PE Week Wire: Friday, December 19, 2008

Greetings from the home office, where I’ve got a shovel, rock salt, boots and hot chocolate at the ready. Now if I could only find some room in my cluttered garage for the hand-me-down VW…

*** Yesterday I met with some venture capitalists who are looking to raise a new early-stage fund. Most interesting part of their pitch was an insistence on not syndicating Series A rounds. They obviously would partner was a great opportunity presented to them by another firm, but their goal is to be in control from the get-go, and after the Series B as well (albeit with some dilution). Were they to partner from the beginning, they argued, they would be unable to produce the types of outsized returns that cause LPs to invest in a high-risk asset class like venture capital.

I’m trying to get some data showing whether early-stage syndication has increased or decreased over the past few years, but haven’t quite been able to make out database bend that way.

In general, however, the message was that traditional venture capital – or at least what’s passed for it since the bubble burst – no longer works (particularly without a viable IPO market). Narrow syndication is not a radical idea, but is still a needed recognition. Ditto for firms that keep fund sizes small and eschew investments with large projected capital costs.

*** That said, I’ve begun speaking with some VCs about radical changes to the model, and have heard some interesting suggestions which I’ll share early in the New Year. If you’ve got some real thoughts about reinventing venture capital, let me know.

*** Paul Graham recently suggested that venture capitalists could actually be a victim of the recession, because they will be decoupled from entrepreneurs who learn to live without. He writes, in part:

“The reason startups no longer depend so much on VCs is one that everyone in the startup business knows by now: it has gotten much cheaper to start a startup. There are four main reasons: Moore’s law has made hardware cheap; open source has made software free; the web has made marketing and distribution free; and more powerful programming languages mean development teams can be smaller. These changes have pushed the cost of starting a startup down into the noise. In a lot of startups—probaby most startups funded by Y Combinator—the biggest expense is simply the founders’ living expenses. We’ve had startups that were profitable on revenues of $3000 a month.”

My initial reaction was that Graham is wearing Web 2.0 blinders, in that the above argument does not apply to large swathes of the startup community (particularly most life sciences and cleantech efforts). I’m also not sure I agree with a concurrent Graham argument that VCs will slow down their investment pace as drastically as they did in 2002 (largely because that drop was so large because VCs had been so gregariously reckless in the preceding years).

But then I’m a bit conflicted, based on my aforementioned suggestion that cap-intensive VC efforts struggle to produce suitable returns. Is it possible that the decoupling could occur in the very sectors that VCs currently need the most (low-cap, build to trade sell)? Really just thinking aloud here…


Publishing Note: PE Week Wire will not publish next week, as I’ll be in Costa Rica for my annual sojourn to visit the in-laws. Erin will publish it on Monday 12/29, and I’ll be back the following day.

In the interim, we will continue posting news and blog items on peHUB, so be sure to check there each day for your fix. If you have any press releases or other interesting tidbits, please send them on to her. If you have any advertising queries, send them to David Harkey. If you just want to suggest books for me to read next week (no TV or Internet where I’m staying), I’m here until sundown…

Be back in ten. Have a great holiday season…

Top Three

One Equity Partners has agreed to buy the TV Guide Network from Macrovision (Nasdaq: MVSN). The deal is valued at $255 million, plus the possibility of another $45 million in earn-out payments through 2012. It is expected to close by April 1, 2009. One Equity is partnering on the deal with Allen Shapiro, former president of Mosaic Media Group and ex-CEO of Dick Clark Productions. UBS Investment Bank ran the process for Macrovision.

Scribd, a San Francisco-based social publishing company, has raised $9 million in Series B funding. Charles River Ventures led the round, and was joined by return backers Redpoint Ventures and Kinsey Hills Group. In other Scribd news, the company has named George Consagra, former COO of Bebo, as its president. It had raised a small Series A round in May 2007 at a post-money valuation of approximately $17.5 million.

Partners Group of Switzerland has closed a new Asia-Pacific fund with $1.1 billion in capital commitments. The vehicle will make direct, secondary and fund-of-funds investments.

VC Deals

Edan Instruments Inc., a Shenzhen, Chinese maker of medical equipment, has raised $10 million from Softbank China Venture Capital, Matrix Partners China and WI Harper Group.

Infusionsoft, a Gilbert, Ariz.-based maker of marketing automation software for small businesses, has raised $7.9 million in Series B funding. vSpring led the round, and was joined by return backer Mohr Davidow Ventures.

Nolio Ltd., an Israel-based provider of data center applications service automation solutions, has raised $5 million in new VC funding. Cedar Fund led the round, and was joined by Blumberg Capital.

Curetis AG, a Holzgerlingen, Germany-based molecular diagnostics company focused on severe infectious diseases, has raised €1.4 million in first-round funding from Aeris Capital.

Buyout Deals

CVC Capital is planning on acquiring a minority stake in Royal Mail, according to The Wall Street Journal. The British government has said that it wants to sell at least 25% of the group, while retaining control of its actual post office branches.

Delaware Chancery Court yesterday ruled in favor of Carl Icahn’s challenge of a $1.1 billion debt deal proposed by Realogy Corp., a real estate broker bought last year by Apollo Management.

Pacific Investment Management (Pimco) has turned down a debt-exchange offer from GMAC LLC, which was designed to help the finance company qualify for U.S. government funds. Cerberus Capital Management holds a 51% stake in GMAC, with General Motors Corp. holding the remainder.

Windjammer Capital Investors confirmed that it will buy S.T. Specialty Foods Inc., a Brooklyn Park, Minn.-based maker of pasta and rice products, from Swander Pace Capital.

PE Exits

Brynwood Partners has sold its minority position in Royal Boon Edam Group Holding BV to majority owner Kareni BV. No financial terms were disclosed. Royal Boon is a Dutch maker of automatic revolving doors and security entrance products.

Conduit Capital Partners has sold the Mexico-based Libramiento natural gas compression facility and an associate gas pipeline to InterGen, for $89.2 million.

Intersil Corp. (Nasdaq: ISIL) has agreed to acquire Zilker Labs Inc., an Austin, Texas-based maker of power conversion ICs. No financial terms were disclosed. Zilker had raised around $33 million in VC funding since 2003, from firms like H.I.G. Ventures, North Bridge Venture Partners and Sevin Rosen Funds.

PE-Backed M&A

NPC International Inc., a Lenexa, Kan.-based franchisee and operator of Pizza Hut franchises, has agreed to buy a total of 97 restaurant units from Pizza Hut Inc. for $37.5 million. NPC was acquired in 2006 by Merrill Lynch Global Private Equity, and currently operates 1,098 Pizza Hut restaurants and delivery/carryout units in 27 states.

Sabre Holdings, a portfolio company of Silver Lake Partners and TPG Capital, has acquired EB2 International Ltd., a London-based provider of e-commerce enabling software, solutions, infrastructure and services to global airlines. No financial terms were disclosed.

SynthaSite, a San Francisco-based developer of a Web 2.0 publishing platform, has agreed to acquire Clickpass, an OpenID provider that offers authentication gateway solutions. Synthasite has raised $5 million in VC funding from Columbus Venture Capital, while Clickpass was backed by Ycombinator.

Firms & Funds

FTVentures has changed its name to FTV Capital.

TPG Capital is asking limited partners for a $300 million follow-on investment for a bank debt fund raised last year, according to the New Jersey State Investment Council.

Human Resources

Kohlberg Kravis Roberts & Co. has named Michael Michelson and Alexander Navab as co-heads of its North American private equity practice. Michelson works in Menlo Park, and joined KKR in 1981. Navab is in the firm’s New York office, and joined in 1993.

Edward Mathias, a managing director with The Carlyle Group, has joined the board of Allied Capital (NYSE: ALD).

Zeke Navar has joined Covington Associates as a principal, with a focus on technology banking. He previously was with America’s Growth Capital.

BCE Inc. announced that its chairman and three directors will leave the company’s board in February, following its failed acquisition by a group of private equity firms.