Good morning, Wire readers. This is Larry Aragon, editor of Venture Capital Journal, filling in for Dan Primack. Dan’s in Chicago today. For anyone in the Windy City who feels like having a beer with him, Dan will be at the Elephant & Castle on West Adams Street starting at 6 p.m.
Who you calling crazy?
The blogosphere was up in arms yesterday over the Facebook deal. How could Microsoft have come up with a $15 billion valuation for a company that reportedly has annual revenue of $150 million? Kara Swisher of the Wall Street Journal pronounced the deal “insane.”
Whoa. I’ll tell you what’s nuts: making up your mind before you have all the facts. In this case, the facts are somewhere off in the future. Does anyone remember a certain Redmond-based company that passed on an investment in pre-IPO Google because it was overvalued? A CNN/Money story from October 2003 speculated that Google could be worth anywhere from $15 billion to $25 billion after its public offering. Google’s market cap yesterday: $209 billion. Microsoft’s: $301 billion.
So, does it sound crazy for Microsoft to pay $240 million for 1.6% of Facebook? Hell, yes. Is it crazy? We probably won’t know for a couple of years.
What’s interesting is this isn’t the first time media pundits and bloggers have declared Facebook to be overvalued. “When we invested $12.7 million at $78 million pre-money, the valuation was roundly criticized,” Jim Breyer of Accel Partners told me yesterday. That round was done in April 2005. A year later, Accel, Greylock Partners, Meritech Capital Partners and Peter Thiel (now The Founders Fund) were crazy enough to put in $25 million at $525 million pre-money.
Fast forward to today and Accel’s 11% stake is worth $1.65 billion, The Founders Fund’s 5% is worth $750 million, Greylock’s 1.7% is worth $255 million, as is Meritech’s, and Breyer’s personal stake of 1% is worth $150 million.
On paper.
Will those numbers hold up? Ask me again in 2009. That’s when Breyer says Facebook hopes to be in a position to go public.
Until then, let’s hold off on calling the guys in the white coats for Ballmer.
Am I full of it? Let me know at lawrence.aragon@thomson.com.
Oh, and feel free to add me as a friend on Facebook. Dan’s on there, too.
Top Three
There were two sketchy reports yesterday that Facebook has either raised additional capital or has plans to. The Wall Street Journal said Facebook is in discussions with hedge funds and private equity investors about raising more money beyond the $240 million that Microsoft has invested. The paper said a funding announcement “could come soon,” but that its sources also said “that discussions are preliminary, however, and could fall apart or take several weeks or months to complete.” Separately, Forbes.com reported that two unnamed New York hedge funds had each invested $250 million in Facebook. A knowledgeable source told PE Hub the Forbes.com report was “untrue.” The report may have surfaced because Facebook had! been “talking to a number of PE and financial investors, such as hedge funds, prior to the detailed discussions with the strategics,” the source said. “The company may very well raise additional money, but there is no urgency. It feels very well capitalized.”
Ko Wen-chang, chairman of WK Technology Fund, Taiwan’s largest venture capital fund, has been arrested for alleged insider trading related to last year’s acquisition of Taiwan-based Green Point by U.S.-based Jabil Circuit. Authorities have also detained Ho Cheng-ching and Li Jung-hsun, WK’s president and vice president, respectively. The China Post reports that “Ko’s arrest has sent shock waves t! hrough the domestic venture-capital field, due to his prestigious status in the circle, which wins him the title ‘godfather’ of the Taiwanese venture capital industry.”
General Catalyst Partners has raised $715 million from 77 investors for two funds, according to regulatory filings. The funds, General Catalyst Group V and General Catalyst Group V Supplemental, amount to a 78% increase over the firm’s previous fund, a $400 million vehicle raised in 2005, according to Thomson Financial (TF), which publishes PE Week Wire. Cambridge, Mass.-based General Catalyst is the second largest fund-raiser in the region this year, behind Battery Ventures, which raised $750 million for its eighth fund.
VC Deals
Satellier, which provides services to the architecture, engineering and construction (AEC) industry, said today that it has raised $10 million from Sequoia Capital. The Chicago-based company plans to open three new U.S. offices in the next six months, and a U.K. office and new delivery centers in India and around the world in the next 24 months. Sumir Chadha, managing director of Sequoia Capital India, said in a press release: “As many professional services from law to a! rchitecture are moving offshore, we look for leading companies in their fields to have the greatest chance of long-term success. [CEO Michael Jansen’s] vision for the future of Satellier, to create the first ever transnational BIM firm, is poised to change the face of the AEC industry.”
Arteriocyte Medical Systems Inc. of Cleveland has launched with $10 million from stem cell company Arteriocyte Inc. and DW Healthcare Partners. The new company will develop and market novel medical products to improve patient outcomes in cardiac, orthopedic and vascular surgeries. Don Brown, who has served as CEO of Arteriocyte since June 2004, will run the new company. DW Healthcare’s Dr. Jay Benear, Rod Boone and Doug Schillinger will join the new company’s board.
Moodlerooms Inc., a Baltimore-based company that provides solutions to make online education affordable, is seeking to raise a little over $1 million, according to a regulatory filing.
Mainstream Data Inc., a Salt Lake City-based maker of networking products, has raised $888,000 from 15 investors, according to a regulatory filing. It is seeking to raise about $1 million. Investors were not disclosed.
Segway, which has been seeking to raise $28.7 million, disclosed in a new regulatory filing that its fund-raising remains at $25.7 million. That was where it stood back in July. It isn’t clear if the fund-raising is officially closed for the Bedford, N.H.-based company, which makes two-wheeled transportation devices.
Buyout Deals
Providence Equity Partners has completed a $300 million convertible preferred stock investment in ZeniMax Media Inc., a Rockville, Md.-based creator and publisher of interactive entertainment content for gaming consoles, PCs, handheld devices and online gaming. Providence will receive a minority, non-control ownership stake. Banc of America Securities advised ZeniMax on the deal, while Providence was advised by Goldman Sachs. Michael Dominguez, a Providence managing director, will join the ZeniMax board of directors. More on peHub: http://pehub.com/article/articledetail.php?articlepostid=8498
J.C. Flowers & Co. confirmed today that it is in talks with Northern Rock PLC about a possible takeover bid, naming a proposed high-profile management team for the troubled mortgage lender, according to the Associated Press. Virgin Group is also said to be interested in Northern Rock. More here: http://pehub.com/article/articledetail.php?articlepostid=8499
Advent International has purchased Grupo Gayosso, Mexico’s largest funeral services company, for $317 million, according to LBO Wire. It reported that Advent invested $122 million from two of its Latin American private equity funds, and raised another $215 million from a group of investors led by the Bank of Nova Scotia.
PE-Backed IPOs
Ulta Salon, Cosmetics & Fragrance Inc. (Nasdaq: ULTA) went public with a bang yesterday, its stock price soaring above $29 after it priced 8.5 million shares at $18. It had a planned range of $14 to $16. The company, based in Romeoville, Ill., operates a chain of beauty supply stores. The company’s largest shareholders are Global Retail Partners with 12.9 million shares (or 22.7%), Doublemousse B.V. w! ith 11 million shares (19.5%), Oak Investment Partners with 6.3 million shares (11.2%) and Credit Suisse with 5.2 million shares (or 9.1%), according to a regulatory filing.
Underwriters for Reliant Technologies Inc. have set its planned IPO at between $14 and $16 per share. The company, which makes aesthetic laser medicine and surgery products, plans to sell 4.7 million shares. Reliant raised about $59 million in venture capital between 2003 and this year from Delphi Ventures, Meritech Capital Partners, Pinnacle Ventures and Three Arch Partners, according to TF. Its last round, for $15 million, was done in March at a $142 million post-money valuation.
Firms & Funds
Aviator Investment Group of Long Beach, Calif., has raised $340,000 toward an “investment fund” with a target of $50 million, according to a regulatory filing. Keith William Furlong is listed as the executive officer. The filing did not list the number or names of limited partners.
Bay City Capital has raised $446 million toward a fifth venture fund with a target of $500 million, according to a regulatory filing. The San Francisco-based health care investor raised $350 million for its fourth fund in 2004, according to TF. The filing shows that there were 55 investors. It did not list the names of general or limited partners. VentureWire is reporting that the firm has raised $500 million, citing an interview with firm founder Fred Craves.
Updata Partners has raised $219 million for a fourth venture fund, exceeding the $200 million target it set back in March, according to regulatory filings. The venture firm, based in Reston, Va., held a first close on $153 million back in March. This is Updata’s largest fund to date. It raised $155 for Updata Partners III LP in 2004, according to TF. The general partners are John Burton, Richard Erickson, Barry Goldsmith, Tim Meyers and Conor Mullett. The filing shows that there were 23 investors, but it did not mention LP names.
Wasatch Venture Fund of Salt Lake City has held a first and final close on $150 million for its fourth venture fund, according to a regulatory filing. This is its largest fund to date. It raised $58 million for its third fund in 2001, according to TF. The general partners are Todd Stevens, Kent Madsen and Eleftherios “Nick” Efstratis. The filing did not list the number or names of limited partners.
Regulatory News
The National Venture Capital Association yesterday voiced its opposition to patent reform legislation being considered in the Senate. At a Washington, D.C. press conference yesterday, NVCA President Mark Heesen said the SB 1145 doesn’t go far enough to protect VC-backed companies from infringement. “When a venture capitalist considers investing in a small company that holds one or more patents, the value of those patents is a determining factor in their investment decision,” he said. “If a startup is going to be burdened with endless challenges to the validity of their patents or if the startup doesn’t have access to reasonable damages if a larger c! orporation infringes on that patent, it can hurt that company’s chances of being funded.” See the full NVCA press release here: http://www.magnetmail.net/images/clients/NVCA/attach/PatentReformReleaseNVCA.doc
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