PE Week Wire: Friday, November 14, 2008

Greetings from the home office, where I’m recovering from chatting and boozing with hundreds of you during the final peHUB Shindigs of 2008. Last night’s Boston finale raised over $3,200 for The Greater Boston Food Bank, and bright the November tour’s tally to over $8,500.

For the year, peHUB Shindigs have raised $22,300 for charities in eight different cities. Thank you so much for coming out, and I welcome any suggestions for what we should do the same or differently next year (don’t worry London, I hear you calling).

*** Want to get the VC world’s attention? Just create an exceptionally dour PowerPoint presentation, and hope someone leaks it into the blogosphere.

Last month’s example came from Sequoia Capital, whose “graveyard” deck provided the firm’s portfolio companies with PR cover for mass layoffs. This month’s comes from Adeo Ressi, founder of love it/hate it website, and is titled “The Canary is Dead: Something is wrong in venture capital.”

Ressi developed the presentation for a private talk at Harvard Business School, and a local startup CEO (and former venture firm EIR) leaked it soon-after. You can see it here, but the basic gist is that the VC model is broken because VC firms don’t believe they can succeed in a more efficient market. In other words, the consensus is: “You have to be brilliant to make money in this system, and most firms are not brilliant. Except for us and a few others.”

Ressi’s presentation has been getting slapped around the VC blogosphere at bit, in part because he and VCs are coming from very different perspectives. Ressi is an entrepreneur interested in the success of other entrepreneurs, while VCs are a necessary evil for achieving those ends (my words, not his). VCs, on the other hand, are most focused on producing fund returns. That includes extreme dedication to their portfolio company CEOs, but not too much concern for the entrepreneurial class at large.

The result is that Ressi and his VC critics often seem to be talking past each other.

I spoke to Ressi a bit yesterday about the presentation, and played some devil’s advocate on issues like fund sizes and how bust-times change VC behavior. But we also found agreement on some points, including the need to at least revisit two and twenty.

Also, he is 100% correct that VC firms should increase transparency when it comes to what they are looking for. Not so much in terms of industry sector or company stage (most firms already do that), but in terms of the actual pitch process and typical terms. Be specific about how entrepreneurs should approach you, what you’re looking for in a presentation, and what terms you are probably willing to offer if interested (not valuations, but participation, etc.). This stuff is rarely trade secret, and can save both the VC and the entrepreneur valuable time and effort. Moreover, it will help VCs from missing out on certain opportunities because of the presentation rather than because of the potential…

*** I’ll be moderating a VC panel tomorrow afternoon at Cybersymposium 14, on the campus of Harvard Business School. My panelists include Peter Bell of Highland Capital Partners, Ray Rothrock of Venrock, Andy Goldfarb of Globespan Capital Partners and Bob Hower of Advanced Technology Ventures. Get more info.

*** A reminder that the 5th Annual Buyouts West conference begins next Tuesday at the Beverly Hills Hotel in Los Angeles. Speakers include Ares Management co-founder Tony Ressler, TPG senior partner Kelvin Davis and Morgan Stanley financial sponsors chief Mark Bradley. Plus, our own Erin Griffith and Alex Haislip will be among the moderators. Go here for more information and/or to register.

*** Have a great weekend…

Top Three

Francisco Partners and Applied Materials have ended discussions to make a joint buyout offer for Dutch chip equipment maker ASM International.

Digitalsmiths, a Morrisville, N.C.-based provider of broadband video indexing, analytics and publishing solutions, has raised $12 million in Series B funding. 406 Ventures led the round, and was joined by return backers The Aurora Funds and Chrysalis Ventures. The company had recently raised around $9.7 million.

Local Matters Inc., a Denver-based provider of local search solutions like online yellow pages, has withdrawn registration for an IPO, citing “changed circumstances regarding the securities markets.” Earlier this year it had lowered its offering terms to 6.67 million common shares being offered at between $5.40 and $6.60 per share. Canaccord Adams was serving as lead underwriter. Local Matters has raised $43.5 million in VC funding since 2002, from firms like Spencer Trask Ventures (39.4% pre-IPO stake), Sandler Capital Partners (38.2%), Kings Road Investments (10.4%) and Software Seed Capital Partners (2.5%).

VC Deals

CodeRyte Inc., a Bethesda, Md.-based provider of computer-assisted coding and natural language processing, has raised $13 million in Series D funding led by return backer Versant Ventures. The company has now raised nearly $50 million in total VC funding. Other shareholders include Commons Capital, Cardinal Partners, New Vantage Group, Polaris Venture Partners, Solstice Capital, Washington Technology Partners and Gold Hill Capital.

Intelect Medical Inc., a Cleveland-based developer of implantable neuromodulation systems for brain injury recovery, has raised a minimum of $11 million as part of a financing and licensing deal with existing shareholder Boston Scientific Corp., according to VentureWire. It could receive another $2.5 million in milestone payments, and previously raised $10 million from Boston Scientific and Greatbatch Inc.

Cfares, a Redwood City, Calif.-based online travel search engine, has $3.1 million in additional Series A funding, to close the round at $7.6 million. Backers include Claremont Creek Ventures and Garage Technology Ventures. The company also named former Leapfrog and Knowledge Universe CEO Tom Kalinske as its CEO.

Ubitexx GmbH, a German developer of management and security solutions for smartphones and PDAs, has raised €3 million in VC funding. Target Partners led the round, and was joined by return backers BayBG and KfW.

Buyout Deals

Denali Oil & Gas Partners III has been formed with an initial equity commitment of up to $140 million by Quantum Energy Partners, Energy Trust Partners, Walter Oil & Gas Corp. and Denali management. The same firms helped form Denali Oil & Gas Partners in 2003 and Denali Oil & Gas Partners II in 2005. Each partnership is aimed at oil and gas exploration in South Texas.

General Atlantic has made a minority equity investment in Qualicorp Group, a Brazilian provider of healthcare brokerage and benefits administration services. No financial terms were disclosed.

The Riverside Co. has acquired The Herbal Garden Inc., a Wauconda, Ill.-based supplier of freshly-packaged herbs to foodservice groups, grocery stores and bulk retailers across the Midwest, Mid-Atlantic and Southern U.S. No financial terms were disclosed.

Anhui Kouzi Wine Inc., a Chinese winemaker based in the Anhui province, has sold a 25% ownership stake to Goldman Sachs for $52 million, according to Dow Jones.

Vista Equity Partners has acquired an equity stake in Zywave Inc., a Milwaukee-based provider of SaaS enterprise automation solutions for the employee benefits and property & casualty insurance distribution market. No financial terms were disclosed.

Werba Reinhard Inc. has agreed to buy asset management firm Loring Ward International Ltd. (TSX: LW) for US$11.25 per share. The deal comes shortly after Lovell Minnick Partners backed out of a deal to buy Loring Ward for C$18 per share.

PE-Backed IPOs

Metastorm Inc., a Columbia, Md.-based provider of business process management software, has withdrawn registration for an $86.25 million IPO, due to “market conditions.” It originally filed back in March with plans to trade on the Nasdaq.Jefferies & Co. and Oppenheimer & Co.were servingas co-lead underwriters. Metastorm has raised around $115 million in total VC funding, including a 2004 recap round. Backers include Internet Capital Group (32.2% pre-IPO stake), ABS Capital Partners (16.8%), 3i Group (12.8%) and Wall Street Technology Partners (9.1%).

PE-Backed M&A

Sage Holdings, a financial and stakeholder communications company, has acquired Capital Precision, a provider of global shareholder analysis, institutional targeting and fund tracking. No financial terms were disclosed. Sage Holdings is sponsored by The Riverside Company.

Firms & Funds

Atlanta Life Financial Group has canceled fundraising for the Atlanta Life Venture Fund, which was launched last year to target revenue-stage companies providing goods and services to Fortune 1000 companies. It had planned to focus on the Southeastern U.S., with a particular emphasis on the Atlanta area.

CalPERS publicly disclosed three new private equity fund commitments: $500 million to Blackstone Capital Partners VI, $100 million to Aisling Capital III and €150 million to Candover 2008.