The sky is gray, we finally have a nickname for private equity pros and my Sunday will include three hours of the Pats pounding the Chargers, and two more of Jack Bauer pounding the bad guys (plus some misguided good guys). In other words, it’s time for Friday Feedback.
Most email this week concerned Monday’s column about East Coast vs. West Coast venture capital, in relation to Scott Kirsner’s Boston Globe piece last Sunday. Entrepreneur Dave writes: “I have told countless wannabe entrepreneurs seeking startup capital to go West Coast first, and then East Coast for later rounds. Why? You get a better reception and audience on the West Coast. You also get quick answers – yes or no. East Coast VCs move slower than west coast VCs in making investment decisions. The two enemies of the startup entrepreneur: limited capital and time… I also have found the East Coast VCs are about stodgy old money and “who you know” versus West Coast VCs who are about nouveau money, ideas and creating wealth for everyone.”
George: “The major deficiency in the Boston area is that they companies and technologists concentrate on systems integration rather than on fundamental technology. This goes all the way back to Sprague Semiconductor moving to California. To make an analogy, Boston would rather tune the engine than design a new car. The other factor is the inherent financial focus of Boston VCs, who by and large came from the banking industry rather than from the technology industry itself. Finally, there is that old New England fear of being wrong, whereas, Californians are only interested in being right.”
Faruq: Some legal boilerplates are different too. East Coast lawyers will include clauses that assume that there is salvage value to the startup, and that investors should negotiate diligently upfront to maximize their share of this if the company fails. West Coast lawyers will agreeably focus instead on who gets what if the pie gets as large as everyone expects it to get, and everyone tacitly understands that while some failed startups will have valuable IP and that this needs to be properly split, in most cases this will not the case, and in any event the value will realistically be minimal. I am probably generalizing…”
*** Tom responds to Tuesday’s analysis of the ACG/Thomson DealMakers Survey, which showed expectations of increased M&A activity despite overwhelming acknowledgment that it is a seller’s market: “You arediscounting a key part of the equation: Significant liquidity in the leverage markets. Less discipline by lenders fosters less discipline by the GP community.”
*** Some emails from Wednesday’s discussion of Golden Gate Capital opting for an evergreen fund structure. A reader used the anonymous tip button: “[Golden Gate’s] desire to do an evergreen is undoubtedly due to their alliance with Sutter Hill Ventures (SHV is a special limited partner in GGC and has co-invested with GGC). SHV has used an evergreen structure since it started.” Mike adds: “Evergreen funds definitely cause accounting difficulties for the GP, but even more if the LP is a fund-of-funds. In fact, F-o-Fs are almost prevented from investing because they can’t make long-term commitments like that.” By the way, many of you wrote in to remind me that MFN in this context means Most Favored Nation. As Tim explains: “Any investor who! has a MFN in a side letter with a GP gets the benefit of whatever subsequent LPs negotiate, such as reduced mgmt fees, reduced carry, etc… But peons with just $100 million to commit won’t be able to get a side letter with General Atlantic.”
*** Finally, Charlie goes off-topic: “I know you can’t stand him, but don’t you feel a bit bad for Doc Rivers? He doesn’t even have enough healthy players to run a scrimmage.” No, not really. All this means is that there are a few more guys in suits on the Celtics bench who would make superior coaches…
*** Publishing Note: PE Week Wire will not publish on Monday, due to the Martin Luther King Jr. holiday. Be back Tuesday, with interim updates at peHUB.com.
Top Three
Pacific Biosciences of California Inc., a Menlo Park, Calif.-based company focused on DNA gene sequencing, has raised around $50 million in Series D funding. Maverick Capital was joined by return backers Alloy Ventures, Kleiner Perkins Caufield & Byers and Mohr, Davidow Ventures. www.pacificbio.com
Zebra Technologies Corp. (Nasdaq: ZBRA has agreed to acquire WhereNet Corp., a Santa Clara, Calif.-based provider of active RFID-based wireless solutions to track and manage enterprise assets. The deal is valued at $126 million in cash. WhereNet has raised around $82 million in total VC funding since its 1997 inception, including a $10 million Series F infusion in 2003 at a post-money valuation of approximately $76 million. Backers include Bay Partners, Crescendo Ventures, Crosspoint Venture Partners, Foundation Capital and Invesco. www.zebra.com www.wherenet.com
James Matthews has joined Evercore Partners as senior managing director and co-head of private equity. He previously was a general partner with Welsh, Carson, Anderson & Stowe. www.evercore.com
VC Deals
diaDexus Inc., a South San Francisco-based developer of a blood test for the prediction of cardiovascular disease, has raised $40 million in Series E funding, according to a regulatory filing picked up by VentureWire. Baker Brothers Advisors LLC and Scale Venture Partners, co-led the deal, and were joined by Burrill & Co. and return backers GlaxoSmithKline, Rho Ventures, Bain Capital’s Brookside Fund and Mosaix Ventures. www.diadexus.com
InteKrin Therapeutics Inc., a Palo Alto, Calif.-based drug company focused on metabolic disorders, has raised $23 million in second-round funding. Sofinnova Ventures led the deal, and was joined by Orbimed Advisors, Vivo Ventures and return backers Asset Management and Sears Capital Management.
MachineryLink Inc., a Kansas City-based provider of progressive combine leasing products North American farmers, has raised $17.4 million in VC funding. Participants include October Capital, Adams Street Partners, River Cities Captial Funds, Alpha Capital Partners and undisclosed individuals. www.machinerylink.com
eStudySite has raised $6 million in first-round funding from Celerity Partners and Ticonderoga Capital. The San Diego-based enrollment and research organization provides inpatient and outpatient clinical research services to pharmaceutical and contract research organizations. www.estudysite.com
Charles Chocolates, an Emeryville, Calif.-based chocolate-maker, has raised $1.5 million in Series A funding from Keiretsu Forum. www.charleschocolates.com
Viosport, a Marquette, Mich.-based maker of helmet cameras for police, soldiers and athletes, has raised an undisclosed amount of growth capital from Bridge Street Capital Partners, according to LBO Wire. www.viosport.com
Buyout Deals
Beecken Petty O’Keefe & Co. has acquired Reichert Inc. from Summer Street Capital Partners for an undisclosed amount. Reichert is a Depew, N.Y.-based manufacturer of screening and diagnostic devices for ophthalmologists, optometrists and retail eyecare centers. It was acquired from Summer Street from Leica Microsystems in late 2002, and was advised on the more recent sale by Goldsmith Agio Helms. www.bpoc.com www.reichert.com
McDonald’s may put its Boston Market restaurant chain on the auction block, according to a comments made by company CEO Michael Andres to employees.
Merck KGaA could receive buyout interest for its generic drugs business from Cinven, Permira and Texas Pacific Group, according to Reuters. Such a sale could generate anywhere from Euro 4 billion to Euro 5.5 billion.
CVC Asia Pacific and Macquarie Bank are considering a bid for Sino-Forest Corp. (TSX:TRE), a Canadian lumber company operating in China, according to Bloomberg. The company’s market cap is approximately $1 billion.
RoundTable Healthcare Partners has completed its acquisition of Advantis Medical Inc., a manufacturer of organizing systems for surgical instruments, implants and medical devices.No financial terms were disclosed. Advantis will be combined with existing RoundTable portfolio company Instrumed International Inc.
Tonka Bay Equity Partners has acquired All-Flex Inc., a Northfield, Minn.-based manufacturer of custom flexible circuits. No financial terms were disclosed for the deal, which also included participation by company management and Granite Equity Partners. www.allflexinc.com
MCCI Holdings LLC, a Miami, Fla.-based provider of medical management services for managed care organizations, has completed a recapitalization. Participants included Goldman Sachs Urban Investment Group, Pharos Capital Group and GE Healthcare Financial Services. No financial terms were disclosed.
The Jordan Co. has sponsored a recapitalization of Harrington Holdings Inc., a marketer and distributor of healthcare products to managed care beneficiaries, home care supply providers and healthcare professionals. National City’s equity sponsor group served as joint-lead arranger and syndication agent for the senior secured credit facility. No pricing terms were disclosed.
Triton Pacific Capital Partners has sponsored a recapitalization of Meridian Behavioral Health Network, a provider of drug, alcohol and mental health services in Minnesota. No financial terms were disclosed. www.tritonpacific.com www.meridiannetwork.com
PE-Backed IPOs
National CineMedia Inc., a Centennial, Colo.-based distributor of in-theater advertising, has set its proposed IPO terms to 38 million common shares being offered at between $18 and $20 per share. It plans to trade on the Nasdaq under ticker symbol NCMI, with Credit Suisse, JPMorgan, Lehman Brothers and Morgan Stanley serving as co-lead underwriters. Shareholders include Madison Dearborn Partners, The Anschutz Co., Cinemark and Regal Cinemas. www.ncm.com
Xtent Inc., a Menlo Park, Calif.-based developer of stent systems, has set its proposed IPO terms to 4.7 million common shares being offered at between $16 and $18 per share. It plans to trade on the Nasdaq under ticker symbol XTNT, with Piper Jaffray serving as lead underwriter. Xtent has raised around $75 million in total VC funding since its 2002 inception, including a $30 million Series D round last year at a post-money valuation of around $160 million. Backers include Morgenthaler Partners, Advanced Technology Ventures, Latterell Venture Partners and St. Paul Venture Capital. www.xtentinc.com
The IPO calendar for the rest of January includes expected pricings from Oculus Innovative Sciences Inc., Converted Organics Inc. and Dekania Corp.
PE Exits
Asahi Tec Corp. of Japan has completed its $1.2 billion acquisition of Metaldyne Corp. from Heartland Industrial Partners and CSFB Private Equity. Metaldyne is a Plymouth, Mich.–based supplier of powertrain and chassis systems and components. www.metaldyne.com
Basic Energy Services Inc. (NYSE: BAS) has agreed to acquire JetStar Consolidated Holdings Inc. from Parallel Investment Partners for approximately $120 million. The consideration includes $43.5 million worth of common stock and the repayment of outstanding JetStar debt, but excludes working capital. JetStar is a Dallas-based provider of oilfield pressure pumping services to independent oil and gas producers in the Mid-Continent region of North America. www.jetstarenergy.com
GE Equipment Services has acquired Terion Inc., a Plano, Texas–based provider of two-way wireless data communication and information solutions for the transportation industry. No financial terms were disclosed. Terion had raised around $47 million in VC funding since emerging from bankruptcy protection in 2002, from firms like Crossbow Equity Partners, Harris Corp. and SCP Private Equity Partners. www.ge.com www.terion.com
North Castle Partners has completed its previously-announced sale of portfolio company Avalon Natural Products Inc. to The Hain Celestial Group Inc. (Nasdaq: HAIN) for $120 million. Avalon is a provider of natural products in the areas of skin care, hair care, bath and body and sun care.www.hain-celestial.com
Firms & Funds
The Washington State Investment Board yesterday gave preliminary approval for a $500 million commitment to KKR’s first fund focused exclusively on Asian buyouts. WSIB has committed $4.1 billion to KKR since 1982, producing $6.2 billion in realized proceeds and $4.4 billion in profits. The overall relationship’s IRR is 20.2 percent.
Draper Fisher Jurvetson is looking to raise up to $600 million for its ninth general VC fund, according to a regulatory filing. www.dfj.com
RBC Capital Markets has completed its acquisition of Daniels & Associates, an M&A advisor to the cable, telecom and broadcast industries. No financial terms were disclosed. www.rbccm.com www.danielsonline.com
Human Resources
Fred Thiel has joined Triton Pacific Capital Partners as managing partner, in charge of a newly-created software and IT group. He previously served as CEO of GameSpy Industries.
Ken Yager has joined MorrisAnderson & Associates as a managing director. He previously ran Newpoint Ventures, and before that worked in the equity sponsor business development group of Bank of America. www.morrisanderson.com
John Edwards has joined UK-based Augusta & Co. as a partner focused on mid-market corporate finance. He previously was with Amethyst Corporate Finance. www.augustaco.com
Bayside Capital LLC, the distressed debt affiliate of H.I.G. Capital, has promoted Lewis Schoenwetter to Managing Director. www.higcapital.com
Lawrence Tse, a former HP executive who currently serves as an advisor to General Atlantic, has been named acting CFO of fables semiconductor company Vimicro International Corp. (Nasdaq: VIMC). www.vimicro.com
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