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

• A look at the growing aversion to continuation funds

• Plus, a big week for legaltech fundraising

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Limited partners have had enough of continuation funds:

Bloomberg reported this week on new data that around two-thirds of continuation fund proposals now end up abandoned as investors rethink their participation in such deals.

Continuation funds—in which a firm sells a holding from an existing fund to a new one—emerged as a popular tool for managers to extend their hold period on specific assets, either to retain an attractive business or to avoid an unfavorable exit.

Limited partner concerns focus on possible conflicts of interest inherent in the structure of such transactions. The sponsor acts as both buyer and seller, negotiating on behalf of the existing fund while also representing the new continuation vehicle, which naturally raises questions about that sponsor’s ability to act in the best interests of both sets of investors simultaneously.

While management fees are often lower than traditional funds (around 1 percent), continuation funds also provide an opportunity for a longer tail of general partner fee generation as older funds wind down. These potentially favorable economics have led to speculation that self-interested sponsors may be pursuing continuation funds even when a traditional exit could provide more attractive returns.

Yet more criticism is directed at the use of continuation funds in down markets or for troubled assets, which some argue can allow GPs to avoid marking down underperforming assets, mask problems in their portfolios, and mislead both existing and new investors.

Continuation fund transactions have also trended toward more diverse structures. Over 50 percent of purchase agreements in 2023 included deferred payment mechanisms, allowing the acquiring fund to pay over a 6-12 month period. Performance-based earnouts are also becoming more common.

LPs say this added complexity can obscure the true economics of the deal and make it difficult to assess the fairness of the offer—especially when faced with a tight timeline to decide whether to cash out or roll into the new vehicle.

Continuation fund transactions do often require approval from the existing fund's limited partner advisory committee, a competitive sales process to determine fair value, and a fairness opinion from an independent advisor (newly mandated by the SEC last August).

Despite these safeguards, limited partners now appear to have lingering doubts.

Ares Management had to abandon plans for a continuation fund earlier this year after lukewarm investor reception. New Enterprise Associates (NEA) was also forced to reevaluate plans of its own following pushback.

Data from Evercore show continuation fund transaction volume fell 25 percent last year from a record $68 billion in 2021. Some of the drop may be related to broader market conditions, but there’s little doubt that investor appetite has soured on the structure: between 80 - 90 percent of existing fund investors elect to exit their position rather than roll over.

• Wiz, the four-year-old cybersecurity startup, has said it plans to pursue an eventual IPO and will not engage with Alphabet (Nasdaq: GOOGL) following the Google parent company’s $23 billion acquisition offer.

• KKR is in talks to acquire a 25 percent stake in Eni's biofuels unit at a $13 billion valuation.

• Carlyle Group is in talks to acquire Baxter International's (NYSE: BAX) kidney-care division, with Ares Management, HPS Investment Partners, and Oaktree Capital Management providing a $3 billion credit facility.

• Bosch Group agreed to acquire Johnson Controls' (NYSE: JCI) Residential and Light Commercial HVAC business, including the Johnson Controls-Hitachi Air Conditioning joint venture, for $8.1 billion in cash.

• L Catterton has approached toy maker Mattel with an acquisition offer, per Reuters.

• Informa agreed to acquire B2B media company Ascential for around £1.2 billion in cash.

• Archrock agreed to acquire Total Operations and Product Services, a provider of contract gas compression services in the Permian Basin, from Apollo for $983 million.

• Crestline, an opportunistic credit investor with $18 billion under management, is exploring options including a potential sale, per Bloomberg.

• IDEX agreed to acquire Mott, a manufacturer of filtration products, for around $1 billion in cash.

• Owens & Minor (NYSE: OMI) agreed to acquire Rotech Healthcare Holdings, a home medical equipment provider, for $1.36 billion in cash.

• TDL Gentek acquired Microcel, a Canadian distributor of technology and lifestyle products, from Atar Capital.

• Mubadala Capital agreed to acquire a majority stake in Bugaboo Group, a stroller and children's products brand, from Bain Capital, which will retain a minority stake.

• Partners Group agreed to acquire Eteck, a Dutch provider of sustainable heating and cooling solutions, from Infracapital.

• JMI Equity invested in Fullbay, a provider of cloud-based software for heavy-duty repair shop management, with existing backer Mainsail Partners also reinvesting.

• Avance Investment Management invested in Alchemy Technology Group, a reseller and service provider of SaaS solutions for cybersecurity and cloud infrastructure.

• The Exigent Group, a portfolio company of Huron Capital, acquired HVAC businesses Smith-Boughan Mechanical and Electrical Automation Systems.

• PestCo Holdings, a portfolio company of Thompson Street Capital Partners, acquired Secure Pest Services, a New Jersey-based provider of commercial and residential pest control services.

• Applied Systems, backed by Hellman & Friedman, acquired Planck, an AI-based data platform for commercial insurance, for around $300 million.

• Behavioral Framework, a portfolio company of Renovus Capital, acquired Behavior Consultation & Psychological Services, a provider of clinic, home, and school-based ABA therapy services in North Carolina.

• Medline Industries, owned by Blackstone, Carlyle, and Hellman & Friedman, is exploring an IPO that could value the company at up to $50 billion, with a potential listing as early as spring 2025.

• OneStream, a KKR-backed corporate performance management platform, raised $490 million in its IPO, pricing 24.5 million shares at $20 each, above the $17-$19 marketed range, for a market value of around $4.6 billion.

• Clio, a Canadian legaltech startup, raised $900 million in Series F funding at a $3 billion valuation led by NEA, with participation from Goldman Sachs, Sixth Street, CapitalG, and Tidemark.

• Cohere, a Toronto-based developer of large language models, raised $500 million in Series D funding led by PSP Investments, with participation from Cisco Systems, Fujitsu, AMD Ventures, Magnetar, Export Development Canada, Oracle, Salesforce Ventures, and Nvidia.

• Vanta, a compliance automation platform, raised $150 million in Series C funding led by Sequoia Capital, with participation from Growth Equity at Goldman Sachs Alternatives, J.P. Morgan, Atlassian Ventures, Craft Ventures, CrowdStrike Ventures, HubSpot Ventures, Workday Ventures, and Y Combinator.

• Harvey, an AI-powered legal assistant startup, raised $100 million in Series C funding led by GV, with participation from OpenAI, Kleiner Perkins, Sequoia Capital, and SV Angel.

• Dazz, a cloud security remediation platform, raised $50 million in Series B funding co-led by Greylock and Cyberstarts, with participation from Insight Partners and Index Ventures.

• QA Wolf, a Seattle-based test automation startup, raised $36 million in Series B funding led by Scale Venture Partners, with participation from Threshold Ventures, Ventureforgood, Inspired Capital, and Notation Capital.

• Lakera, a Swiss generative AI security startup, raised $20 million in Series A funding led by Atomico, with participation from Citi Ventures, Dropbox Ventures, and Redalpine.

• Momentum, a customer intelligence platform, raised $13 million in Series A funding led by FirstMark Capital, with participation from Stage 2 Capital, Basis Set Ventures, and Leadout Capital.

• Heeler Security, an application security startup, raised $8.5 million in Seed funding led by Norwest Venture Partners, with participation from Storm Ventures.

• rift, a sales operations automation platform, raised $5 million in seed funding led by Sequoia, with participation from Y Combinator and Soma Capital.

• Zest Security, a cloud risk resolution platform provider, raised $5 million in seed funding led by Hanaco Ventures, with participation from Silvertech Ventures.

Fintech

• Caldera, a rollup-as-a-service platform for layer-2 blockchains, raised $15 million in Series A funding led by Founders Fund, with participation from Dragonfly, Sequoia Capital, Arkstream Capital, and Lattice.

Consumer & Media

• Exoticca, a Barcelona-based vacation package provider, raised €60 million in Series D funding led by Quadrille Capital, with participation from All Iron, ICF, 14W, Mangrove, Bonsai, Sabadell, and Aldea.

• Posh, an event discovery and ticketing platform, raised $22 million in Series A funding led by Goodwater Capital, with participation from FirstMark Capital, Companyon Ventures, and Epic Ventures.

• Maurten, a Swedish sports nutrition company, raised €20 million ($21.7 million) in new funding led by IRIS Ventures, with participation from Stena Sphere.

• Igloo, Pudgy Penguins' parent company, raised over $11 million in new funding led by Founders Fund, with participation from Fenbushi Capital, 1kx, Everest Ventures Group, and Selini Capital.

Healthcare

• Headway, a patient-therapist connection platform, raised $100 million in Series D funding led by Spark Capital, with participation from Thrive Capital, Accel, Andreessen Horowitz, and Forerunner Ventures.

• Pearl, a dental diagnostics startup, raised $58 million in Series B funding led by Left Lane Capital, with participation from Smash Capital, Alpha Partners, Craft Ventures, and Neotribe Ventures.

• Clarapath, a medical robotics startup targeting pathology laboratory tissue processing, raised $36 million in Series B-1 funding led by Northwell Ventures, with participation from CU Healthcare Innovation Fund, Mayo Clinic, and Ochsner Ventures.

• OurRitual, a digital relationship counseling platform, raised $5.2 million in seed funding led by Venrex, with participation from FJ Labs, Active Partners, GroundUp Ventures, 97212 Ventures, Samsung, Learn VC, Gaingels, Tiferes Ventures, Ventures Together, Liebenthal Ventures, and Rose Street Capital.

• Endless Health, an Austin-based at-home testing company, raised $4.5 million in seed funding led by Next Coast Ventures, with participation from Asset Management Ventures and Antler Elevate.

Industrials, Greentech, & Other

• Monarch Tractor, a developer of electric driver-optional smart tractors, raised $133 million in Series C funding co-led by Astanor and HH-CTBC Partnership, L.P., with participation from At One Ventures, PMV, and The Welvaartsfonds.

• Mytra, a San Francisco-based 3D warehouse robotics company, raised $78 million in Series B funding led by Greenoaks, with participation from Eclipse and 515 Ventures.

• Splight, a developer of grid operations technologies, raised $12 million in Seed funding led by noa, with participation from EDP Ventures, Elewit, Draper Cygnus, Draper B1, Ascent Energy Ventures, Fen Ventures, Reaction Global, Barn Investments, and UC Berkeley Foundation.

• Sojo Industries, a food manufacturing robotics startup, raised $10 million in Series A funding from Schreiber Ventures and Tech Council Ventures.

• Iconiq Growth raised $5.75 billion for its seventh flagship early-stage fund.

• Blackstone raised $1.2 billion for its debut Japan-focused buyout fund.

• Liberty Mutual Strategic Ventures committed $200 million for its second corporate venture fund.

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