Illumina: Baillie Gifford and Edgewood's Position

Positioned correctly, a pawn (blog) can be a real factor and affect powerful pieces

May 09, 2023

I mentioned it in passing in Icahn’s Gambit, but Baillie Gifford and Edgewood Management’s vote in Illumina’s upcoming contested election is a bit complicated (in my opinion). And when I say “complicated”, I mean there are legitimate legal, regulatory, fiduciary, franchise, trading, etc. considerations they need to contemplate and review regarding Grail and Illumina.

This situation is quite meaningful since (by my rough calculation) Baillie Gifford is 9.5% of the vote and Edgewood is 4% of the vote in the upcoming election, and the knowledge both may possess due to people or funds from those institutions participating in Grail’s Series B - and granted certain information rights - that is potentially material non-public. This complicates both their voting and trading of Illumina securities in my opinion.

Disclaimer: This newsletter is not investment advice. Views or opinions represented in this newsletter are personal and belong solely to the owner and do not represent those of companies that the owner may or may not be associated with in a professional capacity, unless explicitly stated.

Playing to Checkmate: Next Set of Moves

As mentioned in Icahn’s Gambit, I believe Illumina is currently in a “losing” endgame regarding the questions and issues I raised in Malignant Governance, and believe the company is “playing to checkmate”. Resignations are, in my opinion, very much on the table, but I suspect we need to keep “playing the game” and provide another set of moves make our case and help shepherd things along to its eventual destination.

When positioned correctly, even a pawn (blog) can be a real factor and affect powerful pieces on the game board.

So while it’s foolhardy of me to assume I can make a direct impact on Illumina, I can certainly make an indirect impact. We’ve already seen this indirect impact through Carl Icahn highlighting my work in his proxy fight with the company.

Another way to make an indirect impact is to show other powerful pieces on the Board that the questions and issues I raised may have direct ramifications on them as well, and show there’s a lot of incentive to encourage a resolution.

Overall, I can’t compel change at Illumina, but showing Baillie Gifford and Edgewood Management they have a “carrot or stick” incentive to implore Illumina address the questions and issues raised and resolve the situation may help things along.

Neither institution has to believe me and stand pat, but I suspect that’s a risky position to take as this story progresses.

Material Non-Public Series B Information

Both Baillie Gifford and Edegwood Management have funds or people that participated in Grail’s Series B round, and are party to Grail’s Investors’ Rights Agreement (see Schedule A). They are potentially privy to information regarding Grail’s financials, cap table, investor agreements, etc. that are currently not disclosed and not known to public shareholders.

I believe the terms, rights, and obligations in these Grail investor agreements (i.e. Investor Rights, Voting, Right of First Refusal, Co-Sale) are materially relevant to Illumina, its shareholders, the current contested election, and the questions and issues raised in Malignant Governance that Illumina won’t directly address.

Simply put, I think Baillie Gifford and Edgewood Management may be in possession of material non-public information that have (in my opinion) governance, disclosure, fiduciary duty, regulatory, and accounting ramifications for Illumina and potentially those institutions as well.

Given their access to this information, it’s not outside the realm of possibility that they actually know (even if it’s partial knowledge) directional answers to the questions and issues I raised. If the SEC investigates these agreements, cap tables, etc., and determines Illumina inappropriately handled their disclosure requirements for Grail, financial restatements and other enforcement actions are on the table.

If they know terms in those agreements that heavily favor Illumina insiders or Illumina could exert more influence on Grail than previously thought or anything else Illumina shareholders would consider material, there’s going to be a lot of scrutiny on how Baillie Gifford voted and traded with that knowledge potentially in hand once that information comes out.

So when I say Baillie Gifford and Edgewood Management have a lot of “carrot or stick” incentive to implore Illumina address the questions and issues raised, and resolve the situation, I genuinely mean it.

Edgewood Capital Partners VIII, LLC

One of the more interesting and curious elements of this situation is it doesn’t appear Edgewood Management is directly invested in Grail’s Series B.

It appears the investment was made by Edgewood Management’s President Alan Breed through Edgewood Capital Partners VIII, LLC (other references that seem to link to Mr. Breed or Edgewood Management’s address here 1, 2). It’s peculiar, because Edgewood Capital seems to be a private real estate debt and equity firm, and other similar named vehicles like Edgewood Capital Partners V, LLC is a real estate investment fund.

If Edgewood Management’s President Alan Breed participated in Grail’s Series B round, why is he using a vehicle name (Edgewood Capital Partners VIII, LLC) that seems to be affiliated with a private real estate firm?

The optics of using this name to invest in Grail’s Series B round doesn’t look good for Mr. Breed, and brings into question whether or not proper conflicts of interest, disclosures, and other fiduciary duty considerations were contemplated when the investment was made. Further, how was this potential conflict handled when it came to Edgewood Management’s trading and voting on Illumina?

Arch Venture Partners: Grail Transactions Intermediary?

In Icahn’s Gambit, I hypothesize that Illumina’s statement of “fact” that Jay Flately and Francis deSouza “has ever held any equity interests in GRAIL” could arguably be reconciled in a way where both could potentially generate an undisclosed financial windfall on Grail by structuring their Grail transactions through other vehicles and intermediaries:

Basically, to achieve an undisclosed financial windfall, and have it reconcile with this “fact”, it would require structuring Grail transactions and interests through other entities in a way where folks like Francis deSouza and Jay Flatley never directly hold any equity interest in Grail.
This makes the situation even worse, because Illumina has given legitimate standing to widen the scope of the problem to include other entities outside of Illumina and the insiders that may have facilitated and/or housed the Grail transactions.

What’s really interesting about Grail’s Investors’ Rights Agreement is all the investors listed in the Schedule A are party to the agreement, but they’re not all signatories to the agreement. This would imply a larger entity is signing on their behalf to make these investors party to the Investor Rights Agreement.

For example, George Golumbeski is identified as a Series A investor, but he’s not shown as a signer of the agreement. So who signed on behalf of Mr. Golumbeski’s to ensure his Series A shares are party to the agreement?

Enter Arch Venture Partners.

We know from Grail’s S-1 that Arch Venture Partners transferred 100,000 Series A shares to Mr. Golumbeski which would imply they’re the signer of those shares in the Investor Rights Agreement.

In 2016, ARCH Venture Fund VIII, L.P. transferred 100,000 shares of our Series A redeemable convertible preferred stock to George Golumbeski, Ph.D. Dr. Golumbeski is a venture partner at ARCH Venture Partners and also served as our President and as one of our directors from August 2018 to August 2019.

Interestingly, because Grail disclosed Arch Venture Partners transferred 100,000 shares to Mr. Golumbeski, they hade to disclose ARCH Venture Fund VIII, L.P. purchased 45,100,000 shares of Grail Series A stock even though Mr. Golumbeski is considered a Series A investor (i.e. he gave Grail capital):

Represents 45,100,000 shares of our Series A redeemable convertible preferred stock purchased by ARCH Venture Fund VIII, L.P. and 18,710,240 shares of our Series B redeemable convertible preferred stock purchased by ARCH Venture Fund IX Overage, L.P. Includes 100,000 shares of Series A redeemable convertible preferred stock that were subsequently transferred from ARCH Venture Partners to a former executive.

How exactly did Mr. Golumbeski “invest” in Grail if Arch Venture Partners purchased the shares?

What other Grail securities, derivatives, etc. did Arch Venture Partners purchase/acquire on behalf of other parties?

A signature that is glaringly missing in the Investors’ Rights Agreement is Dr. William Rastetter, who is on the Board of Grail and purchased 2,000,000 Series A shares. Who is signing those shares to the agreement on his behalf?

In comparison, Jeff Huber purchased 7,500,000 Series A shares and he’s a signer.

With this in mind, while I can’t reconcile how Edgewood Capital Partners VIII, LLC purchased Series B shares in Grail and how they’re party to the Investors’ Rights Agreement without signing the agreement, there seems to be a disclosure-based precedent that Arch Venture Partners could have been used as a transaction intermediary.

Until shareholders understand how Alan Breed’s purchase of Series B shares were facilitated, and how he wasn’t required to directly sign the Investors’ Rights Agreement, this is potentially material nonpublic information given the concerns Illumina insiders may have used similar vehicles/means to facilitate Grail transactions.

I don’t think I’m surprising anyone when I say there’s actually more to unpack and explore regarding Arch Venture Partners, their potential role at Grail, and various conflicts.

Speaking of conflicts, another conflict that Baillie Gifford will need to reconcile is Arch Venture Partners is prolific in the life sciences/biotech venture scene, and there seems to be overlap of Illumina-linked insiders (including Jay Flately), Arch Venture Partners, and Baillie Gifford elsewhere.

If Arch Venture Partners is serving as a third party vehicle to facilitate Grail transactions for holders, we now have to start asking just how arm’s length negotiations were when engaging Illumina on the Grail deal and how beholden are they Illumina insiders when it came to decision-making, fundraising, and other capital allocation decisions.

So when I say Baillie Gifford and Edgewood Management have a lot of “carrot or stick” incentive to implore Illumina address the questions and issues, and resolve the situation, I genuinely mean it.

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