One scoop to start: A former Millennium portfolio manager is preparing to launch what would be the biggest new hedge fund in more than a year after securing $3bn of capital from Izzy Englander’s firm and taking up to 30 investment staff with him. Details here.
In today’s newsletter:
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Silicon Valley unicorn Carta mired in scandal
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Sony considers undoing Zee Entertainment deal
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Blackstone sets up fund buyouts for millionaires
Carta gets hit by a start-up liquidity crisis
Private tech companies that were once high flyers have been stuck in purgatory — or worse — since rising interest rates caused a freeze in public listings and start-up fundraising.
Now, one prominent tech unicorn has found itself mired in scandal for trying to create the liquidity Silicon Valley desperately craves.
Carta, a start-up focused on providing the relatively mundane services of “capitalisation table management”, or how start-ups manage their equity ownership, has found itself in trouble for its efforts to create a marketplace for private company stakes.
Marc Andreessen, co-founder of A16z, heralded Carta’s so-called secondaries business as a third way for companies “beyond the false binary of simply private or public” around the time in 2021 he participated in a $500mn funding round led by Silver Lake that valued the start-up at $7.4bn.
On Monday, Carta shut down its trading platform amid allegations that it had tried to trade customers’ shares without their consent. “We fucked up and I’m sorry we fucked up. I hope you will forgive us,” said Carta boss Henry Ward.
In a matter of days, Carta has been engulfed in a crisis that is gripping Silicon Valley with intrigue. It is also a fitting example of the excesses in private technology valuations that caused a reckoning for many prominent start-ups and their backers.
Carta launched the trading platform in 2021 as part of a strategy to expand beyond rote equity management services and justify the heady valuation it won from dozens of prominent tech backers.
Secondaries trading represented a potentially vast market worth tens of billions in revenue. That is now off limits to Carta and its backers after allegations surfaced over the weekend that the company had used confidential data from its cap table management business to track investors in start-ups and solicit them to sell their stakes.
Ward has blamed the fiasco on an isolated incident of a single rogue employee “breaking the glass” between business units which are meant to be separate.
Other start-up investors say they were also approached by Carta employees soliciting a sale; one shared emails with the Financial Times showing the company approached them in 2022 to arrange a trade.
Carta’s backers say cold outreach is normal, a sign that scrappy salespeople are digging through public data to track down investors. But not everyone is persuaded by that explanation.
One nugget detail to slip out during the scandal underscores some of the pie-in-the-sky thinking now being digested in Silicon Valley. For all of backer Andreessen’s enthusiasm about secondary trading, Carta made little headway. The business generated just $3mn in revenues annually.
Now Carta must rely on its $250mn-a-year cap table revenue to justify a more than $7bn valuation.
Sony gets cold feet on an Indian mega-deal
Was it a negotiating tactic, or the final gasps of an attempted megamerger?
That is what investors have been asking, after they learned that Sony was prepared to call off an agreement to merge its Indian arm and Zee Entertainment, the subcontinent’s largest listed media group. The deal would have created a $10bn media empire, the FT reports.
Sony has become concerned about declining financial performance and suggestions from Zee that its chief executive, who has come in for some regulatory scrutiny in India, could run the combined group.
Frustrations with Zee reached a tipping point last month when the Indian company admitted it could not close the deal by a December 21 deadline. Zee failed to meet a number of requirements — including asset disposals — to move forward and said it wanted to continue discussions for another 30 days as allowed under the terms of the 2021 merger agreement.
But the Japanese group has not agreed to a deadline extension. “Sony’s at the end of its rope,” a person with knowledge of the matter told the FT.
However, despite the increasingly grim prognosis from Sony’s Indian team directly negotiating the deal, people familiar with the matter say senior management in Tokyo is still keen to push it through.
What is left unsaid by the same people in Tokyo is whether they are keen to push it through under the original conditions, which included Sony taking a 53 per cent stake in the combined entity and investing nearly $1.6bn.
Blackstone pitches billion-dollar buyouts to mere millionaires
Jonathan Gray and Marc Rowan, two financiers who are increasingly household names at their alma mater, the University of Pennsylvania, oversee learning institutions of their own making.
About a decade ago, when Gray helped to plot Blackstone’s push to mine wealthy individual investors as a vein of asset growth, the world’s largest private equity group created Blackstone University. The digital campus was designed to demystify Blackstone’s private market investments to the thousands of new investors buying its funds.
Among traditional private equity groups, Blackstone has blazed the industry’s push into the so-called retail market, where mere millionaires can invest in funds once restricted to large institutional investors like pensions.
Blackstone’s $67bn property fund Breit became the envy of Wall Street from 2017 to 2022 and a sister credit fund, Bcred, has been a strong second act, amassing about $50bn. But the last 12 months have been challenging for Blackstone as Breit limited the money investors could withdraw from the fund, putting the $1tn-in-assets group on the defensive.
But Gray and Blackstone co-founder Stephen Schwarzman have been adamant about the opportunity to attract retail money. Their rivals have built their own funds — and curricula of higher investor education.
Apollo and KKR have attracted billions from retail funds in recent quarters and created Apollo Academy and KKR Academy, respectively.
The next frontier is bringing private equity buyouts to the masses. Blackstone this week disclosed its retail buyout fund, called BXPE, raised $1.3bn since November. These funds are complex and come with PE-like fees and liquidity restrictions.
Lex offers an alternative for those seeking a liquid way to play alternative investments: Blackstone’s shares have generated a 13 per cent annual total return since its 2007 IPO.
Job moves
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Venture capitalist Keith Rabois has quit Founders Fund to join Khosla Ventures as a managing director, The Information reported.
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Consulting group Bain & Company has picked the head of its European private equity advisory business to be its next global chief executive. Christophe De Vusser will succeed Manny Maceda in July. Details here.
Smart reads
Love does cost a thing How much would you pay to find love? This is the kind of information companies such as Tinder are trying to find out as the competition in the dating market heats up, the FT reports.
Avoid getting ‘Altmaned’ If the OpenAI chief executive can be unceremoniously fired (and rehired) so can anyone. So goes the thinking in Silicon Valley where start-up founders are trying to find ways to protect themselves from getting “Altmaned”, The Wall Street Journal reports.
News round-up
HPE to buy Juniper Networks in $14bn deal (FT)
Asda’s private equity owners grilled over debt and worker conditions (FT)
Can private equity and public investors reconcile? (FT Alphaville)
US developer scraps plans for London Sphere (FT)
Article on Ackman’s wife triggers tensions between Business Insider and owner (WSJ)
BlackRock cuts 600 staff as asset managers defend profit margins (FT)
GSK agrees to buy respiratory medicine specialist Aiolos Bio for $1.4bn (FT)
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