Hedge fund makes handcrafted, vintage purchase

Happy Friday. Here’s what we’ve got today…

• A look at Elliott Management’s new board seat at Etsy

• The deal sheet, plus Julius Baer’s ill-fated foray into real estate lending

Activist investor Elliott Management is now Etsy’s largest shareholder after amassing a 13 percent stake in the online boutique marketplace. Etsy also announced that Elliott would take a seat on its board starting next week, sending shares up almost 14 percent on the news.

Etsy has fallen more than 55 percent over the last twelve-month period as it navigates an uncertain e-commerce environment. Inflation and pressures on consumer discretionary spending have taken their toll, along with the more pressing risk from the encroachment of low-cost offshore retailers Temu and Shein.

Etsy management says this is a market-wide phenomenon and isn’t disproportionately impacting the business, though they acknowledge that, at least for Temu, rapid growth to $14 billion in sales had to come from somewhere; meaning there is some element of lost market share for Etsy and its peers.

Part of the problem is the deluge of ad spend that Temu and Shein have allocated to digital marketing platforms like Google and Meta. It’s driven a meaningful increase in equivalent marketing costs for Etsy, and pushed them to explore potentially less efficient channels like television.

While management questions whether Temu and Shein’s spend is being done at positive or even break-even ROI, there’s little option but to sit tight and hope it tapers off in the near future.

Mass Market Vintage

In a conference presentation last month, Etsy CEO Joshua Silverman described the online retail platform as a marketplace for things that are handmade, vintage, or bought directly from the person who made them. A standout experience in “a world that's becoming ever more commoditized.”

But, with scale that’s now hit 6 million sellers hawking more than 120 million items, an artisan experience has proven difficult to maintain. That’s forced the company into the paradoxical position of working to grow its commerce activity while aggressively shutting down sellers it feels have violated its product listing criteria.

Part of the policing has involved a nearly $50 million investment in enforcement activities this year, spread across new machine learning solutions and human-led manual actions. Takedowns were up 140 percent year-over-year through 2023, though it’s unclear if that’s a result of enhanced monitoring or a deluge of suspect listings.

It’s an important battle because an improvement in the shopping experience could drive even more impactful second-order changes. Jefferies-led expert calls point to buyer unease with high-ticket purchases on Etsy, which has contributed to a hard-to-break ceiling on the platform’s average order value. The company has already launched a purchase protection (refund) program, though could see a greater willingness to spend big from consumers who don’t have to sort through low-quality product listings.

Next up on management’s quality control roadmap is further integration of AI, with a long-term goal of providing users a personalized guided shopping assistant. Though others may disagree, Silverman says Etsy “may have more to gain from Gen AI than almost anyone.”

Differentiated Bright Spots

Even with recent turbulence, there remains a lot to love about Etsy.

The platform’s dynamics mean the business is uniquely capital light compared to other e-commerce players. Etsy’s independent sellers handle all production, inventory, and logistics, leaving the business with limited working capital and physical infrastructure requirements (e.g. warehouses, shipping facilities). Last year, Etsy converted around 90 percent of its $800 million of EBITDA to free cash flow.

Despite its curation challenges, Etsy has also proven it possesses real staying power. Many other pandemic success stories have struggled to retain customers after sudden jumps in growth. Etsy, on the other hand, has been able to make some of its lockdown shoppers stick around—it’s now 2.5 times larger than before the pandemic.

Elliott Inserts Itself

Following initial conversations with company leadership, Elliott partner Marc Steinberg is now preparing to take his seat on the board. The quick resolution may have averted a drawn-out public activist campaign, though more upheaval at the business could be coming.

Elliott has not yet publicly disclosed its proposed changes. With a mature U.S. market and seller pushback on previous take rate increases (fees charged to sellers), revenue growth has been largely limited to international brand awareness campaigns.

That leaves organizational changes as the next obvious lever for value creation. Etsy already executed an 11 percent headcount reduction in 2023, so an attempted quick win from headcount-related margin improvement may be off the table.

One obvious target is a dismantling of the company’s inorganic growth strategy. Etsy has seen mixed results from its acquisitions of resale platform Depop, Brazil-based marketplace Elo7, and instrument retailer Reverb. The company has already sold off Elo7, just two years after its $217 million purchase of the asset, and could be preparing to hang a for-sale sign on its remaining standalone brands.

• Viacom18, a joint venture between Reliance Industries and Bodhi Tree, has agreed to acquire a majority stake in Walt Disney Co.'s (NYSE: DIS) India unit for $3.9 billion.

• Canal Plus, a French broadcaster owned by Vivendi, has submitted a bid to acquire a majority stake in South Africa's MultiChoice, a pay television provider, at a $1.7 billion valuation.

• Cardinal Health (NYSE: CAH) acquired Specialty Networks, group purchasing organization, for $1.2 billion.

• Ryder System (NYSE: R) has acquired Cardinal Logistics, a provider of trucking and logistics services, from H.I.G. Capital.

• STT GDC, a data center operator backed by Temasek, is in talks with Apollo, Blackstone, Stonepeak, and KKR-Singtel over a deal to raise up to $1 billion in new funding.

• Vestar Capital Partners is preparing to sell Roland Foods, a distributor of specialty and gourmet food products, in a deal that could be worth $700 million, per Reuters.

• Instructure (NYSE: INST) acquired Parchment, a provider of digital credentialing solutions, for $835 million.

• Charlesbank Capital Partners has made a $250 million investment in Rise Growth Partners, a financial backer and managed services provider for independent wealth management firms.

• Thompson Street Capital Partners and Cequel III acquired a controlling stake in DDC Cabinet Technology, a provider of advanced data center cabinet solutions.

• Alibaba (NYSE: BABA) is considering a sale of its stake in InTime, a Chinese department store chain, per Bloomberg.

• PFS, backed by AnaCap Financial Partners, acquired consulting firm AIS Group.

• Ahead, backed by Berkshire Partners, acquired CDI, an IT and management consulting firm, from One Equity Partners.

• Private equity suitors are in talks with Barclays over a deal for a majority stake in its UK merchant payments unit, per Reuters.

• Bansk Group acquired No Man's Land Foods, a consumer meat snacks manufacturer.

• Instinct Science, backed by Mainsail Partners, has acquired VetMedux, a provider of veterinary technology solutions.

• Motis Brands, a portfolio company of Prospect Hill Growth Partners, has acquired Titan Ramps, a provider of ramps and accessories for powersports and mobility equipment.

• Netwrix, a portfolio company of TA Associates, Updata Partners, and Centerbridge Partners, acquired CoSoSys, a provider of data loss prevention (DLP) solutions, from Turn/River Capital.

• Silver Hill Energy Partners has agreed to acquire Bakken shale assets in North Dakota from Liberty Resources II.

• Superdry (LSE: SDRY), a British streetwear label, is seeking a cash offer for a 69 percent stake in the business.

• Blackhawk Network, owned by Silver Lake and P2 Capital Partners, has agreed to acquire Tango Card, a provider of digital rewards and recognition solutions, from FTV Capital, Floodgate, and Innovation Endeavors.

• BlackRock and Memorial Hermann have invested in Lone Peak Dental Group, a dental service provider.

• EverSmith Brands, a portfolio company of The Riverside Co., acquired U.S. Lawns, a provider of commercial landscaping and lawn care services.

• McWin Capital Partners acquired a majority stake in Sticks'n'Sushi, a Danish restaurant chain, for $80 million, per the FT.

• BAE Systems acquired Malloy Aeronautics, a UK-based developer of unmanned aerial systems.

• Scanmed, backed by Abris Capital Partners, has acquired Med-Lux, a provider of medical aesthetics treatments.

• BlackRock invested in Ditrolic Energy, a Malaysia-based renewable energy developer.

• Blackford Capital has acquired Data Science Automation, a provider of data science and analytics solutions.

• Astera Labs, a provider of semiconductor-based connectivity solutions backed by Sutter Hill Ventures and Intel, is working with Morgan Stanley and JP Morgan on a potential March IPO that could reach a $4 billion valuation, per The Information.

• Alps Global, a provider of personalized medicine using genomics and cell therapy, agreed to go public via SPAC Globalink Investment (Nasdaq: GLLI) at a $1.6 billion valuation.

• UST, a provider of enterprise digital transformation solutions backed by Carlyle and Temasek, is considering an IPO that could raise more than $500 million, per Bloomberg.

• XCHG, a provider of EV charging solutions, filed for a $50 million IPO.

Tech, Vertical SaaS, & Misc. Enterprise

• Watershed, a developer of climate software, raised $100 million at a $1.8 billion valuation. Greenoaks led, with participation from existing backers Kleiner Perkins, and Sequoia Capital.

• Oasis Security, a developer of global identity and access management (IAM) platforms, raised $40 million from Sequoia Capital, Cyberstarts, Accel, Maple Capital, Guy Podjarny, and Michael Fey.

• LightBeam.ai, an AI-driven zero-trust data security startup, raised $17.8 million in new funding led by Vertex Ventures, with participation from Dropbox Ventures, 8VC, and Village Global.

• CitySwift, a contract data management firm for the transportation sector, raised €7 million in new funding led by Gresham House Ventures, with participation from Irelandia Investments, Western Development Commission, and ACT Venture Capital.

• Fora, a provider of an executory relationship management platform, raised $3.8 million in pre-seed funding. Converge led, with participation from GTM, Zelkova, Acadian, and 14Peaks.

• Twin Labs, a developer of an autonomous workforce assistant, raised $3 million in pre-seed funding from Betaworks, Motier Ventures, and Factorial.

Fintech

• DataSnipper, a provider of AI-enhanced data reconciliation solutions for accountants, raised $100 million at a $1 billion valuation from Index Ventures.

• Metronome, a provider of usage-based billing software, raised $43 million in Series B funding led by NEA, with participation from existing investors Andreessen Horowitz and General Catalyst.

• Splash, a developer of community-based sports gaming platforms, raised $14.1 million from Boston Seed, Velvet Sea, K5, Elysian Park, Acies, and Accomplice.

• Podcastle, a podcasting platform with a suite of AI-driven audio and video editing tools, raised $13.5 million in Series A funding. Mosaic Ventures led, with participation from RTP Global, Point Nine Capital, Sierra Ventures, and AI Fund.

• Cube Exchange, a hybrid digital assets exchange, raised $12 million in Series A funding led by 6th Man Ventures, with participation from Asymmetric, ParaFi Digital, Foundation Capital, Susquehanna Private Equity Investments, and WW Ventures.

• Coris, developer of an AI platform designed to manage risk for small and medium businesses, raised $3.7 million in seed funding. Lux Capital and Exponent Capital co-led, with participation from Y Combinator, and Blank Ventures.

• Finvest, a mobile app for investing in U.S. Treasury bills, raised $2.7 million from Bayhouse Capital, Unpopular Ventures, Y Combinator, and Olive Tree Capital.

• Indemn, a conversational AI insurtech, raised $1.9 million in pre-seed funding from Markd, Afterwork Ventures, and Everywhere Ventures.

Consumer & Media

• Planet A Foods, a Munich-based producer of alternative chocolates, raised $15.4 million in Series A funding led by World Fund, with participation from Omnes Capital, Cherry Ventures, and Mudcake.

Healthcare & Life Sciences

• Basking Biosciences, a developer of therapeutics for ischemic stroke, raised $55 million in funding led by ARCH Venture Partners, with participation from Insight Partners, Platanus, Solas BioVentures, and RTW Investments, and existing investors Longview Ventures, Rev1 Ventures, and The Ohio State University.

• Cohere Health, a provider of an intelligent prior authorization platform, raised $50 million in new funding led by Deerfield Management, with participation from Flare Capital Partners, Define Ventures, Longitude Capital, and Polaris Partners.

• Halia Therapeutics, a biotech focused on small molecule drugs for inflammation and neurodegenerative disorders, raised $30 million in Series C funding led by Todd Pedersen.

• ArteraAI, a developer of cancer therapy personalization tests, raised $20 million in new funding from Prosperity7 Ventures, EDBI, Walden Catalyst Ventures, Wilson Sonsini Goodrich & Rosati, and Trium Ventures.

• Harbor, a provider of a telehealth platform focused on baby care, raised $3.7 million in seed funding led by Trust Ventures, with participation from Morrison Seger and Capital Factory.

• AlensiaXR, a developer of anatomy visualization software, raised $3 million in Series A funding from Sopris Capital, JumpStart Ventures, University Hospitals Ventures, and JobsOhio Growth Capital.

Industrials, Greentech, & Other

• Heart Aerospace, a developer of regional electric aircraft, raised $107 million in Series B funding led by Sagitta Ventures, with participation from existing investors Air Canada, Breakthrough Energy Ventures, European Innovation Council, United Airlines, and Norrsken VC.

• Greenerwave, a developer of electromagnetic control technologies, raised €15 million in new funding from Defense Innovation Fund, Safran Corporate Ventures, Intelsat, BNP Paribas Développement, and Plastic Omnium.

• Semron, a semiconductor designer, raised €7.3 million in seed funding. Join Capital led, with participation from SquareOne, OTB Ventures, and Onsight Ventures.

• Xampla, developing plant-based alternatives to plastic, raised £5.5 million ($7 million) in new funding from Amadeus Capital Partners, Horizon Ventures, Cambridge Angels, Cambridge Enterprise, Martlet Capital, and CIECH Ventures.

• Izote Biosciences, a developer of bacterial fermentation technologies, raised $2.6 million in new funding from Embark Ventures, EGB Capital, Bee Partners, FTW Ventures, Nucleus Capital, Courtyard Ventures, Climate Capital Bio, and Redstick Ventures.

• Aquaconnect, an AI-enabled aquaculture platform, raised $4 million in new funding from S2G Ventures.

• KKR raised $6.4 billion for its second Asia-Pacific infrastructure fund.

• Arch Venture Partners is targeting $3 billion for its 13th fund.

• Generate Capital raised $1.5 billion for a new green infrastructure fund.

• Templewater is raising up to $500 million for its second buyout fund and $300 million for a new decarbonization fund.

• Speedinvest raised €350 million for its fourth venture fund.

• Uncorrelated Ventures raised $315 million for its latest fund.

• Basis Set raised $185 million for its latest fund.

• Practica Capital raised €80 million for its second venture fund.

• Bramalea Partners is targeting $50 million for its second fund.

1. Inside Julius Baer’s failed real estate bet.

• An internal probe on the bank’s $700 million loss leads to ouster of CEO Philipp Rickenbacher. — Bloomberg

2. Tokyo Stock Exchange writes strategic roadmap for its listed companies.

• Exchange releases a 66-page case study on company value creation, interviewing more than 90 international and domestic investors to figure out what strategies work. — Tokyo Stock Exchange

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