PE Week Wire: Mon., April 21, 2008

I spent the weekend in North Carolina, as a judge at the 11th annual Venture Capital Investment Competition finals. For the uninitiated, this is a business school competition in which student teams form venture capital “partnerships,” and then are required to make investment decisions. This includes elevator pitches from real entrepreneurs, due diligence with the entrepreneurs, submission of term sheets and defense of those term sheets in a Q&A with judges. This year’s event also included a new wrinkle, whereby the teams had to negotiate terms with the entrepreneur whose company they had chosen to fund. So a few notes:

• This event included 50 business schools, and around 600 participating students (in teams of five). Many of those schools held intra-school competitions, with the winner then moving onto one of eight regional events. In other words, the winning team bested 119 other teams.

• That winning team came from MIT Sloan. Its members were Bob Meese, Sim Blaustein, Gaetan Bonhomme, Nikhil Garg and Eric Varma. My favorite moment for them came during negotiating, when discussing keyman insurance on the company’s senior management. Sim said: “We want to make it high enough to protect ourselves, but not so high as to make us want to knock you off.”

• Placing second and third were the University of Washington and University of North Carolina, respectively.

• I want to send special kudos to the team from Wharton. Only group to partially re-imagine an entrepreneur’s business plan. Teams sometimes get too caught up in what the company is focused on today, rather than looking outside the box for what the company could be focused on in the future.

• Best group of entrepreneurs to date. And they’re all looking for money: CardiAQ, City 24/7, SureGene and Widetronix.

• The negotiating sessions were a good addition, but methinks that biz schools need to add a course in bargaining. I’m not saying VCs should always be low-balling entrepreneurs on valuation, but almost every team started from their end point. No wiggle room to use as a trade-off for other terms. Negotiating isn’t synonymous with a Powerpoint presentation.

• A few years back, Chris Wand (now of Foundry Group) asked the Harvard team if it was “smoking crack” – due to an obscenely high pre-money valuation. This year it was Rebecca Lovell of Seattle-based Alliance of Angels. Another absurd valuation, and a question about if the team had been doing shots of Red Bull and Visine. She’s way too nice to ask such a thing, but was goaded into it by far snarkier judges…

*** Rebecca Buckman picks up the Sequoia Capital baton in today’s Wall Street Journal. She writes the following about the hiring of Eric Upin: “Mr. Upin is leading Sequoia’s charge to create an investment fund that would invest in multiple asset classes, instead of just venture capital… The new vehicle — if it gets off the ground — likely would mimic the investment style of university endowments and other private funds that put money into stocks and bonds but also ‘alternative investments,’ such as buyout funds, venture capital and natural-resources investments.”

This jives with what I’ve been hearing, although my understanding is that Sequoia’s group might act more as an outsourced CIO to actual endowments. Kind of like McKenna, except aiming at smaller fish. My guess – and it’s nothing more – is that such a program would include access to Sequoia’s venture capital funds (not a bad carrot). In fact, that might be the extent of VC exposure. Also worth noting that Buckman uncovered another member of the team: Keith Johnson, who had been working on public equities at Stanford Management Company.

*** Alex Haislip has a VC Uniqueness Test for you.

*** MoneyTree came out today with its Q1 venture capital deal data. We’ve got downloadable charts at peHUB First Read, including national stats, regional stats and top deals. Also, private equity in Iraq?

Top Three

eSolar, a Pasadena, Calif.-based developer of solar thermal power plants, has raised $130 million. Backers include Idealab, Oak Investment Partners and return backer Google. org.

TietoEnator (Helsinki: TIE1V), a Nordic IT services company, has advised shareholders to reject a €1.1 billion buyout offer from Nordic Capital. In a statement, TietoEnator chairman Matti Lehti said that it is “in active dialogue on several options with several parties.”

National City Corp. said today that it will raise $7 billion in new equity capital. Corsair Capital is leading the deal, alongside another undisclosed private equity investor. National City also announced a $171 million net loss for Q1. The combined news has sent the Cleveland-based bank’s stock down nearly 19% in early trading.

VC Deals

MediaBank, a Chicago-based provider of procurement and analytics to the advertising industry, has raised $30 million in second-round funding from New Enterprise Associates. It had raised $10.5 million from NEA last year.

Stromedix Inc., a Cambridge, Mass.-based biotech company focused on therapies for fibrosis, has raised $25 million in Series B funding. New Leaf Venture Partners led the round, and was joined by Bessemer Venture Partners, Red Abbey Venture Partners and Series A backers Atlas Venture and Frazier Healthcare Ventures.

Obopay, a Redwood City, Calif.-based mobile payment software company, has raised $20 million in Series D funding. GigaOm first reported the news, including a tidbit about how the company’s founders provided their contributions via the Obopay platform. No word yet on new investors. The company had previously raised around $44 million from Richmond Management, Qualcomm, Redpoint Ventures, AllianceBernstein, Citi and Societe Generale. www.obopay.com

Travel Ad Network, a New York-based online ad network for the travel vertical, has raised $15 million in Series A funding. Backers include Rho Ventures, Village Ventures and individual angels.

VisEn Medical Inc., a Woburn, Mass.-based developer of fluorescence molecular imaging technology platforms, has raised $5 million in additional Series B funding. It had held a $7.5 million first close last fall. Return backers Merck Capital Ventures and Flagship Ventures co-led the expansion. Other Series B backers include Siemens AG Medical Solutions and Spinnaker Capital.

Channel M, a Los Angeles-based out-of-home video advertising company, has raised an undisclosed amount of Series C funding from Intel Capital.

Buyout Deals

Advent International reportedly is among the potential acquirers lining up for EAT, a UK-based sandwich shop chain that is being sold by Penta Capital and company founders. Morgan Stanley Private Equity also might be interested. Bids are expected to come in at around £150 million.

AXA Private Equity has bought a majority stake in Löwen Play from Waterland Prirvate Equity Investments. No financial details were disclosed. Löwen operates around 200 amusement arcades in Germany.

Emerging Capital Partners has acquired a controlling interest in BACIM Bank, the seventh-largest banking group in Mauritania. The deal is valued at $15.9 million.

Primary Capital has acquired Pacific Direct, a UK-based maker of brand-name toiletries for hotel customers, for £20 million. HSBC provided leveraged financing. www.pacificdirect.co.uk

PE Exits

The Blackstone Group is considering a sale of French healthcare clinic operator Vitalia, according to Le Figaro. Vitalia operates 46 clinics and generates around €650 million in annual revenue.

Bridgepoint has abandoned plans to sell or float Pets at Home, according to The Financial Times. The firm had been looking to exit the pet store chain at around a £650 million valuation.

IBM has acquired Diligent Technologies, a Framingham, Mass.-based provider of storage “de-duplication” software. No financial terms were disclosed. Diligent had raised nearly $42 million in VC funding since 2002, from firms like Accel Partners, Matrix Partners, Gemini Israel and Eastward Capital.

Firms & Funds

LGT Capital Partners has agreed to acquire KGR Capital, a Hong Kong-based Asian fund-of-hedge funds with approximately $350 million in assets. No financial terms were disclosed. LGT is a Switzerland-based alternative asset manager. www.lgt-capital-partners.com

Human Resources

David Tierney has joined Thomas, McNerney & Partners as an entrepreneur-in-residence. He previously was president and CEO of Valera Pharmaceuticals Inc., which was acquired by Indevus Pharmaceuticals.

Steve Preston, head of the U.S. Small Business Administration (SBA) since July 2006, last week was nominated by President Bush to head the Department of Housing and Urban Development.