SoftBank thinks an IPO could value Arm at $60B, around $20B more than its sale would have fetched.

Plus: There are some interesting things going on in the venture debt market.

Inside.com Part of   Network March 25, 2022

SoftBank is reportedly seeking a valuation of at least $60B for Arm as it attempts to recoup its losses following a scuppered sale to Nvidia. The investing giant will appoint Goldman Sachs, JPMorgan Chase, and Mizuho Financial Group to carry out a pre-IPO loan deal to test investor appetite. More: For context, Arm was only supposed to be valued at $40B in the failed sale to Nvidia. SoftBank bought Arm for $32B back in 2016. A $60B valuation would help SoftBank pay off some of the $9B in debt it took on in 2018 for its Vision Fund. However, the valuation seems a bit of a stretch: Arm only has about $2.6B in annual sales, much less than what competitors such as Intel pull in. Based on an average revenue multiple for chip companies, Arm would be worth less than $30B. Yet those figures belie the true importance of Arm’s technology, which is used in billions of chips every year. The firm charges low fees for its designs, hurting its revenue flow. SoftBank appears to be betting on a strong appetite for chip companies even though the market for them has cooled since the spike in demand caused by the pandemic-induced switch to home office has abated.

PitchBook data shows that venture lenders signed deals worth $33B last year, up from $4.4B in 2010. There were 182 transactions larger than $100M, representing 5.7% of total disclosed deals. That constituted growth from 96 such mega-deals in 2020 and accounted for 3.4% of the total. More: While the size of deals has grown, venture debt was also offered at lower interest rates and less stringent conditions than in the past five to 10 years. Examples of this include investors extending the 18- to 24-month interest-only period to four or five years, requesting fewer shares through warrants, and dropping minimum cash-on-hand requirements. There are signs that the trend could be reversing as the venture market at large begins to slow. Given that most lenders assume repayment via a company’s next equity round, difficulties raising capital could result in more stringent debt covenants. On the other hand: Crunchbase reports that the acute slowdown in funding could result in more companies seeking debt options. Interviewed partners at venture debt firms are expecting a big year, though some acknowledge that debt may dry up if the equity crunch is prolonged or exacerbated by geopolitical situations.

VCs are increasingly dropping their board seat requirements to land investments in promising crypto companies. The Financial Times reports that of the 400 crypto companies that raised a Series A in the past three years, half had only one or two directors on their boards. More: By that stage, non-crypto companies tend to have at least three directors. The practice has resulted in controversy. On the one hand, the concept of decentralized governance means that VC oversight is anathema to many blockchain companies’ missions. Moreover, not taking a board seat protects investors from potential legal liabilities associated with risky projects. On the other hand, Rebecca Lynn, a general partner at Canvas Ventures, notes that VCs have an obligation to their LPs, which is difficult to fulfill without a board seat. Whatever the reasoning, many crypto companies simply do not want the oversight that comes with distributing board seats. FTX, which raised $1.8B over three financing rounds, gave out only one board seat. That was not even to an investor, but rather to an attorney based in its corporate home in the Caribbean. The company has stated that the fact of its profitability means that it can secure money at top valuations without having to compromise on its values and independence.

According to Cooley Go, the percentage of “up” VC rounds hit a record high of 99% in Q4’21. That is substantially higher than the ~80% throughout 2020, providing yet another piece of evidence for the bullish mood in startupland last year. More: Down rounds have declined as a percentage from 15% to an effective 0% in Q4’21. Flat rounds made up only 1% of all deals in the last quarter of 2021, down from a high of 8% in Q3’20. Controlling for types of industries, tech companies (as opposed to life sciences and other sectors) saw a slightly higher (17%) percentage of down rounds at their peak in Q3’20. Similarly, these companies hit a 98% up round percentage even at the end of 2020. That was followed by a decline back to 93% in Q1’21. Despite an overwhelmingly founder-friendly environment, pay-to-play deals did increase in Q4’21 to 4%.

Today’s Funding 💸 Biotech/Health Osso VR (San Francisco, Calif.), VR surgical training and assessment platform: $66M C led by Oak HC/FT, participation from Signalfire, GSR Ventures, Tiger Global Management, Kaiser Permanente Ventures. Podimetrics (Somerville, Mass.), clinical care services that can help save the limbs and lives of complex patients with diabetes: $45M C led by D1 Capital Partners, participation from Medtech Convergence Fund, et al. Blockchain Prometheum (New York, N.Y.), end-to-end ecosystem for the trading, custody, and settlement of digital asset securities: $15M from undisclosed sources. Block Tackle (San Francisco, Calif.), stealth blockchain gaming studio: $5M Seed led by Cadenza Ventures, Play Ventures, participation from Animoca Brands, Coinbase Ventures, y Solana Ventures, Brevan Howard, et al. ClimateTech Perch Energy (Boston, Mass.), various cleantech for homeowners, renters, businesses, and solar farm owners: $7.2M A led by Arborview Capital. Bower (Stockholm, Sweden), app that directly rewards users with money or coupons when they recycle everyday waste items: $5M Seed led by blq Invest, participation from Almi Invest GreenTech, Verdane Foundation, Orkla Ventures, et al. DevOps Unleash (Oslo, Norway), feature management solution for code: $14M A led by Spark Capital, participation from Frontline Ventures, firstminute capital, Alliance Venture, Arkwright X. Enterprise Jugnu (Pakistan), B2B e-commerce: $22M A led by Sary. Reach (Tel Aviv, Israel), digital commerce and collaboration platform built for real-time customer transactions: $7M A led by Grayhawk Capital, Pritzker Group Venture Capital, participation from NFX. LexCheck (New York, N.Y.), AI-powered contract negotiation platform: $5M led by Ulu Ventures, participation from Kli Capital, Howard Morgan, et al. Pack (San Diego, Calif.), low-code front-end platform for headless commerce: $3M Seed led by Alpaca, participation from Anthemis Group, Anorak, Space Station, Anti-Fund, SuperAngel.Fund, et al. Colabs (Lahore, India), coworking spaces: $3M Seed from Indus Valley Capital, Zayn Capital, Fatima Gobi Ventures, et al. Fintech Simetrik (Bogota, Colombia), payments infrastructure: $20M A led by FinTech Collective, participation from Tiger Global, Moore Strategic Ventures, Cometa, et al. Proptech Flock Homes (Denver, Colo.), platform for landlords to own shares of a portfolio made up of multiple properties: $26M A led by a16z, participation from 1Sharpe Ventures, Human Capital, Susa Ventures, Primary Venture Partners, BoxGroup. MaxSold (Toronto, Canada), online platform for auctioning estate sales and downsizing: $16.1M B  led by Framework Venture Partners, participation from Canadian Business Growth Fund. Robotics Bear Robotics (Redwood City, Calif.), hospitality robotics and artificial intelligence solutions: $81M B led by IMM, participation from Cleveland Avenue, et al. Did you enjoy reading about all of today's funding in one place? The funding roundup is only available to free users on Mondays and Fridays. Upgrade to Inside VC Premium for either $10/month, or $100 billed annually, to receive the full list in every issue! For a limited time, we are offering a 14-day free trial. Click here to sign up! Sign up now to test Inside VC Premium

Quick Hits Struggling to hire? Download Checkr and Everee’s State of the Worker Report to learn what drives employees to leave their job and what candidates are looking for in a new role.* SmartRent, a provider of smart building automation, announced the acquisition of SightPlan, a multifamily workflow management platform provider, for $135M cash. Netflix bought small independent gaming studio Boss Fight Entertainment for an undisclosed sum. It is the streaming giant’s third studio purchase. Instacart has slashed its valuation by 40% to about $24B. Its most recent funding round, including backers like a16z, Sequoia Capital, and D1 Capital, valued the company at $39B after raising $265M. TikTok has relaunched its Creators Fund after a glitch prevented new users from registering, preventing its top creators from getting paid. Founder Shield has re-engineered the insurance experience with seamless digital applications and best-in-class customer service. Make the switch.* *This is a sponsored post.

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Inside VC's writer/curator Stephen currently lives in Berlin and is pursuing a Master's degree in philosophy. He otherwise spends his time trying his hand at recipes from India and Southeast Asia, escaping it all at the kickboxing gym, and offending aural sensibilities with his band. Editor Aaron Crutchfield is based in the high desert of California. Over the last two decades, he has spent time writing and editing at various local newspapers and defense contractors in California. When he's not working, he can often be found looking at the latest memes with his kids or working on his 1962 Ford.

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