clemens joined Park Lane in 2009 and plays a principal role in the firm's financial analysis, due diligence, document preparation, and research. Through Rainmaker Securities, Sean facilitates transactions between buyers and sellers of equity and debt, having worked on transactions across all major American sports leagues, minor leagues, European soccer, and spanning a wide range of sports-based businesses. He is an active participant on the firm's deal review team, evaluating potential engagements including capital raising transactions, mergers and acquisitions, and restructurings. Clemens is a key contributor to Park Lane's valuation practice and liaises with the firm's broker dealer to manage compliance efforts. He has authored several SportsBusiness Journal articles and sports industry white papers on behalf of Park Lane. Clemens is a graduate of Cornell University, where he earned a B.A. in Economics and Spanish.

"It is an honor to be recognized by The M&A Advisor as an Emerging Leader in the Dealmaker category," said Clemens. "I am extremely humbled to be named alongside so many accomplished corporate finance professionals on this year's list. This achievement is a reflection of our outstanding team at Park Lane, and it speaks to our mission to work on great deals and deliver results."

To view the complete list of this year Emerging Leaders Award Winners, click here.

RAINMAKER SECURITIES M&A

Rainmaker Securities is an exclusive merchant banking platform founded with the vision to help private issuers of equity and debt raise capital and find exits. We advise corporate private issuers on sale preparation, and run sale processes for private companies seeking exits via M&A. We provide our broad base of strategic/corporate investor clients with a selective and well vetted portfolio of unique acquisition opportunities. Rainmaker Securities, LLC is a FINRA registered broker-dealer and member of SIPC.

Industry News Update – Week of 8/14/2017

Last week, WeWork, SoFi and Uber were involved in lawsuits pertaining to trademark infringement, termination of employees due to sexual harassment claims and management misconduct impacting the selection of board of directors respectively. WeWork pursued litigation against UrWork, Chinese company that provides co-working space for startups, for trademark infringement.  SoFi was sued by one of its employees claiming that he was fired from the company for reporting instances of sexual harassment. Uber is being sued by one of its early investors, Benchmark, since Benchmark claims that Travis Kalanick was erroneously given the power to select the Uber’s board seats given his actions of fraud and breach of contract.  

23andme is working with The Milkin Institute and Lundbeck to conduct a large online study to assess how genetics impacts depression and bipolar disorder. 

Didi Chuxing invested an undisclosed amount of funding into Careem, Uber of the Middle East, to expand its international presence. 

Lyft and WeWork both acquired companies to drive customer growth and promote sales initiatives. Lyft acquired DataScore, a marketing campaign strategy company, and YesGraph, a machine learning company that analyzes end-users to increase referrals, in order to increase customer acquisition by bolstering retention efforts and its referral program. WeWork bought Unomy, a sales and marketing platform, to increase its sales efforts with enterprise customers. 

Palantir’s platform is being used by police officials to identify traffic and parole violations and to analyze digital records databases to find connections between crimes.

The news articles and links presented below are available for your reference.

23ANDME

"23andMe Launches Large Study on Depression, Bipolar Disorder"

DIDI CHUXING

"China’s Didi Backs Uber Rival Careem to Expand its Global Footprint Into the Middle East"

LYFT

“Lyft Acqui-hires DataScore and YesGraph to Fuel Customer and Driver Growth"

PALANTIR

"How Peter Thiel's Secretive Data Company Pushed Into Policing"

SOFI

"SoFi Is Being Sued by an Employee Claiming He Was Fired for Reporting Sexual Harassment"

UBER

"Benchmark Sues Former Uber CEO Travis Kalanick"

WEWORK

"WeWork Acquires Israeli startup Unomy to Boost its Enterprise Sales Efforts"

“WeWork Starts Legal Action Against Rival UrWork Over Trademarks"

 

Industry News Update – Week of 8/7/2017

Last week,  Didi Chuxing invested funds into Taxify, European ride sharing company, to expand its international presence.

Grab released its new GrabNow app that is expected to make its ride sharing transactions cashless.

Flipkart successfully merged with eBay India and received $500 million from eBay. As part of the deal, eBay will obtain equity in Flipkart.

Prosper is closing a $50 million funding round. The company’s latest valuation was $550 million which is a 70% decrease from its last round valuation.

SoFi’s CEO announced that the company’s IPO is expected soon after revealing SoFi’s Q2 2017 financials of $134 million in revenue and $61.6 million in EBITDA.

Spotify surpassed 60 million paying subscribers on July 31st.

The news articles and links presented below are available for your reference.

DIDI CHUXING

“Didi Chuxing to Invest and Partner With Uber's European Rival Taxify"

GRAB

“Grab Launches GrabNow to Encourage Taxi Drivers to go Cashless"

FLIPKART

“eBay Sells eBay.in Business to Flipkart"

PROSPER

“Fintech Lender Prosper's Valuation Dives 70% in Latest Funding Round"

SOFI

“SoFi Hints at IPO, Reports Record Results”

SPOTIFY

“Spotify Preps to go public With 60M Subscribers, Outpacing Apple"

Industry News Update – Week of 7/31/2017

Last week, Dropbox appointed Goldman Sachs to underwrite its upcoming Initial public offering.

The merger between Flipkart and Snapdeal has officially been terminated since Snapdeal’s board of director rejected the $900-$950 million purchase price from Flipkart.

Slack and SpaceX have been procuring funding. Slack is raising $250 million and its valuation is expected to rise to $5 billion. SpaceX's valuation rose to $21 billion once the company raised more than $350 million as part of its Series H funding round.

Stripe bought Payable, company that handles payments, tax and on boarding for contractors, to offer simplified tax reporting to its customers.

WeWork established a China-based business to quickly expand its presence in China.

The news articles and links presented  below are available for your reference.

DROPBOX

“Dropbox is Reportedly Inching Closer to a Potential IPO”

FLIPKART

“Flipkart’s On-off-on-off-on-off Deal to Acquire Snapdeal is Now Officially Dead"

SLACK

“Slack is Raising a $250 Million Round at $5 Billion Valuation"

SPACEX

“New Funding Round Values SpaceX at $21.2 Billion"

STRIPE

“Stripe Acquires Payable to Help On-demand Businesses Manage 1099 Tax Reporting''

WEWORK

“WeWork Launches Dedicated China Business Backed by $500M from Investors"

Industry News Update – Week of 7/24/2017

Last week, Coupang won a lawsuit against Korea Integrated Logistics Association that established Coupang is not a transportation business and therefore is not required to obtain a transportation license to operate in South Korea.

DocuSign's CEO announced the company expects to go public early next year.

Lyft opened a new autonomous driving engineering facility to support the development of its autonomous technology.

Spotify and Warner are in talks to sign a music streaming contract which is expected to be completed by September of 2017.

The news articles and links presented below are available for your reference.

COUPANG

“Coupang Wins Lawsuit on Rocket Delivery"

DOCUSIGN

“DocuSign Aiming for IPO by Early 2018, CEO Says"

LYFT

"Lyft is Now Building its Own Self-driving Technology, Which is a Big Deal"

SPOTIFY

“Spotify and Warner are Ready to Make a Deal on Music Royalties"

Industry News Update – Week of 7/17/2017

Last week, Coupang, WeWork and Grab have been procuring funding. Coupang is raising $500 million prior to its IPO which is being managed by Goldman Sachs. WeWork’s valuation rose to $20 billion once the company raised $760 million as part of its Series G funding round.  Grab raised $2 billion from Didi Chuxing and Softbank and is now valued at $5 billion.

Uber acquired Swipe Labs, photo sharing app, to further develop its drivers' earnings features which will improve its drivers' experience.

Uber also consolidated its Russian operations with Yandex, Russian search engine company, to create a new ridesharing entity that is valued at $3.7 billion.

The news articles and links presented below are available for your reference.

COUPANG

“Coupang Plans To Raise US$500m Funds Before NASDAQ Listing"

GRAB

“This Uber Rival Just Raised $2 Billion From Softbank And China’s Didi Chuxing"

UBER

"Uber Acqui-Hires Social App Studio Swipe Labs"

“Uber, Yandex Combine Ridesharing And Ubereats In Russian Markets In A $3.72B JV"

WEWORK

“Office-Sharing Start-Up Wework Gets $760 Million In New Cash"

Industry News Update – Week of 7/10/2017

Last week, Waymo dropped three out of the four patent infringement claims against Uber in its self-driving lawsuit. Waymo pursued this strategy in response to Uber ceasing use of its Lidar technology.

Lyft reached a major milestone on July 5, 2017 by providing one million daily rides.

Didi Chuxing participated in Ofo's 700 million funding round to establish presence in the Asia-Pacific shared bicycle market. Riding bikes is a popular means of transportation in the region and Ofo’s main competitor, Mobike, recently raised $600 million.

Spotify is piloting its new driving feature which makes the buttons on its user interface larger and allows users to control their music using their voice to make it easier to drive and listen to music.

Stripe has partnered with Alipay and WeChat Pay, which have cumulatively processed roughly $3 billion in 2016, to expand its presence in China.

The news articles and links presented below are available for your reference.

DIDI CHUXING

“Chinese Startup Ofo Raises $700 million as Bike-sharing Race Heats Up"

LYFT

“Lyft is Now Completing One Million Rides a Day"

SPOTIFY

"Spotify is Testing a Driving Mode Feature"

STRIPE

“Stripe Adds Support For Alipay and WeChat Pay, China’s Top Digital Payment Services"

UBER

“Waymo Drops Most of Its Patent Claims But Keeps Fighting Uber"

Industry News Update – Week of 7/3/2017

Last week, Blue Apron’s IPO took place on June 29th 2017 and the company’s shares opened at $10 on its first day of trading and have remained flat.

Dropbox is in the process of hiring underwriters for its upcoming IPO.

Prosper’s President, Ron Suber, resigned to pursue other opportunities.

Uber reached a major milestone on June 29, 2017 by surpassing 5 billion rides worldwide.

The news articles and links presented below are available for your reference.

BLUE APRON

"Blue Apron IPO Off to a Rough Start"

DROPBOX

“Dropbox is Reportedly Looking for IPO Underwriters"

PROSPER

"Ron Suber Departs Prosper Marketplace"

UBER

"Uber Crosses the 5 billion Trip Milestone Amid Ongoing Issues"