PE Week Wire: 8.24.06

Random Ramblings

True Ventures has closed its inaugural fund with $155 million, which should prompt rejoicing from those still hung over from last week’s TechCrunch party (and from those unable to get an invite).

The San Francisco-based firm was well oversubscribed from its $125 million target, and is among a burgeoning class of first-time fund managers focused on actual early-stage investing. For the uninitiated, actual early-stage investing stands in contrast to the risk-averse, outsized fund-driven trend of expansion-stage investing that has overtaken many brand-name VC firms. Other West Coast examples include Omidyar Network, Sherpalo Ventures, Khosla Ventures, Ridgelift Ventures and Tugboat Ventures. East coasters include Greycroft Partners, Union Square Ventures and Spark Capital.

I had assumed that True picked its name as a reflection of investment strategy, but that is only part of the rationale. Co-founder Jon Callaghan – who once worked in a bike shop – says that it also refers to the practice of perfectly aligning a tire. “It’s very difficult to do, but it results in an incredibly smooth ride,” he explains.

Callaghan has come a long way since the bike shop, having worked at Globespan Capital Partners, CMGI @Ventures and Summit Partners (in reverse chronological order). It was at Summit that he first met Phil Black, who later would move on to ABS Ventures. Black, in turn, met John Burke at ABS, and the pair would team up to form a small firm called Blacksmith Capital. The three now represent True’s general partnership, and are buttressed by VP of finance Braughm Ricke (5AM Ventures, Artiman Ventures) and venture partner Toni Schneider (Yahoo, Oddpost). Burke will remain in Washington DC, while the rest will work out of San Francisco.

True Ventures made four pre-fund investments that have since been rolled into the fund, including: Meebo (instant messaging), Automattic (blogging software), ScanR (capture digital info via camera phone) and Sphere (blog search engine). It also has four deals made since holding a first close: GigaOm (content), SendMe (mobile entertainment) and two undisclosed companies. True Ventures typically wants to be a company’s first backer (seed or Series A), with an initial commitment of between $500,000 and $3 million. You can read more on the firm in Monday’s print edition of PE Week, but the short story is that this is good news for early-stage entrepreneurs.

*** For every successful first-time fund, however, there is at least one floundering one. Today’s example is Maven Venture Partners, which was formed earlier this year by Jennifer Gill Roberts (formerly of Sevin Rosen Funds), Marc Friend (Summit Partners, USVP) and veteran telecom exec George Richard. The Menlo Park, Calif.-based firm had been in market with a $150 million-targeted fund, but was unable to get much traction.

Now, fund-raising is suspended, as Friend has left the fold. I know virtually nothing about his reasons for leaving, nor what it means for the fund’s future. Multiple messages to all parties have gone unanswered, but you’ll be the first to know once I hear something substantive.

*** Doug Kingsley has left Advent International, where he had been co-head of the North American deals team. This apparently happened back in late December, but I was unaware of it until a tipster wrote in yesterday. Speaking of tipsters, some of you have written to say the “Top Secret” button isn’t working. This may be because it’s a popup. Just hold down your Control button when you click it, and keep them tips coming…

*** Quiz Time: Can you name the commercial finance firm (focused on PE-backed lower-middle-market companies) that is about to sell new equity to a private equity firm? Hint: It’s in the middle of the race.

*** Allied Capital has sponsored a management-led recap of BenefitMall Inc., a Dallas–based insurance agent focused on the small-group employee benefits market. Allied committed $175.6 million to the deal, and today’s VentureWire suggests that this should provide a good return to BenefitMall’s VC backers.

But I think VW is making a mistake. It’s true that the VCs didn’t commit anything near $175.6 million to BenefitMall, but a $40 million Series D infusion in 2000 came with a post-money valuation of around $187 million. Firms involved in that deal included Austin Ventures, Morgan Stanley Venture Partners and Technology Crossover Ventures. A subsequent $17 million deal in 2002 was washed down to just a $90 million post-money valuation.

*** Finally, I just got a CNN email alert that Pluto is no longer a planet. It’s like hearing that 2+2 no longer equals 4. What other fallacies was I fed by my second-grade teachers? At least text-book publishers will be happy…

Top Three

TSG Consumer Partners has sold its 30% stake in enhanced bottled water company Glaceau (a.k.a. Energy Brands Inc.) to The Tata Group. The deal is valued at $677 million, including both the TSG stake and additional growth capital. Glaceau is a New York-based company whose brands include of Vitaminwater, Fruitwater and Smartwater.

ChemoCentryx Inc., a Mountain View, Calif.-based developer of orally-administered therapeutics that target chemokine and chemoattractant receptor systems, has raised $17.7 million in Series C funding. Backers include Jennison Associates, HBM BioVentures, Orbimed Advisors, Techne Corporation, Alta Partners and GIMV. ChemoCentryx also announced a strategic alliance with GlaxoSmithKline that includes an upfront payment of $63.5 million in cash and equity. The GSK deal also includes research funding and milestone payments that potentially could be worth up to $1.5 billion.

Vestar Capital Partners of New York is opening a Tokyo-based affiliate to focus on middle market private equity opportunities in Japan. The effort will be led by Daisuke Saji, former managing director of Daiwa SMBC and global head of its M&A department. He will be joined by fellow Daiwa vets Taro Sumitani and Shinji Sunouchi, while longtime Vestar managing director John Woodard will help integrate Vestar Japan with the larger firm.

VC Deals

Kemia Inc., a San Diego-based drug company focused on high-value disease targets not yet addressed by non-injectable drugs, has raised $31 million in Series C funding. Aberdare Ventures led the deal, and was joined by MedImmune Ventures, Red Abbey Venture Partners and return backers Alta Partners, Forward Ventures, Hamilton Bioventures, JPMorgan Partners, Novartis Bioventures, Novo AS and Texas Pacific Group in the financing. The company has now raised around $85 million in total VC funding since its 2002 inception.

Octagon Research Solutions Inc., a Wayne, Pa.-based provider of R&D process management solutions for the pharma industry, has raised $10 million in third round funding. Participants include Edison Venture Fund, Phoenix Life Insurance, Ticonderoga Capital and Zurich Financial.

Kane Reid Securities Group (a.k.a. TradeKing), a Boca Raton, Fla.-based provider of online brokerage services, has raised $6 million in Series B funding, according to a regulatory filing. Battery Ventures led the deal, while existing shareholders include Milestone Merchant Partners and OCA Venture Partners.

IPLocks Inc., a San Jose, Calif.–based provider of database security and compliance solutions, has raised $4.4 million in additional Series D funding. The company announced an $11 million first close back in June.

Alianza Inc., a Lindon, Utah-based provider of virtual PBX systems to Latin American businesses, has raised nearly $4 million in Series B funding from firms University Venture Fund, vSpring Capital and Rim Rock Capital. The deal was announced earlier this week without a dollar amount.

WireCache Inc., a Mountain View, Calif.-based provider of database management software, has secured $3 million of a $6.98 million Series A-1 round. Existing shareholders include El Dorado Ventures and DCM-Doll Capital Management. The company previously raised $25 million, including a $15 million Series A deal in 2001 at a post-money valuation of $30 million.

Arcxis Biotechnologies Inc., a Pleasanton, Calif.-based developer of lab systems for disease pathogen detection and clinical diagnostics, has raised nearly $2.25 million in Series A funding from Claremont Creek Ventures.

Buyout Deals

Allied Capital has sponsored a management-led recap of BenefitMall Inc., a Dallas–based insurance agent focused on the small-group employee benefits market. Allied committed $175.6 million, in the form of senior unitranche debt, non-voting common equity and additional committed capital. BenefitMall had raised $76 million in VC funding since its 1999 spinout from Humana Inc., from firms like Austin Ventures, Biomedical Investments, Humana Venture Capital, MetLife, Morgan Stanley Venture Partners and Technology Crossover Ventures.

H.I.G. Capital has acquired majority interests in two scrapbooking companies: Die Cuts With a View of Provo, Utah and Pressed Petals of Richfield, Utah. No financial terms were disclosed.

BC Partners has withdrawn from the auction for Bertelsmann’s BMG music publishing business, according to Financial News Online. Apollo is currently viewed as the frontrunner, with an expected sales price of more than €1.5 billion. Other bidders include KKR with EMI, GS Capital Partners, Warner Music, Universal Music and GTCR Golder-Rauner.

Code Hennessy & Simmons has acquired St. Louis-based packaging company Kranson Industries Inc. from AEA Investors, according to LBOWire. This will be Code Hennessy’s second time with Kranson, after having sold it to AEA for $350 million in 2004 (Code Hennessy’s original purchase price was $200 million). No financial terms of the latest deal were disclosed.

PE Exits

BEA Systems Inc. (Nasdaq: BEAS) has acquired Flashline Inc., a Cleveland-based provider of metadata repositories for software development. No financial terms were disclosed. Flashline had raised over $11 million in VC funding from Adams Capital Management.

Oracle Corp. (Nasdaq: ORCL) has acquired the IP assets of Sigma Dynamics Inc., a San Mateo, Calif.-based provider of real-time predictive analytics technology. No financial terms were disclosed, although VentureWire puts the sale price at between $10 million and $12 million. Sigma Dynamics had raised over $7 million in VC funding from firms like Globespan Capital Partners and Onset Ventures.

KKR and Texas Pacific Group have sold their remaining stake in NRG Energy Inc. (NYSE: NRG) via a secondary offering. Morgan Stanley acquired the firms’ combined 8.4 million shares, and will resell them. The shares were acquired as part of their sale of Texas Genco to NRG in February, with an initial secondary sale in August (which also included Blackstone Group and Hellman & Friedman).

PE-Backed M&A

Comm-Works Holdings LLC, a Minneapolis-based provider of enterprise voice, data and technology solutions, has acquired Intelex Inc., a Carmel, Ind.-based installer of voice, data and technology systems – with particular expertise in large, multi-location roll-outs for sizeable retail organizations. No financial terms were disclosed for the deal, except that the combined company anticipates $75 million in 2006 revenue. M&I Marshall & Ilsley Bank led the transaction financing, with NorthStar Mezzanine Partners also participating. Comm-Works is a portfolio company of Morgenthaler Partners.

Reservoir Exploration Technology (NOTC: RXT/RXTB), Norway-based marine seismic contractor, has agreed to purchase their third VectorSeis Ocean system from Input/Output Inc. (NYSE: IO) for approximately $29 million. RXT shareholders include 3i Group and Lime Rock Partners.

PIPE Deals

BioRem Inc. (TSX: BRM), a Guelph, Ontario-based maker of biofilters for air pollution control, has raised $3.4 million in PIPE funding from Expansion Capital Partners.

Gas Turbine Efficiency PLC (LSE: GTW), a UK-based supplier of high-pressure cleaning systems for gas turbines, has raised €1 million from Cleantech Europe, a fund managed by Zouk Ventures.

Firm & Fund News

Nord Holdings of Germany says that it is planning to raise €250 million for its second private equity fund-of-funds.

Canterbury Park Capital of Winnipeg has raised approximately Cnd$150 million for its inaugural private equity fund, with a final close slated for later this year. The firm will focus on buyout and expansion equity opportunities in small- to mid-market Canadian companies.

Partech International of San Francisco has secured around $150 million in capital commitments for its $300 million-targeted fifth venture capital fund, according to VentureWire. Limited partners include the Bell Atlantic Master Trust.

Human Resources

Steven DeSutter has agreed to rejoin TurnWorks Inc. as executive vice president. He originally joined the firm in 2001, but left to become an executive with Burger King. The move follows the recent return to TurnWorks of Greg Brenneman, who had left to become Burger King’s CEO.

Louis Paz-Galindo reportedly has joined hedge fund Ospraie Management to help make private equity-type deals in the energy sector. He previously focused on the energy sector for J.P. Morgan Chase’s U.S. domestic growth equity and leveraged buyout group.