Connected Links Up With $30M Series F

If anyone knows how tough it is to raise venture capital these days, it’s Connected Corp. CEO Bob Brennan. He spent the past seven months in the fund-raising trenches and met with more than 60 would-be investors before closing out his company’s sixth round of private financing last week.

“We continually ran into a sideline mentality by late-stage financiers,” he explained. “Fortunately, we had the confidence of our existing investors, who decided to step in and set a price and see who followed.”

The approach worked. When all was said and done, Connected ended up with $30 million in fresh venture capital. Additionally, seven new buyers signed onto the oversubscribed Series F deal, including Peregrine Systems, StarVest Partners, New York Life Capital Partners, Ironside Ventures and Deutsche Banc Alex. Brown, which also acted as the placing agent. The other two investors have not yet been disclosed, Brennan said.

Baker Capital, which headed up Connected’s $23.5 million Series E round in November 1999, co-led the company’s latest transaction with return investor Fidelity Ventures and repeat players Granite Ventures, Applied Technology and Solstice Capital also came back on board.

Although Connected exceeded its original $25 million target for this round, its valuation remained relatively flat, Brennan said. He declined to disclose any exact figures, but he did peg the company’s post-money worth between $50 million and $100 million.

“This was the first commitment we’d made to a new company since October,” said Deborah Farrington, co-chair and founder of StarVest Partners. “We took a wait and see attitude, and prices and valuations have plummeted since then. Compared to previous rounds and where [Connected] is today with revenue traction, we felt the valuation was attractive for us as an investor.”

Although Baker and Fidelity put in the most capital, StarVest was the largest new investor, she added.

End-To-End PC Management

Relieved to no longer be in the fund-raising market, Brennan said this will be Connected’s last private equity financing.

“As the public capital markets open up, we’ll certainly take advantage of those,” he said. “We’ve [now] raised more than enough capital to become a self-sustaining business regardless of how the markets perform,” he added.

Indeed, Connected already has more than 300 paying customers on board, including Cisco Systems Inc., Compaq Computer Corp., Lucent Technologies Inc. and Hewlett-Packard Co. In a nutshell, the Natick, Mass.-based issuer provides a software solution to information technology managers that enables them to manage the entire life cycle of a PC, from the time it arrives on a user’s desk to the time it is retired.

“IT staffs face increasing problems with the customization of individual PCs, hardware and software upgrades and the frequent loss of information due to viruses,” StarVest’s Farrington explained. “More data is being stored on personal computers that’s not backed up by network-oriented servers, and that’s increasingly expensive for IT staffs to support.”

Moreover, data is often corrupted by viruses or other computer-related ailments, especially since 60% of companies’ information resides on unprotected PCs, according to International Data Corp. Connected reduces the high costs of IT management by offering software on a subscription or product-license basis, aiding in the preservation of information even when data must be moved from one PC to another.

To that end, Connected claims to differ from potential rivals in that it stays with a client throughout the entire life of a PC, whereas many others in the space are focused on one-time solutions that pinpoint very specific problems, Brennan said.

Now 150 employees strong, the six-year-old company expects to use a portion of the proceeds from its latest VC round to hire additional staff by year-end, as well as bolster public awareness of its product through nationwide sales and marketing campaigns and seminars.

Connected has raised $66 million of venture capital to date.

Grass Valley Group Grows $34M Deal

When publicly-traded semiconductor outfit Tektronix Inc. agreed to sell off its unprofitable video and networking products business to serial corporate resuscitator Terrence Gooding in 1999, Gooding and his investment partners promised to personally fund the new company’s working capital and acquisition needs until it reached a level of fiscal maturity appropriate for outside funding. After pumping approximately $100 million into R&D efforts to refine Grass Valley Group into a digital media powerhouse, Gooding launched a road show late last year to gauge private equity investor interest in the company.

While he generally received positive responses – including an enthusiastic Paul Zepf of Centre Partners – Gooding decided to postpone the offering due to what he considered to be a tepid funding market. When he reopened the deal earlier this year, he decided to eschew the VC meat market and reconnect with Zepf, who by this point was with Lazard’s private equity practice, which had also seen Grass Valley on the first go-around.

“We didn’t want to go through the [investor] loop again and liked what Lazard could offer us… especially the fact that they are a global company with significant European and Asian operations,” said Gooding, who serves as executive chairman of Grass Valley.

The final transaction came in at $34 million, with Lazard setting the terms and providing a majority of the committed capital. Gooding and other individual investors also participated.

“Grass Valley was a combination of a very solid business that’s been around over 40 years and the fact that selling digital equipment especially with the advent of things like digital cinema and digital streaming media has a great three-to-five-year outlook,” said Zepf, a managing director with Lazard.

Zepf added that Grass Valley’s troubles under the Tektronix umbrella were not a concern, saying that the group had essentially become a corporate orphan given Tektronix’s decision to rededicate itself to its core test and measurement business. As part of the restructuring, Tektronix also sold its color imaging and printing group to Xerox Corp.

Proceeds from the Lazard funding will be used for growth capital, especially in the area of acquisitions. Although no deals are currently in the works, Gooding said that Nevada City, Calif.-based Grass Valley is keeping an eye out for potential opportunities. Last March, the company bought VC-backed Vibrint Technologies Inc., a developer of innovative solutions for digital news.