PE Week Wire: Friday, June 27, 2008

I spent part of my childhood and teenage years living in Worcester, Mass., which is affectionately known by locals as Wormtown. It has the second-largest population in New England (higher than New Haven or Providence), is the birthplace of diners and usually has some minor league sports teams. On the flipside, it has a shiny airport with no commercial flights, has an abandoned adult book store next to its public library and has spent the past 15 years trying to transition from a manufacturing hub into anything else. Oh, and most everyone pronounces it’s name wrong – it’s Wo-ster, or Wost-ah to the locals.

Why do I bring it up? Because in more than eight years on this beat (yeah, scary), I’ve only written about the city when a new biotech incubator opened up. There just haven’t been other opportunities – save for a possible fluff piece on local boy makes good Garrett Moran, who’s currently a senior managing director with Blackstone Group. Until today:

There is an actual startup company in Worcester that’s promising enough to have received VC funding from Kleiner Perkins. It’s called MachFlow Energy, and is trying to create cleaner and cheaper air conditioners.

The company was co-founded by Chuck Agosta, chair of Clark University’s physics department, who describes the technology thusly: “We’ve figured out ways to use rare gasses as a refrigerant, in a way that’s intrinsically less harmful to the environment which uses energy more efficiently.” He adds that the technology is scalable, but that MachFlow has not yet decided on its target market.

Ok, but back to Worcester: How does a company based at Clark University – whose main quad sits across from “Dead Hooker Pond” – get Kleiner Perkins to invest $2 million? Part of it was good family connections, since Agosta is married to Intel Capital’s Lucy McQuilken. She helped him navigate prospective funding sources, and then it was time to travel.

“We basically had to run around,” Agosta says. “People weren’t really coming to Worcester to meet us, but that was partially because we were two guys who’d never done a startup and were extremely early in the process… Right now, the proximity to Worcester is personally important to me, and there are lots of good people and facilities here. I have no idea what will happen in two or three years, but we don’t have any plans to leave.”

Hopefully Agosta isn’t eventually forced to change his plans. Wormtown could really use a few good entrepreneurs.

*** This is old news, but I haven’t seen it reported elsewhere: Marco DeMiroz has left Selby Ventures, where he had been a managing director since 2004. He had been focused on the Internet and infrastructure spaces, with deals like Active Semi, Attributor, Feedster and ModViz.

Now he’s leaving IT behind to form a new cleantech fund, which almost sounds too cliché to write. The twist, however, is that the vehicle would invest in proven, commercially-ready clean technologies that could be marketed in GCC nations, plus in surrounding areas like India, Turkey, North Africa and Southeast Asia. The three target sub-sectors would be water, construction/green building materials and sustainable energy.

*** The Blackstone Group today plans to hold a first close for its new buyout fund. It wants $8 billion in commitments. I’ll post at peHUB if I hear anything about how they do.

*** iPhone app maker Instintiv raised $750,000, rather than the $700 million I mistakenly wrote yesterday. Yes, I’m an idiot. Apologies.

*** Did you know: LinkedIn CEO Dan Nye is brothers with Ben Nye, a managing director with Bain Capital Ventures. Yeah, the same Bain Capital Ventures that just led a new funding round for LinkedIn at a $1 billion valuation. It’s times like these that I regret being an only child…

Top Three

Chemtura Corp. (NYSE: CEM) has ended talks with prospective suitors, “after determining that such discussions are unlikely at this time to result in an offer at a sufficiently attractive price.” Both Apollo Management and Blackstone Group had expressed interest in Chemtura, which had a market cap of around $2 billion before announcing that there would be no deal. The stock subsequently dropped more than 20%, and brought the market cap down to $1.54 billion.

Initiate Systems Inc., a Chicago-based provider of master data management solutions, has raised $26 million in sixth-round funding. Paladin Capital Group led the round, and was joined by Dunrath Capital, EMC Corp. and Informatica Corp. Also participating were return backers Apex Venture Partners, First Analysis Group and Sigma Partners. Initiate has now raised over $62 million in total VC funding. Earlier this week, it canceled plans for an IPO.

Nordic Capital and Avista Capital Partners announced that once their $4.1 billion acquisition of wound care company ConvaTec closes, they will merge it with Unomedical, a Copenhagen-based provider of single-use medical devices that is already sponsored by Nordic Capital.

VC Deals

Tandem Diabetes Care Inc., a San Diego-based developer of medical devices for the treatment of diabetes, has raised $13.05 million in Series B funding, according to a regulatory filing. Backers include Domain Associates, TPG Biotech and Second Technology Capital Investors.

Helix Micro, a Milpitas, Calif.-based battery cell and power management startup, has secured $12.3 million of a $25.75 million Series B round, according to a regulatory filing. Shareholders include Prudent Venture Investment Corp. (Taiwan), Amprex Technologies Ltd. (Hong Kong) and TechGains Funds.

AniBoom, an independent animation network for both the web and television, has raised $10 million in Series B funding. Draper Fisher Jurvetson and DFJ Tamir Fishman Ventures were joined by return backer Evergreen Venture Partners. AniBoom is based in Israel, and also has a San Francisco office.

Myoscience Inc., a Redwood City, Calif.-based aesthetic medicine startup, has raised $8.36 million in Series B funding, according to a regulatory filing. Backers include Accuitive Medical Ventures, De Novo Ventures and Saratoga Ventures. It had previously raised around $3.2 million.

Wi-Chi Inc., a Tualatin, Ore.-based mixed-signal fabless semiconductor startup, has raised $7 million in Series A funding, according to a regulatory filing. New Enterprise Associates led the deal, with Forest Baskett and Rohini Chakravarthy taking board seats.

Isconova AB, a Swedish developer of vaccine adjuvants, has raised around $5 million in VC funding from InnovationsKapital.

Xendex, a Vienna, Austria-based mobile game developer, has raised EUR 2.3 million in first-round funding from Pontis Venture Partners and individual angels.

Mork Process Inc., a Stowe, Ohio-based provider of modulizedprocess cleaning andsterilizationequipment and solutions, has called down $2 million of a $3 million Series A round, according to a regulatory filing. Backers include Reservoir Venture Partners and Mutual Capital Partners.

Moxsie Inc., a Palo Alto, Calif.-based social network focused on fashion, has raised just over $1 million in Series A funding led by Alloy Ventures, according to a regulatory filing. The company is run by Hrishi Kamat, a former executive with Kanisa and Netscape/AOL.

Buyout Deals

Continental AG (DE: CONG) shares rose more than 7% Wednesday, fueled by rumors of private equity interest. A group of buyout firms gave strong consideration to bidding on Continental two years ago, but ultimately demurred.

Doughty Hanson has agreed to acquire Svendborg Brakes, a Denmark-based maker of industrial brakes for the wind, mining, crane and offshore oil industries. The deal is valued atEUR 460 million.

The European Commission has approved CVC Capital Partners’ proposed acquisition of a 73.2% stake in Dutch supermarket chain Schuitema NV from Ahold. The deal is valued at €950 million.

The Illinois Gaming Board has approved the pending $6.1 billion buyout of Penn National Gaming by Fortress Investments and Centerbridge Partners. The deal is still awaiting state regulatory approval in Missouri, Indiana, Louisiana and Maine.

Milestone Capital Partners has acquired Safemark Systems Inc., an Orlando, Fla.-based provider of in-room safes to the North American hospitality market. No financial terms were disclosed. Madison Capital Funding and New Canaan Funding provided both debt and equity for the transaction, while Safemark was advised by Lazard Middle Market.

PE Exits

Microsoft has agreed to acquire Powerset Inc., a San Francisco-based developer of a natural language search engine, according to VentureBeat. The deal is expected to be formally announced next month, with a sale price of around $100 million. Powerset raised $12.5 million in Series A funding in late 2006, at a post-money valuation of $42.5 million. It has since raised another $4 million in convertible note financing. Backers included Foundation Capital, The Founders Fund and individual angels like Esther Dyson.

Silicon Laboratories Inc. (Nasdaq: SLAB) has agreed to acquire Integration Associates, a Mountain View, Calif.-based fabless IC maker. The deal is valued at around $80 million. Integration Associates had raised an $11 million funding round in 2004 from Sequoia Capital, Chess Ventures and Stanford University.

PE-Backed M&A

NetSpend Corp., an Austin, Texas–based provider of prepaid reloadable debit cards in the U.S., has agreed to acquire Skylight Financial Inc., an Atlanta–based provider of debit cards to both corporations and consumers. No pricing terms of the all-stock deal were disclosed. NetSpend was acquired in 2004 by Oak Investment Partners, while JLL Partners bought Skylight in 2007 from GTCR and The Walnut Group.

Roadlink USA, a Chicago-based intermodal logistics company backed by Fenway Partners, has agreed to acquire Montreal-based CP Ships Trucking Inc. from Hapaq-Lloyd (Canada) Inc. No financial terms were disclosed.

Human Resources

James Burr has agreed to join The Carlyle Group as a managing director focused on the financial services sector, according to The Wall Street Journal. He has spent the past 16 years with Wachovia Corp., including in his most recent role as corporate treasurer.

Cedric Burgher has joined Quantum Energy Partners as chief operating officer. He previously was CFO of KBR, a global construction and engineering group.

Joe Levy has joined Canopy Ventures as technologist-in-residence. He previously was CTO of SonicWALL, a network security infrastructure company.

Andrew Terry has joined the Chicago office of Ropes & Gray as a partner in the law firm’s private equity group. He previously was with Kirkland & Ellis. Also joining are Justin Choi, counsel coming over from Andrew Corp. and Neill Jakobe, senior associate who previously worked inMorgan Stanley’s financial sponsors group.

Rob Young has joined ORIX Venture Finance as a principal, and head of the firm’s new London office. He previously was CFO of Balderton Capital.