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Hi Term Sheet readers. Fortune finance editor Lee Clifford here filling for in Jessica Mathews today.
OpenSea, which was founded in 2017 and serves as something akin to eBay, allowing users to create, buy, and sell NFTs, or non-fungible tokens, is known for being at the red hot intersection of the art and tech worlds. But the company’s recent struggles also illustrate the perils of being a little too hot. In a recent deep dive for Fortune, Anne Sraders dug into reports of problems with the company, which says it saw a 600-fold increase in transaction volume last year. She reports that in January, OpenSea logged roughly $5 billion in volume on the platform—around double that in December, and a massive increase from its volume of about $8 million in January 2021, according to Dune Analytics.
A user going by the pseudonym Kodiak, who said he is a product designer at Microsoft and the cofounder of NFT project Two Bit Bears based in Brooklyn, said he originally listed a Bored Ape NFT months ago for 57 Ethereum (ETH), or, at early February levels, around $154,000. But as of early February, its market value had risen to what would have been worth well over $320,000. Though he later transferred the Ape to his hardware wallet and then back again, and OpenSea no longer showed it for sale, a buyer was able to snap it up for below its market value. As of Feb. 2, OpenSea and Kodiak were negotiating a reimbursement, but Kodiak said the experience felt like a nightmare. Other users echoed claims that what they believed to be dormant listings were mistakenly sold, in addition to reports of NFT fraud and issues “from numerous outages, plagiarism, and bugs to an insider trading scandal” in recent months. As of Feb. 2, OpenSea had reimbursed users over 1,000 ETH, or roughly $2.7 million at the time, according to the company. OpenSea also took several other actions to help fix the issues.
Sraders writes that: “Even in OpenSea’s earlier days, the company had an ‘extremely fast paced’ environment where ‘everyone was like, grinding, grinding, grinding,’ according to Taylor Dawson, a software engineer at blockchain monitoring platform Blocknative who worked at OpenSea as an engineer from February to June of 2020. Dawson told Fortune that during his time at the company, it was a ‘very small team’ of roughly seven employees, adding that the culture was ‘one of excellence,’ and he felt there was ‘camaraderie, and it was actually a really fun environment.’”
Now, “Less than two years later, the company has grown to more than 150 employees, according to OpenSea. The company is flush with cash, thanks to a $300 million Series C funding round in early January, co-led by Paradigm and Coatue, that pushed the platform’s valuation to a lofty $13.3 billion (up from a $1.5 billion valuation in a July round). But that increase in staff seemingly hasn’t been enough to keep pace.” She adds that in August of last year OpenSea’s former head of product Nate Chastain tweeted, “We need to ramp up hiring at OpenSea. We are 37 people handling 98% of all NFT volume.”
Of course growing pains are hardly unique to startups. Once a company enters the public markets, the scrutiny only intensifies. Writing for Fortune, Ben Carlson argues that the pandemic may actually have been a bad thing for companies like Peloton and Netflix. “So even though Peloton has more than four times the sales and three times the number of users, the market cap is right back to where it was at the end of 2019.” The stock price has crashed back to essentially where it was in December 2019 before any of the pandemic-related growth took place.
The culprit, of course, in all these cases, is expectations. Kodiak expected his OpenSea experience would be seamless. Peloton investors expected the company’s cycling cult would keep multiplying forever. Expectations can inflate quickly. And when they do, there’s usually a reckoning.
Jessica will be back in your inboxes on Monday. Have a great weekend!
Lee Clifford
Email: lee.clifford@fortune.com
Anne Sraders helped curate today’s Term Sheet.
VENTURE DEALS
– KoBold, a Berkely, Calif.-based company building AI and ML technology to discover the mineral resources used for electric vehicles, raised $192.5 million in Series B funding led by T. Rowe Price and was joined by investors including CPP Investments, BOND, Standard Investments, BHP Ventures, Mitsubishi Corporation, Sam Altman’s Apollo Projects, Cleo Capital, Breakthrough Energy Ventures, Andreessen Horowitz, and Equinor Ventures.
– Salt Security, a Palo Alto, Calif.-based API security company, raised $140 million in Series D funding led by CapitalG and was joined by investors including Sequoia Capital, Y Combinator, Tenaya Capital, S Capital VC, Advent International, Alkeon Capital, and DFJ Growth.
– 7shifts, a Saskatoon, Canada-based team management platform for restaurants, raised $80 million in Series C funding led by SoftBank Vision Fund and was joined by investors including Ten Coves Capital and Enlightened Hospitality Investments.
– EasyKnock, a New York-based residential sale-leaseback platform, raised $57.2 million in funding from investors including Blumberg Capital, Gaingels, Moderne Ventures, QED Investors, and Viola FinTech.
– Indapta Therapeutics, a San Francisco-based biotechnology company developing an natural killer (NK) cell therapy platform for the treatment of blood and solid tumor cancers, raised $50 million in Series A funding co-led by RA Capital Management, Vertex Ventures, and Leaps by Bayer.
– Enboarder, an Austin, Texas-based onboarding platform, raised $32 million in Series B funding led by NewSpring and was joined by investors including Greycroft and Next Coast Ventures, Golub Capital, Escalate Capital Partner, Alumni Ventures, and Gaingels.
– Ada Health, a Berlin-based virtual health platform, raised $30 million in funding from investors including Farallon Capital, Red River West, and Bertelsmann Investments.
– Vicarius, a New York-based network security platform, raised $24 million in Series A funding led by AllegisCyber Capital, JVP, and AlleyCorp.
– Mystery, a Seattle-based employee engagement platform, raised $18.5 million in funding from Greylock and was joined by investors including Moving Capital, Endeavor, and Gaingels.
– cofenster, a Hamburg, Germany-based mobile app for creating and uploading professional videos, raisee a total of €8 million ($9.1 million) in Series A funding led by signals Venture Capital and was joined by Capnamic.
– Amplication, a Tel Aviv, Israel-based no-code investment solution company, raised $6.6 million in seed funding. Norwest Venture Partners and Vertex Ventures Israel co-led the round.
– Balanced, a New York-based digital fitness platform for healthy aging, raised $6.5 million in seed funding. Founders Fund and Primary Venture Partners led the round and were joined by investors including Lux Capital and Stellation Capital.
– Elo, a West Yellowstone, Mont.-based nutrition precision company raised $5 million in seed funding from investors including Will Ventures and Re:food.
PRIVATE EQUITY
– HARMAN, owned by Samsung, acquired Apostera, a Germany-based automotive technology company focused on AR/MR solutions. Financial terms were not disclosed.
– KORE Software, a Serent portfolio company, agreed to acquire Hookit, an AI-powered sponsorship analytics platform, and SSB’s Sports and Entertainment business. Financial terms were not disclosed.
– Imaweb, backed by PSG, acquired FordonsData, CUSTEED, and Midrange Solutions and Services. Financial terms were not disclosed.
– Partners Group, acquired Forefront Dermatology, a Manitowoc, Wis.-based diversified dermatology group practice, from OMERS Private Equity. Financial terms were not disclosed.
– SEAM Group, an Align Capital Partners portfolio company, acquired Electrical Engineering & Service, a Holbrook, Mass.-based electrical power systems, commissioning, testing, evaluation, repairs and maintenance company. Financial terms were not disclosed.
– Zendesk (NYSE:ZEN), a San Francisco-based customer service software company, rejected a takeover offer for $127 to $132 per share from a consortium of private equity firms. The Wall Street Journal reported the firms include Hellman & Friedman, Advent International Corp., and Permira.
– Vodafone, the U.K.-based telecom company, rejected an offer for over 11 billion euros (roughly $13 billion) for its Italian business from Iliad and Apax Partners.
– Apollo Global Management is reportedly close to a deal to buy the point-of-sale terminal business of Worldline, a France-based payments company, for roughly $2.3 billion, the Wall Street Journal reported citing sources.
– Canada Pension Plan Investment Board and Motive Partners invested $1.4 billion in FNZ, a London-based wealth management platform.
EXITS
– Warburg Pincus acquired Pharma Intelligence, a specialist intelligence, data, and software provider for clinical trials, drug development, and regulatory compliance, from Informa. Financial terms were not disclosed.
– Firms including KKR, Hellman & Friedman, and Blackstone are reportedly interested in buying Transporeon, a Germany-based transport logistics software provider, from Hg, Reuters reported citing sources.
OTHER
– Republic Services agreed to acquire US Ecology, a complex waste management solutions provider for commercial and government entities, for approximately $2.2 billion.
– Descartes acquired NetCHB, a customs filing solutions provider, for $40 million.
– AppDirect acquired ITCloud.ca, a Canadian cloud technology provider. Financial terms were not dislcosed.
– MetLife (NYSE:MET), the New York-based insurer, is considering selling its U.S. variable annuity business, Reuters reported citing sources.
IPO
– The trū Shrimp Companies, a Balaton, Minn.-based early-stage seafood and biopolymer production company, postponed its IPO due to market conditions. Ralco Nutrition, Schwan’s Shared Services, and Eagle Energy back the firm.
Financial Services
