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Quibi is dead. Just six months after its launch, the much-maligned streaming service announced plans to shut down this week, marking the end of a historically short run for a company that had raised huge sums of funding from some of the biggest media brands in the world. In the end, not even two famed executives and $1.75 billion in backing were enough to prop up a product that consumers simply didn't want.
As far as startup sagas go, though, Quibi still has nothing on WeWork. It's now been more than a year since the co-working company submitted its ill-fated IPO filing, but the fallout from that disastrous document is still settling. This week, Fitch Ratings downgraded WeWork's credit into potentially dangerous territory, indicating a real possibility of default. And a new book was released detailing the "epic rise and spectacular fall" of the company and controversial co-founder Adam Neumann, a page-turner with a title that's harsh but fair: "Billion Dollar Loser."
Welcome to The Weekend Pitch. I'm Kevin Dowd, and you can reach me at weekend@pitchbook.com. The ongoing travails of troubled unicorns are one of 10 things you need to know from the past week: |
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| The Adam Neumann story gets a book-length treatment in "Billion Dollar Loser." (Theo Wargo/Getty Images) |
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1. Stumbling unicorns
The 2010s were a decade marked by breakneck growth in the private markets. Many of the most valuable venture-backed companies raised larger sums and stayed private for longer than any generation of Silicon Valley startups that came before.
One interesting side effect of this era has been a cottage industry of books telling the stories of startups that pushed blitzscaling past its breaking point. Theranos was the subject of John Carreyrou's "Bad Blood." Mike Isaac chronicled Uber in "Super Pumped." And now longtime New York magazine writer Reeves Wiedeman has entered the fray with "Billion Dollar Loser," an impressively reported and fast-moving tale of Neumann and WeWork's co-working house of cards.
Much of the story will be familiar to those who followed WeWork's rise throughout the 2010s and its abrupt run-in with reality in the fall of 2019. Neumann and co-founder Miguel McKelvey launched WeWork with the best of intentions and typical startup scrappiness. But before long, Neumann's stunning success as a fundraiser and a dealmaker began to go to his head, launching a yearslong spiral into megalomania that only ended with that infamous S-1 filing and Neumann's ultimate ouster.
Beyond those broad strokes, Wiedeman does a wonderful job uncovering the strange, surreal details that reveal what it was like to be in Neumann's orbit. WeWork's earliest IT director was a high-school student working under the nom de guerre of Joey Cables. Neumann once skipped a company event to snowboard through the streets of New York. He unsuccessfully pitched Elon Musk about taking WeWork to Mars. At one 2012 event called WeSoirée, a magician "accompanied Adam on stage, stood next to him, and pulled out a wallet that suddenly burst into flames." At another point, Neumann conducted a literal toast to nepotism.
Wiedeman also deftly navigates Neumann's web of relationships with the elites of finance, politics and Hollywood. There are ties to Jared Kushner and Ashton Kutcher. There is an early warning from Benchmark's Bruce Dunlevie about the corrupting nature of power—which didn't stop Neumann, years later, from suggesting he might mentor Mohammed bin Salman, the crown prince of Saudi Arabia, and claiming that being prime minister of Israel would be too small a job to consider.
Near the end of it all, when reality has begun to sink in, Neumann bemoans his fate to JPMorgan's Jamie Dimon. "How could this happen?" he said, according to one of Wiedeman's sources. "I did everything you told me to do."
"Adam," Dimon replied, "you did nothing I told you to."
All told, it presents a striking contrast to Quibi, that other star-crossed unicorn from this week's news. Quibi wasn't Theranos, which allegedly lied about its product. It wasn't Uber, which pushed laws and morals to their limits. And it wasn't WeWork, which spent years putting a blowtorch to billions of investor dollars while its CEO globetrotted between various mansions in a private jet.
Quibi made an honest go of it. The company had an idea, built the idea, took it to market, and when it became apparent that the idea didn't work, it closed up shop and gave investors back a chunk of their money. In an open letter announcing the shutdown, executives Jeffrey Katzenberg and Meg Whitman said they wanted to say goodbye "with grace." Speaking with CNBC this week, Katzenberg also walked back prior comments blaming all of Quibi's struggles on the pandemic.
Maybe I'm a sap, but I think there's something to Quibi's desire to go out with dignity intact. It certainly shows a level of self-awareness that didn't surface until far too late in the C-suite at WeWork. Perhaps it is even a sign that the 2020s will be a decade of more conscious capitalism by startups, with more guardrails in place to prevent the next Theranos or WeWork from running amok.
That said, if there's a Quibi book hitting shelves ahead of the 2021 holiday season, sign me up. Startup schadenfreude is a hell of a drug.
2. Boardroom drama
The Pennsylvania Public School Employees' Retirement System opted to halt new contributions to funds managed by Apollo Global Management this week, the first LP known to make such a move after reports that Apollo head Leon Black paid Jeffrey Epstein at least $50 million after Epstein had pleaded guilty to soliciting sex from a minor. Another major private equity firm is also navigating hot water: While Vista Equity Partners was busy on the deal front this week, co-founder Brian Sheth reportedly could be on the way out after fellow co-founder Robert Smith settled a tax fraud investigation for $139 million.
3. NEA intrigue
In private equity, GP stakes deals have emerged in recent years as an increasingly popular way for firm leaders to access liquidity. Are VC firms next to join the trend? Bloomberg reported this week that industry icon NEA has held talks with multiple possible investors about selling a minority stake in the firm, a deal that could give an outside investor a stake in a portfolio that includes unicorns such as Robinhood and Desktop Metal.
4. Futuristic food
In 2016, vegan food company Hampton Creek was the subject of a federal fraud investigation and a Silicon Valley laughingstock after reports surfaced of an initiative to goose sales figures that involved the company buying up its own plant-based mayonnaise. What a difference four years (and a new name) makes: Now known as Eat Just, the company is seeking $200 million in funding at a $2 billion valuation, according to Bloomberg. Another foodtech company was also active this week, as indoor farming BrightFarms secured $100 million for its Series E.
5. Early birds
Three major private equity firms all made moves this week that demonstrate the industry's increasing focus on investing at earlier stages of a company's lifecycle. In Sweden, EQT brought on former Microsoft dealmaker Marc Brown to lead its new growth unit. Advent International led a $150 million investment in Tekion, valuing the automotive retail software startup at more than $1 billion. And KKR led a $100 million-plus growth investment in RVshare, the operator of a peer-to-peer rental platform for RVs. |
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KKR is joining in on a pandemic-inspired RV boom.
(Rick Harrison/Getty Images) |
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6. Hong Kong hype
After a delay, Alibaba-affiliated fintech giant Ant Group was reportedly approved this week for its coming IPO in Hong Kong, and also got approval for the second leg of its dual listing in Shanghai. Another of China's most valuable young companies also has its eye on Hong Kong, as a Reuters report emerged indicating that Didi Chuxing is preparing a possible IPO there in 2021 that could result in a $60 billion valuation.
7. Family matters
One of a series of major energy deals in the works is something of a family affair: Pioneer Natural Resources, led by CEO Scott Sheffield, agreed to pay $4.5 billion for Parsley Energy, a rival oil and gas company founded by his son, Bryan Sheffield. Separately, ConocoPhillips reached a deal to buy shale rival Concho Resources in a deal that values the company at $9.7 billion, and natural gas heavyweight EQT (not the PE firm) is circling what would likely be a multibillion-dollar deal for CNX Resources.
8. IPO machinations
Root is getting ready for a high-profile insurance IPO, as the VC-backed company released an initial price range this week for a listing that could result in a market cap north of $6 billion. A public debut is still a bit further off for ThredUp, an online thrift shop that confidentially filed for an IPO this week. And it will be an even longer wait for Nextdoor, the operator of a neighborhood-based social network: The company may make a debut by the end of 2021 that could value it at up to $5 billion, Bloomberg reported.
9. The takeover tango
Trying again paid off this week for Traton, a vehicle manufacturing subsidiary of Volkswagen: Truck builder Navistar accepted a revised $3.7 billion acquisition offer from Traton this week after rejecting a prior entrée. Cable television specialist Altice USA wasn't so lucky: Canadian peer Cogeco turned down an $8.4 billion bid from Altice that had been sweetened from another offer earlier this year.
10. Honey, I shrunk the SPAC
A special-purpose acquisition company backed by Cerberus Capital Management raised $250 million in an IPO after initially aiming to raise $400 million. A SPAC sponsored by HIG Capital settled for $325 million after first seeking $450 million. And a climate-friendly SPAC backed by Riverstone raised $200 million instead of the $300 million it initially sought. Maybe the appetite for PE-backed SPACs isn't endless, after all.
View the full list online |
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A message from Deloitte Private
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How family-owned businesses' unique traits can help them thrive
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Dire headlines abound when it comes to small businesses during 2020 to date. Many have closed their doors forever after the sustained blows from the COVID-19 pandemic; others are still struggling to find their footing. Family-owned businesses make up much of this ecosystem, and much like any other enterprise have been under significant pressure to respond to the general health, safety and welfare challenges introduced by the COVID-19 pandemic, not to mention operational disruptions.
However, the same traits that distinguish family-owned businesses from the general market could also help them survive, among which include unique governance, longer-term horizons, and overall purpose.
Read more |
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| Google and CEO Sundar Pichai are facing a new antitrust challenge in the US. (Justin Sullivan/Getty Images) |
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In North America, M&A deal activity bounced back in the third quarter of the year after a notable decline in Q2, a sign that the market could be past the worst of a pandemic-related slowdown. But as our Q3 2020 North American M&A Report details, the outcome of the looming US presidential election will likely have a say in what the future holds.
At Google, meanwhile, the biggest dealmaking question mark is an antitrust lawsuit brought this week by the US Department of Justice, the most significant regulatory challenge to the omnipotence of big tech in more than two decades. The suit could have a chilling effect on future deals—but as Vishal Persaud wrote this week, Google has already been slowing down its acquisitive activity. |
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| (Nopphon Pattanasri/Getty Images) |
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Over the past seven months, the pandemic has transformed the way people work, learn and take care of themselves. It hasn't taken long for startups and venture capitalists to adjust to this strange new reality.
Remote working has gone from a rarity to standard operating procedure for millions of Americans. Priyamvada Mathur writes that, for some startups, this shift means it makes less sense than ever to be headquartered in a traditional tech hub.
In the world of education, many startups that cater to remote learning have seen interest soar in recent months, both from users and investors. Mathur also wrote about a Chinese tutoring business called Yuanfudao, which this week became the most valuable private edtech company in the world.
The same sort of shift has been underway in healthcare, with many turning to remote care instead of in-person visits. James Thorne took a look at how the change pushed venture investment in healthtech startups to new heights in Q3. |
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| Checkmate. (Jose A. Bernat Bacete/Getty Images) |
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Blackstone has bet big in recent years on life sciences real estate. The strategy paid off in a major way earlier this month, when the firm recapitalized BioMed Realty after five years of ownership, inking a $6.5 billion profit in the process. PitchBook analysts Zane Carmean and Wylie Fernyhough explain how the deal sits at the confluence of several ongoing trends in the private markets.
While Blackstone has embraced life sciences, several other private equity firms have recently made major moves into tech investing, joining industry pioneers such as Thoma Bravo and Vista Equity Partners. In his latest note, analyst Stephen-George Davis offers an exploration of the new faces on PE's tech scene. |
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An arctic wolf alerts his pack about a cybersecurity breach.
(John Knight/Getty Images) |
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There isn't much tundra in the Bay Area. That probably is not why a cybersecurity startup called Arctic Wolf revealed plans this week to migrate its headquarters from Sunnyvale, Calif., to the much more appropriate-seeming locale of Eden Prairie, Minn. But I am choosing to believe it was at least a consideration.
More important was the funding news that came alongside Arctic Wolf's plans for a move: The company hauled in $200 million in new venture backing at a $1.3 billion valuation. |
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Recommended reads
Foxconn pledged to build "the eighth wonder of the world" in the small Wisconsin town of Mount Pleasant. Instead, the project turned out to be a $10 billion illusion. [The Verge]
Soldiers have probably lied about their military service for as long as there have been wars. Only recently has a new cottage industry emerged to catch them in the act. [The New Yorker]
IRR is as maligned as it is popular. Is the metric as unreliable as critics claim? [Institutional Investor]
In a bid to keep up with the Joneses, commodities giant Archer-Daniels Midland is searching for growth in the future of nutrition. [Bloomberg]
GoFundMe has become a depressingly popular tool for raising money to pay for healthcare. But what happens when a viral crowdfunding campaign isn't what it seems? [OneZero]
In so many ways, the internet has conquered the world over the past two decades. One side effect: Trolling is now a way of life. [The New York Review of Books]
During the pandemic, a luxury grocery chain called Erewhon has emerged as an unexpected hot spot for Hollywood's rich and famous—and for the paparazzi who follow them around. [Vanity Fair]
Can the encrypted security promised by companies like Apple actually stop law enforcement from accessing your smartphone? Probably not. [The New York Times] |
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Quote of the week
"Private equity isn't my favorite asset class. It helps us achieve our 7% solution. I know we have to be there. I wish we were 100% funded. Then, maybe we wouldn't."
—Theresa Taylor, chair of the Calpers board's investment committee, speaking at a meeting about the pension investor's need to improve its annual return |
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The Weekend Pitch is produced by editor Kevin Dowd.
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