Venture capitalists take a bath at Burning Man

By News Room On Sep 5, 2023

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One thing to start: European private equity firm CVC is set to buy a majority stake in infrastructure investor DIF Capital Partners in a deal worth about €1bn in cash and shares, said four people with direct knowledge of the matter.

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Burning Man muddies escapism from burning balance sheets

The venture capital and technology scene has been in desperate need of some escapism as start-up markets sink, causing massive writedowns, cut-to-the-bone lay-offs and existential worries about the future of Silicon Valley itself.

For many Bay Area executives and their underlings, Burning Man has become a way to escape from mundane term sheets into a world of “radical” self-reliance and expression through costumes, music, and a number of vices. This year, anyone looking for a lift may wind up feeling just as before they arrived — stuck in the mud.

DD’s Antoine Gara and the FT’s Amanda Chu report on the “nightmare” of muck and broken toilets that unfolded at the Burning Man festivities in a Nevada desert this Labor Day weekend.

Burning Man, which began in San Francisco more than three decades ago as a countercultural gathering with a few dozen people witnessing the burning of a human effigy, has become a cult-like event drawing tech executives and social media influencers to a “playa” in the Nevada desert.

But heavy rains on Friday caused this year’s event to devolve from one that has in the past drawn financiers such as Bridgewater’s Ray Dalio and former Google chief executive Eric Schmidt into a mud-strewn mess that trapped tens of thousands of revellers in a “hellhole”.

Some famous attendees such as comedian Chris Rock and former US solicitor general and current Hogan Lovells partner Neal Katyal hiked for miles to flee and find road transport. A pop-up private airport for well-heeled travellers was closed. Those driving expensive recreational vehicles were preparing to be trapped for days in the “playa” and warned that supplies of alcohol were running low.

Though Burning Man draws attendees of mainstream conferences such as SXSW and Davos, it has held on to its effigy-burning “principles” that reflect threads of counterculture and libertarianism permeating Silicon Valley. While its famous parties and “man burn” were respectively cancelled and delayed, Burning Man did live up to its billing.

This year’s event was set to “celebrate the animal world and our place in it”, and challenge the belief that “somehow, despite all evidence to the contrary, mankind is somehow not part of the animal kingdom”.

The smoke gathering over a ‘dark kitchen’ empire

When Microsoft backed Travis Kalanick’s “ghost kitchen” start-up several years ago, it was the only major Silicon Valley investor disclosed to have followed the controversial Uber co-founder from his days at the ride-hailing group.

Whether that loyalty has yet to pay off is unclear. His CloudKitchens group has sacked workers and closed locations this year in an attempt to cut costs, people with knowledge of the matter told DD’s Eric Platt and Ortenca Aliaj.

The company has been contending with the same challenges as many tech start-ups — rising interest rates that have dealt a blow to the growth-at-all costs strategy.

CloudKitchens, which leases food preparation space to restaurants to sell meals through delivery apps such as DoorDash, UberEats and Grubhub, has made significant changes to its strategy.

They include dramatically slowing new building purchases, which are almost always conducted through shell companies, a DD analysis of property records by CoStar showed, as well as focusing on smaller warehouses, one of the people added.

But CloudKitchens is also facing issues specific to its business model. The company has struggled to line up as many interested restaurant chains as it had hoped despite its global expansion, sources said. Domino’s passed on working with CloudKitchens after an initial test run in Las Vegas, while burger franchise Wendy’s has shifted away from the industry altogether.

Another person with knowledge of the company’s business gave a more optimistic assessment, saying the occupancy figures shared with the FT didn’t include leases that were signed but had yet to start collecting rent from new customers. That figure, known as the sold rate, was about 73 per cent at the end of the first quarter.

Kalanick’s bet on turning distressed real estate into kitchen space got off to a good start.

Saudi Arabia’s sovereign wealth fund invested in the business in 2019. Microsoft’s backing, part of an $850mn round of funding in 2021, lifted the company to a $15bn valuation as it wooed sought-after tenants including Starbucks and fast-food chain Chick-fil-A.

Kalanick, who made a bruising exit from Uber in 2017 when some of its biggest investors signed a letter demanding his removal as chief executive, has taken a more cautious approach with CloudKitchens.

But its secretive culture could become a hindrance as it tries to expand the business under tougher economic conditions.

Job moves

Terry Gou, the billionaire founder of Apple supplier Foxconn, has left the company’s board following his decision to run to be Taiwan’s next president.
Rosalind Brewer has resigned as chief executive of Walgreens Boots, the second top-level departure from the pharmacy chain in the space of five weeks.
Kotak Mahindra Bank’s billionaire founder and chief Uday Kotak has resigned four months before his term was due to end.

Smart reads

The LSE’s PE pitch The London Stock Exchange thinks it has found the key to getting out of its rut, the FT’s Helen Thomas writes: private equity.

Preventing ‘puffery’ A recent lawsuit has dealt a blow to companies that use sweeping language when dismissing accusations, DD’s Sujeet Indap writes.

Kirkland’s ‘civil war’ A squabble between two of the most powerful partners at Kirkland & Ellis has triggered departures from the firm, Financial News reports.

News round-up

Goldman Sachs faces £1mn lawsuit over ‘dysfunctional’ workplace claims (FT)

Law firm set to miss first deadline on NatWest’s Farage review (FT)

Nestlé sells peanut allergy business after insufficient demand (FT)

Chinese developer Country Garden boosted after debt repayment deal (FT)

Law firms become latest battleground in US diversity fight (FT)

Ergomed/Permira: buyout firm sees drug trial group as contract thriller (Lex)

Software LBOs: recurring revenue loans will be a recurrent problem (Lex)

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