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KPCB has already blown through much of the $600 million it raised last year

06:32 | 30 January

Kleiner Perkins, one of the most storied franchises in venture capital, has already invested much of the $600 million it raised last year and is now going back out to the market to raise its 19th fund, according to multiple sources.

The firm, which underwent a significant restructuring over the last two years, went on an investment tear over the course of 2019 as new partners went out to build up a new portfolio for the firm — almost of a whole cloth.

A spokesperson for KPCB declined to comment on the firm’s fundraising plans citing SEC regulations.

The quick turnaround for KPCB is indicative of a broader industry trend, which has investors pulling the trigger on term sheets for new startups in days rather than weeks.

Speaking onstage at the Upfront Summit, an event at the Rose Bowl in Pasadena, Calif. organized by the Los Angeles-based venture firm Upfront Ventures as a showcase for technology and investment talent in Southern California, venture investor Josh Kopelman spoke to the heightened pace of dealmaking at his own firm.

The founder of First Round Ventures said that the average time from first contact with a startup to drawing up a term sheet has collapsed from 90 days in 2004 to 9 days today.

 

“This could also be due to changes in the competitive landscape … and there may be changes with First Round Capital itself,” says one investor. “It may have been once upon a time that they were looking at really early raw stuff… But, today, First Round is not really in the first round anymore. Companies are raising some angel money or Y Combinator money.”

At KPCB, the once-troubled firm has been buoyed by recent exits in companies like Beyond Meat, a deal spearheaded by the firm’s former partner Amol Deshpande (who now serves as the chief executive of Farmers Business Network) and Slack.

And its new partners are clearly angling to make names for themselves.

“KP used to be a small team doing hands-on company building. We’re moving away from being this institution with multiple products and really just focusing on early-stage venture capital,” Kleiner Perkins  partner Ilya Fushman said when the firm announced its last fund.

Kleiner Perkins partner Ilya Fushman

“We went out to market to LPs. We got a lot of interest. We were significantly oversubscribed,” Fushman said of the firm’s raise at the time.

In some ways, it’s likely the kind of rejuvenation that John Doerr was hoping for when he approached Social + Capital’s Chamath Palihapitiya about “acquiring” that upstart firm back in 2015.

At the time, as Fortune reported, Palihapitiya and the other Social + Capital partners, Ted Maidenberg and Mamoon Hamid would have become partners in the venture firm under the terms of the proposed deal.

Instead, Social + Capital walked away, the firm eventually imploded and Hamid joined Kleiner Perkins two years later.

The new Kleiner Perkins is a much more streamlined operation. Gone are the sidecar and thematic funds that were a hallmark of earlier strategies and gone too are the superstars brought in by Mary Meeker to manage Kleiner Perkins’ growth equity investments. Meeker absconded with much of that late stage investment team to form Bond — and subsequently raised hundreds of millions of dollars herself.

Those strategies have been replaced by a clutch of young investors and seasoned Kleiner veterans including Ted Schlein who has long been an expert in enterprise software and security.

“Maybe at this point they think they can raise based on the whole story about Mamoon taking over and a few years from now they won’t be able to raise on that story and will have to raise on the results,” says one investor with knowledge of the industry. “Mamoon is a pretty legit, good investor. But the legacy of the firm is going to be tough to overcome.”

All of these changes are not necessarily sitting well with limited partners.

“LPs are not really happy about what’s going on,” says one investor with knowledge of the venture space. “Everybody thinks valuations are too high since 2011 and people are thinking there’s going to be a recession. LPs think funds are coming back to market too fast and they’re being greedy and there’s not enough vintage diversification but LPs … feel almost obligated that they have to do these things… Investing in Sequoia is like that saying that you don’t get fired for buying IBM .”

 


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Alphabet-backed primary care startup One Medical files to go public

04:16 | 4 January

One Medical, a San Francisco-based primary care startup with tech-infused, concierge services filed for an IPO with the Securities and Exchange Commission today.

Internal medicine doctor Tom Lee founded the startup, now valued at well-over $1 billion dollars, in 2007. Lee exited his company in 2017, leaving it in the hands of former UnitedHealth group executive Amir Rubin.

The startup currently operates 72 health clinics in nine major cities throughout the U.S., with three more markets expected to open in 2020 and has raised just over $500 in venture capital from it’s biggest investor, the Carlyle Group (which owns just over a quarter of shares), Alphabet’s GV, J.P. Morgan and others. Google also incorporates One Medical into its campuses and accounts for about 10% of the company revenue, according to the SEC filing. The filing also mentions the company, which is officially incorporated as 1Life Healthcare Inc. ONEM, now plans to raise about $100 million.

Presumably, this money will help the company improve upon its technology and expand to more markets. We’ve reached out to One Medical for more and so far have only been referred to its wire statement.

According to that statement, One Medical has applied for a listing as ticker symbol, ONEM under its common stock on the Nasdaq Global Select Market.

 

 


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Negotiate for ‘better’ stock in equity-funded acquisitions

22:03 | 20 December

Timothy R. Bowers Contributor
Timothy R. Bowers is the Managing Partner of VLP Law Group LLP.
Andrew P. Dixon Contributor
Andrew P. Dixon serves as Counsel with VLP Law Group LLP.

For many founders, building and selling a successful venture-backed company for cash is the ultimate goal. However, the reality is that some companies will instead receive an equity-funded acquisition proposal in which equity of another private venture-backed company, rather than cash, represents all or a significant portion of the purchase price.

Because all equity is not created equal, it is important for founders to understand how to negotiate for better equity in the context of such an acquisition proposal. This article explores what better equity looks like and some strategies founders can use to negotiate for that equity.

What is “better” equity?

To know what “better” equity is for the seller, it is necessary to understand what the “worst” and “best” stock is in the context an equity-funded acquisition by a private company buyer. The “worst” stock is plain common stock which does not enjoy any special rights and is subject to contractual restrictions which diminish its liquidity profile. Common stock sits at the bottom of the priority stack (after debt and preferred equity) in the event the company dissolves or is sold — thus, it is least valuable. Variations of transfer restrictions (e.g., a prohibition on private secondary sales) may further diminish the desirability of common stock by making it difficult or impossible for the holder to achieve liquidity outside of an M&A event or initial public offering (IPO).

In contrast, the “best” stock is (1) the acquirer’s most senior series of preferred stock, coupled with (2) additional contractual rights enhancing such stock’s liquidity profile. For our purposes here, we’ll call this “enhanced preferred stock.” All things being equal, founders and VCs should have a strong preference for enhanced preferred stock in an equity-funded acquisition for several reasons:

  • Usually, the most senior series of preferred stock will enjoy a liquidation preference ensuring that a certain amount of proceeds (commonly equal to invested capital) from a sale of the company flow to stockholders of that series before proceeds are distributed to junior preferred and common stockholders.
  • Unique contractual rights not shared by common stockholders, like special voting rights with respect to major events and transactions, unique information rights, pro rata investment rights with respect to future financings, rights of first refusal and co-sale rights, increase the stock’s relative value.
  • Beyond the standard set of rights that are usually enjoyed by all preferred stockholders, additional contractual rights of and reduced restrictions on enhanced preferred stock make it more likely that the holder of such equity will achieve liquidity of some or all of its holdings prior to an M&A event or IPO. Such additional rights may include one or more of the following: time or event-based redemption rights (i.e., the right to force the acquirer to redeem equity at a specified price in the future), other liquidity rights tied to future financings or commercial transactions (e.g., the right to sell stock to the investors in the next equity financing), covenants of the acquirer to permit and support private secondary sales and registration rights (i.e., the right to force the acquirer to register stock with the SEC, thereby allowing for unrestricted resale by the holder).

“Better” stock lies somewhere on the continuum between the common stock and enhanced preferred stock poles, with the type of stock and bundle of rights associated with such equity determining its precise location. Additional contractual rights and reduced restrictions may significantly improve the desirability of common stock and perhaps place the holder in a better position than it would have been as a preferred stockholder. For example, a seller able to negotiate the right to sell a certain amount of common stock to investors in the acquirer’s next preferred stock equity financing could be more favorably positioned than the holder of senior preferred stock without any enhanced preferred rights.

Negotiating for better stock. With a framework for understanding what better stock means, below are several strategies sellers can employ in M&A negotiations to obtain better stock than that initially offered by the buyer.

Avoiding dire situations and preserving leverage. Leverage matters in every negotiation and any strategy that ignores this reality is doomed to fail. To state the obvious, the first strategy to negotiate for better stock in an equity-funded acquisition is the first strategy in preparing for any M&A event: companies should do all they can to avoid being in a dire fire sale situation when a buyer comes knocking on their door. If the seller is a failing company seeking a sale as a last ditch effort to avoid shutting its doors, even the best strategies may be useless in negotiation since as soon as the buyer says “no”, the seller will likely fold its hand and agree to the deal offered.

 


0

Is a direct listing the right choice for your company?

18:23 | 18 December

Ran Ben-Tzur Contributor
Ran Ben-Tzur is a corporate partner at Fenwick & West. Ran’s issuer-side initial public offerings include Facebook, Fitbit, Upwork, Zuora and Peloton Interactive.
Jamie Evans Contributor
Jamie Evans is the co-chair of Fenwick & West's Capital Markets & Public Companies group. Jamie's representative initial public offerings include Smartsheet, Redfin, Fitbit and Facebook.

Spotify did it. Slack did it. Many other late-stage private technology companies are reported to be seriously considering it. Should yours?

If you are a board member of a late-stage, venture-backed company or part of its management team, you likely have heard of the term “direct listing.” Or you may have attended one or all of the slew of recent conferences being hosted by big-name investment banks and others, including tech investor guru Bill Gurley, who recently debated the pros and cons of choosing a direct listing over a traditional IPO.

Before you decide what’s right for your company, here are a few things you need to know about direct listings.

Direct listings vs. IPOs

For people not familiar with the term, a direct listing is an alternative way for a private company to “go public,” but without selling its shares directly to the public and without the traditional underwriting assistance of investment bankers. 

In a traditional IPO, a company raises money and creates a public market for its shares by selling newly created stock to investors. In some instances, a select number of pre-IPO investors, usually very large stockholders or management, may also sell a portion of their holdings in the IPO. In an IPO, the company engages investment bankers to help promote, price and sell the stock to investors. The investment bankers are paid a commission for their work that is based on the size of the IPO—usually seven percent for a traditional technology company IPO.  

In a direct listing, a company does not sell stock directly to investors and does not receive any new capital. Instead, it facilitates the re-sale of shares held by company insiders such as employees, executives and pre-IPO investors. Investors in a direct listing buy shares directly from these company insiders. 

Does this mean that a company doing a direct listing doesn’t need investment banks? Not quite. Companies still engage investment banks to assist with a direct listing and those banks still get paid quite well (to the tune of $35 million in Spotify and $22 million in Slack). 

However, the investment banks play a very different role in a direct listing. Unlike a traditional IPO, in a direct listing, investment banks are prohibited under current law from organizing or attending investor meetings and they do not sell stock to investors. Instead, they act purely in an advisory capacity helping a company to position its story to investors, draft its IPO disclosures, educate a company’s insiders on process and strategize on investor outreach and liquidity.   

Understanding the current direct listings trend

The concept of a direct listing is actually not a new one.  Companies in a variety of industries have used similar structures for years. However, the structure has only recently received a lot of investor and media attention because high-profile technology companies have started to use it to go public. But why have technology companies only recently started to consider direct listings? 

The rise of massive pre-IPO fundraising rounds

With an abundance of investor capital, especially from institutional investors that historically hadn’t invested in private technology companies, massive pre-IPO fundraising rounds have become the norm. Slack raised over $400 million in August 2018—just over a year prior to its direct listing. Because of this widespread availability of capital, some technology companies are now able to raise sufficient capital before their actual IPO to either become profitable or put them on a path to profitability. 

Criticism of current IPO process

There has been increasing negative sentiment, especially amongst well-known venture capitalists, about certain aspects of the traditional IPO process—namely IPO lock-up agreements and the pricing and allocation process. 

IPO lock-up agreements. In a traditional IPO, investment bankers require pre-IPO investors, employees and the company to sign a “lock-up agreement” restricting them from selling or distributing shares for a specified period of time following the IPO—usually 180 days. The bankers put these agreements in place in order to stabilize the stock immediately after the IPO. While the merits of a lock-up agreement can certainly be debated, by the time VCs (and other insiders) are allowed to sell following an IPO, oftentimes the stock price has fallen significantly from its highs (sometimes to below the IPO price) or the post lock-up flood of selling can have an immediate negative impact on the trading price.  

In a direct listing, there is no lock-up agreement, which allows for equal access to the offering to all of the company’s pre-IPO investors, including rank-and-file employees and smaller pre-IPO stockholders.

IPO pricing and allocation: In a traditional IPO, shares are often allocated directly by a company (with the assistance of its underwriters) to a small number of large, institutional investors. Traditional IPOs are often underpriced by design to provide large institutional investors the benefit of an immediate 10-15% “pop” in the stock price. Over the last few years, some of these “pops” have become more pronounced. For example, Beyond Meat’s stock soared from $25 to $73 on its first day of trading, a 163% gain. This has fueled a concern, particularly shared amongst the VC community, that investment banks improperly price and allocate shares in an IPO in order to benefit these institutional investors, which are also clients of the same investment banks that are underwriting the IPO. While the merits of this concern can also be debated, in instances where there is a large price discrepancy between the trading price of the stock following the IPO and the price of the IPO, there is often a sense that companies have left money on the table and that pre-IPO investors have suffered unnecessary dilution. If the IPO had been priced “correctly,” the company would have had to sell fewer shares to raise the same amount of proceeds. 

Because a company is not selling stock in a direct listing, the trading price after listing is purely market driven and is not “set” by the company and its investment bankers. Moreover, since no new shares are issued in a direct listing, insiders do not suffer any dilution. 

The Spotify effect

Before Spotify’s direct listing, technology companies hadn’t used the direct listing structure to go public. Spotify was, in many ways, the perfect test case for a direct listing. It was well known, didn’t need any additional capital and was cash flow positive. In addition, prior to its direct listing, Spotify had entered into a debt instrument that penalized the company so long as it remained private. As a result, it just needed to go public. After clearing some regulatory hurdles, Spotify successfully executed its direct listing in April 2018. After Spotify’s direct listing, Slack (relatively) quickly followed suit. Slack’s direct listing was notable because it represented the first traditional Silicon Valley-based VC-backed company to use the structure. It was also an enterprise software company, albeit one with a consumer cult following. 

Is a direct listing right for my company?

While a direct listing offers many benefits, the structure does not make sense for every company. Below is a list of key benefits and drawbacks:

 


0

NYSE proposes big change to direct listings

20:17 | 26 November

The New York Stock Exchange filed paperwork this morning with the U.S. Securities and Exchange Commission to allow companies to raise capital as part of a direct listing.

Direct listings are a way for companies to go public by selling existing shares held by insiders, employees and investors directly to the market, rather than the traditional method of issuing new shares. Direct listings have become increasingly popular since Spotify’s 2018 exit, which allowed its employees immediate liquidity, removed preferred access from bankers and allowed for market-driven price discovery. Companies, like Spotify, that opt to complete a direct listing are able to bypass the financial roadshow, thus avoiding some of Wall Street’s exorbitant fees. Historically, however, these companies have not been able to raise fresh capital as part of the process.

The NYSE’s new proposal seeks to change that. Specifically, the stock exchange plans to amend Chapter One of the Listed Company Manual, which outlines the NYSE’s initial listing requirements for companies completing initial public offerings or direct listings. If the amendment is approvedthe NYSE is subject to the regulatory oversight of the SECcompanies going public on the NYSE will be permitted to raise capital through a direct listing.

The proposed hybrid model is likely to appeal to Silicon Valley tech startups, who’ve grown more familiar with the innovate route to the public markets following Spotify and Slack’s direct listings. On the backs of these exits, tech industry leaders have touted direct listings as the latest and greatest path to the public markets. Venture capitalist Bill Gurley, in particular, has encouraged companies to consider the method. Meanwhile Silicon Valley darling Airbnb, which has stated its intent to go public in 2020, is said to be considering a direct listing rather than a traditional IPO.

Gurley, who has expressed his discontent with bankers’ inability to adequately price IPOs, recently hosted a one-day conference focused on direct listings titled Direct Listings: A Simpler and Superior Alternative to the IPO. The event was attended by members of tech’s elite, including Sequoia Capital’s Mike Moritz and Spotify chief financial officer Barry McCarthy .

“Most people are afraid of backlash from the banks so they don’t speak out,” Gurley told CNBC earlier this year of his decision to publicly advocate for direct listings. “I’m at a point in my career where I can handle the heat.”

 


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Make a personal plan for your exit or IPO

20:07 | 19 November

Peyton Carr Contributor
Peyton Carr is a Financial Adviser to founders, entrepreneurs and their families, helping them with planning and investing. He is a Managing Director of Keystone Global Partners.

Whether you’re a founder, an early employee or an executive, the possibility of an exit offers extraordinary financial possibilities.

However, I see plenty of founders having liquidity events only to find themselves making hurried decisions with their newfound wealth, ultimately feeling frustrated when they realize they’ve paid a painful price by not having the proper advice. 

Typically, I recommend breaking your planning into two separate phases to reduce overwhelm and maximize your wealth: planning before an exit and planning after an exit.

Determine your goals and strategy

Before an exit, it’s important to coordinate planning and hammer out key details that will carry you through the sale of your business. This typically means teaming up with a financial adviser, an accountant, and an estate planning attorney. Just as you’ve built the team of your company to help your business grow and succeed, it’s important to build a team that’s coordinated and focused on your personal financial success both now and in the future. 

Spending time upfront to determine your goals, objectives, and desired lifestyle can save you endless headaches on the back end of an exit, possibly save you a surprising amount in taxes and set you up for long-term success and fulfillment.

Taxes and QSBS

Speaking with a professional can help you determine what tax savings opportunities would be most applicable to your specific situation. For example, if you’re a startup founder, you may qualify for the QSBS exclusion (qualified small business stock). This exclusion could, if you qualify, allow you to exclude up to $10 million, and sometimes multiples of that, in federal capital gains tax after selling your stake in the company. 

One of our clients whose company was being acquired did not know whether he would qualify for the QSBS exclusion when he was introduced to us. By coordinating with his corporate counsel and accountant, we determined he would. In this specific situation he had acquired the domestic C Corporation shares of his tech company, and held them for over five years by the time the acquisition happened. And when he initially obtained the shares, the gross assets of the company were less than $50 million. Needless to say, he was pleased to learn that the first $10 million of his gains were exempt from federal tax!

Requirements to qualify for QSBS include but are not limited to:

  1. Domestic C corporation stock acquired directly from the company and held for over 5years
  2. Stock issued after Aug 10th, 1993, and ideally, after Aug 27th, 2010 for a full 100% exclusion
  3. Gross assets of the company must be less than $50 million when the stock was acquired 
  4. Active business with 80% of assets being used to run the business. Cannot be an investment entity
  5. Cannot be an excluded business type such as, but not limited to finance, professional services, mining/ natural resources hotel/ restaurants, farming or any other business where the business reputation is a skill of one or more of the employees.

Estate planning and wealth transfer

 


0

EHang, maker of autonomous flying shuttles, files for $100 million IPO

15:33 | 1 November

Chinese autonomous air mobility company EHang has filed with the SEC the paperwork required to go public in the U.S. on the NASDAQ exchange, with a $100 million initial public offering. The company, which has been flying demonstration flights with passengers on board for a while now, is gearing up to launch its first commercial service in Guangzhou after getting approval from local and national regulators to deploy its drones in the area.

At launch, EHang will be using its two-seater vertical take-off and landing craft (VTOL), which has room for two passengers on board. EHang doesn’t just build the aircraft, though – its goal is to build full, multi-aircraft (as many as ‘thousands,’ according to Forbes) autonomous transportation networks that it hopes will serve to alleviate and avoid congested ground traffic. Guangzhou, with an estimated population of over 13 million, suffers from considerable traffic.

EHang is also building out logistics and cargo transportation capabilities as well as passenger services. The company believes it can offers short designate cross-city transportation that can cut down on time by as much as 40 to 60 percent, and once it achieves scale, it also says that costs have the potential to be reduced by as much as 50 percent.

Founded in 2014, EHang last announced funding in 2015, when It raised $42 million in a Series B round led by GP Capital, with GGV Capital, ZhenFund, Lebox Capital, OFC and PreAngel also participating.

 


0

Revisiting Jumia’s JForce scandal and Citron’s short-sell claims

20:30 | 28 October

In advance of Jumia’s November financial reporting, it’s worth revisiting the company’s second quarter results, the downside of which included some negative news beyond losses.

The Africa focused e-commerce company — with online verticals in 14 countries — did post second-quarter revenue growth of 58% (≈$43 million) and increased its customer base to 4.8 million from 3.2 million over the same period a year ago.

But Jumia also posted greater losses for the period, €67.8 million, compared to €42.3 million in 2018.

What appears to have struck the market more than revenues or losses was Jumia offering greater detail on the fraud perpetrated by some employees and agents of its JForce sales program.

This was another knock for the firm on its up and down ride since becoming the first tech company operating in Africa to list on the NYSE in April. The online retailer gained investor confidence out of the gate, more than doubling its $14.95 opening share price after the IPO.

That lasted until May, when Jumia’s stock came under attack from short-seller Andrew Left, whose firm Citron Research, issued a report accusing the company of fraud. That prompted several securities related lawsuits against Jumia.

At quick glance, Citron’s primary claim — that Jumia’s SEC filing contained discrepancies in sales figures — shares some resemblance to Jumia’s own disclosures.

The company’s share-price has suffered due to both — falling to less than 50% of its opening in April.

This has all funneled into an ongoing debate

on Jumia’s legitimacy as an African startup, given its (primarily) European senior management. Some of the most critical voices have gone so far as to support Left’s claims on Jumia’s fraud — and accept Jumia’s August admission as validation.

Sound messy and confusing? We’ll, yes, it is. But so go some IPOs.

Jumia’s info vs. Citron’s claims

Evaluating Jumia’s J-Force scandal vs. Citron’s short-sell claims is really Chartered Financial Analyst stuff. Citibank Research issued a brief rebutting Left’s claims in May and then another in August — though the firm has not made either public.

Judging by Jumia’s share-price fluctuation and chatter that continues in Africa’s tech ecosystem, there’s still confusion around both matters.

A simple exercise is to lay out the core of what Jumia has released vs. the crux of Citron Research’s claims.

On the J-Force/improper sales matter, here are excerpts of Jumia’s statement. Note that GMV is Gross Merchandise Value — the total amount of goods sold over the period: 

As disclosed in our prospectus dated April 11, 2019, we received information alleging that some of our independent sales consultants, members of our JForce program in Nigeria, may have engaged in improper sales practices. In response, we launched a review of sales practices covering all our countries of operation and data from January 1, 2017 to June 30, 2019.

Jumia did disclose this in its IPO prospectus on page 34

In the course of this review, we identified several JForce agents and sellers who collaborated with employees in order to benefit from differences between commissions charged to sellers and higher commissions paid to JForce agents. The transactions in question generated approximately 1% of our GMV in each of 2018 and the first quarter of 2019 and had virtually no impact on our 2018 or 2019 financial statements. We have terminated the employees and JForce agents involved, removed the sellers implicated and implemented measures designed to prevent similar instances in the future. The review of this matter is closed.

And finally, Jumia noted this:

More recently, we have also identified instances where improper orders were placed, including through the JForce program, and subsequently cancelled. Based on our findings to date, we believe that the transactions in question generated approximately 2% of our GMV in 2018, concentrated in the fourth quarter of 2018, approximately 4% in the first quarter of 2019 and approximately 0.1% in the second quarter of 2019. These 0.1% have already been adjusted for in the reported GMV figure for the second quarter of 2019. These transactions had no impact on our financial statements. We have suspended the employees involved pending the outcome of our review and are implementing measures designed to prevent similar instances in the future. We continue our review of this matter.

That’s the gist of Jumia’s disclosure: a small number of employees cooked some sales numbers and commissions, it was negligible to our financials, we flagged the investigation in our IPO prospectus, we took action, we ended it.

The Citron Research report Andrew Left issued to support his short-sell position made several critical claims regarding Jumia, but labeled “the smoking gun” as alleged material inconsistencies between an October 2018, Jumia investor presentation and Jumia’s April SEC Form F-1.

For the year 2017, there’s a difference of 600,000 active customers and 10,000 merchants in Jumia’s reporting between the fall 2018 investor presentation and the recent 2019 F-1, according to Citron Research. Citron also goes on to press concerns with GMV:

In order to raise more money from investors, Jumia inflated its active consumers and active merchants figures by 20-30% (FRAUD).

The most disturbing disclosure that Jumia removed from its F-1 filing was that 41% of orders were returned, not delivered, or cancelled.

This was previously disclosed in the Company’s October 2018 confidential investor presentation. This number is so alarming that is screams fraudulent activities. Instead, Jumia disclosed that “orders accounting for 14.4% of our GMV were either failed deliveries or returned by our consumers” in 2018.

TechCrunch connected with Jumia’s CEO Sacha Poignonnec and Citron Research’s Andrew Left since the August earnings reporting and disclosures.

On whether Jumia’s revelation of improper sales practices validated the fraud claims in Citron’s Brief, “It’s not the same,” Poignnonec,” told me on a call last month.

“For every one of those allegations,” he said referring to Left’s research, “there is a clear and simple answer for each of them and we have provided those,” said Poignnonec.

Where is Andrew Left on the matter? “I’m no longer short the stock” he told TechCrunch in a mail this week.

“But that does not mean the stock is a buy whatsoever,” he added — sticking to the fundamentals of his May brief.

What to make of it all?

It appears that what Jumia disclosed in its April prospectus (and added more detail to in August) does not provide one-to-one validation of the claims in Citron Research’s May report.

But then again, the entire matter — the data, the similar terminology, the multiple docs and disclosures — is still all a bit confusing.

That was evident in an exchange between Sacha Poignonnec and CNBC contributor John Fortt after Jumia’s 2nd quarter earnings call (see 1:19). Fort pressed Poignonnec on Left’s claims vs. Jumia’s admissions and still came away a bit puzzled.

The market, too, appears to be impacted by the fuzziness around Jumia’s disclosure of improper sales practices and Andrew Left’s claims.

Jumia’s share price plummeted 43% the week Left released his short-sell claims, from $49 to $26.

The company’s stock price has continued to decline since Jumia’s August earnings call (and sales-fraud disclosure) to $6.52 at close Tuesday.

That’s 50% below the company’s opening in April and 80% below its high before Citron’s Research brief and Andrew Left’s short-sell position.

Jumia Stock Snapshot To October 28 2019

Jumia’s core investors appeared to show continued confidence in the company this month, when there wasn’t a big selloff after the IPO lockup period expired.

Even so, Jumia’s 3rd quarter earning’s call on November 12 could be a bit make or break for the company with investors given all the volatility the e-commerce venture has faced since listing and its rapid loss in value.

As a public company now, the most direct way for Jumia to revive its share-price (and investor confidence) would be demonstrating it has reduced losses while maintaining or boosting revenues.

Of course, that’s the prescription for just about any recently IPO’d tech venture.

What Jumia may want to evaluate pre-earnings call is the extent to which its own sales-fraud disclosure and Andrew Left’s allegations are still being mashed together and impacting brand-equity in Africa and investor confidence abroad.

From there it could be wise to address both head on and explain — in a way that is as easy as possible for people to understand — how the two are not the same and don’t have a bearing on Jumia’s brand or business model.

 

 

 

 

 

 

 

 

 

 

 

 


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MediaLab acquires messaging app Kik, expanding its app portfolio

23:47 | 19 October

Popular messaging app Kik is, indeed, “here to stay” following an acquisition by the Los Angeles-based multimedia holding company, MediaLab.

It echoes the same message from Kik’s chief executive Tim Livingston last week when he rebuffed earlier reports that the company would shut down amid an ongoing battle with the U.S. Securities and Exchange Commission. Livingston had

that Kik had signed a letter-of-intent with a “great company,” but that it was “not a done deal.”

Now we know the the company: MediaLab. In a post on Kik’s blog on Friday the MediaLab said that it has “finalized an agreement” to acquire Kik Messenger.

Kik is one of those amazing places that brings us back to those early aspirations,” the blog post read. “Whether it be a passion for an obscure manga or your favorite football team, Kik has shown an incredible ability to provide a platform for new friendships to be forged through your mobile phone.”

MediaLab is a holding company that owns several other mobile properties, including anonymous social network Whisper and mixtape app DatPiff. In acquiring Kik, the holding company is expanding its mobile app portfolio.

MediaLab said it has “some ideas” for developing Kik going forwards, including making the app faster and reducing the amount of unwanted messages and spam bots. The company said it will introduce ads “over the coming weeks” in order to “cover our expenses” of running the platform.

Buying the Kik messaging platform adds another social media weapon to the arsenal for MediaLab and its chief executive, Michael Heyward .

Heyward was an early star of the budding Los Angeles startup community with the launch of the anonymous messaging service, Whisper nearly 8 years ago. At the time, the company was one of a clutch of anonymous apps — including Secret and YikYak — that raised tens of millions of dollars to offer online iterations of the confessional journal, the burn book, and the bathroom wall (respectively).

In 2017, TechCrunch reported that Whisper underwent significant layoffs to stave off collapse and put the company on a path to profitability.

At the time Whisper had roughly 20 million monthly active users across its app and website, which the company was looking to monetize through programmatic advertising, rather than brand-sponsored campaigns that had provided some of the company’s revenue in the past. Through widgets, the company had an additional 10 million viewers of its content per-month using various widgets and a reach of around 250 million through Facebook and other social networks on which it published posts.

People familiar with the company said at the time that it was seeing gross revenues of roughly $1 million and was going to hit $12.5 million in revenue for that calendar year. By 2018 that revenue was expected to top $30 million, according to sources at the time.

The flagship Whisper app let people post short bits of anonymous text and images that other folks could like or comment about. Heyward intended it to be a way for people to share more personal and intimate details —  to be a social network for confessions and support rather than harassment.

The idea caught on with investors and Whisper managed to raise $61 million from investors including Sequoia, Lightspeed Venture Partners, and Shasta Ventures . Whisper’s last round was a $36 million Series C back in 2014.

Fast forward to 2018 when Secret had been shut down for three years while YikYak also went bust — selling off its engineering team to Square for around $1 million. Whisper, meanwhile, seemingly set up MediaLab as a holding company for its app and additional assets that Heyward would look to roll up. The company filed registration documents in California in June 2018.

According to the filings, Susan Stone, a partner with the investment firm Sierra Wasatch Capital, is listed as a director for the company.

Heyward did not respond to a request for comment.

Zack Whittaker contributed reporting for this article. 

 


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Cryptocurrency’s bad day continues as the SEC blocks Telegram’s $1.7 billion planned token sale

00:39 | 12 October

Cryptocurrency’s bad news day continues to get worse as the U.S. Securities and Exchange Commission has said it has filed an emergency action and received a restraining order for the $1.7 billion planned token offering of Telegram’s blockchain.

The move from the SEC follows the continued dissolution of the corporate alliance that was supporting Facebook’s planned Libra cryptocurrency.

Telegram’s ambitious founder Pavel Durov was hoping to launch the Telegram Open Network as a payment option that would exist apart from the global regulatory system in much the same way that Libra would have done, according to initial TechCrunch reporting.

While the Telegram offering had been in the works since January 2018, it had run into problems by the middle of last year and the future of the protocol was already in jeopardy.

According to the SEC complaint, Telegram Group and its TON Issuer subsidiary began raising capital in January 2018 to finance the company’s business, including the development of the TON blockchain and Messenger .

The defendants sold 2.9 billion tokens at discounted prices to 171 initial investors, including more than 1 billion of the company’s tokens to 39 U.S. buyers.

Telegram said it would deliver the tokens to the purchasers by no later than October 31, 209 and the purchasers would be able to sell them into the market. According to the SEC complaint Telgram failed to register their offers and sales of the tokens, which the SEC considers to be securities.

“Our emergency action today is intended to prevent Telegram from flooding the U.S. markets with digital tokens that we allege were unlawfully sold,” said Stephanie Avakian, Co-Director of the SEC’s Division of Enforcement, in a statement. “We allege that the defendants have failed to provide investors with information regarding Grams and Telegram’s business operations, financial condition, risk factors, and management that the securities laws require.”

 


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