PE Week Wire: Monday, July 14, 2008

Today’s guest column is from peHub.com’s Connie Loizos.

Ben Kaufman, a beefy, bespectacled 21-year-old from Long Island, is nothing short of a genius when it comes to public relations, and he’s demonstrating just how far that kind of intelligence can take a budding entrepreneur.

Several years ago, Kaufman dropped out of college six weeks after starting Mophie, a small company he launched in high school with his mother’s help. (She mortgaged their home to get him started.) The company initially produced numerous IPod accessories like arm bands and clips, but the market quickly grew saturated. So, at the Macworld conference in San Francisco, Kaufman tried something new. “We just had this empty booth and said that instead of designing products, we’re going to ask everyone at the show to design our 2007 product line.” Kaufman says that within four hours, he had 125 legitimate business ideas. By the end of the week, the booth had become a full-scale model shop, and on the last day of the conference, Mophie had a new product called the Bevy, an all-in-one protective case for the IPod! shuffle with an earbud wrap, a key chain and a bottle opener. Kaufman says he sold 40,000 of them around the world, then quickly sold Mophie for a small profit.

Kaufman’s next move was to transform his MacWorld experience into an online company called Kluster that uses the collective wisdom of its registered users to design marketing approaches as well as actual products. Tom Rielly, who helps organize the prestigious technology, entertainment, and design conference known as TED, had visited Mophie’s booth at Macworld and seen the excitement Kaufman created. As a result, he asked Kaufman to launch Kluster at TED, where he could capitalize on the brainpower of TED’s thousand or so attendees.

Unfortunately for Kaufman, one outcome of that TED show this past February was a “cultural-awareness-raising board game.” (“We’ll make the game, but we are not getting into the business of manufacturing goods,” he says.) However, TED did generate stories in the New York Times and BusinessWeek and interest from VCs. (Kluster, which already has approximately $2 million in funding from a Village Ventures affiliate, is closing a “much bigger round” at summer’ end, according to Kaufman.)

Kaufman, who oversees a staff of 10, is now trying to capitalize on all of this attention. On Thursday, Kluster will launch a subscription model initially priced at just $100 a month that will allow small businesses to harness the creative firepower of their customers. For example, our very own Dan Primack could rent Kluster’s tools and build a community tasked with improving PEHub.

Kluster is also working on developing internal applications for big companies that want their employees to become more involved in the creative process. Kaufman says that each custom application takes about $200,000 and three weeks to develop. It’s a costly endeavor, especially when one considers that wikis are free. Still, Kaufman says he already has three customers – an advertising agency, a consumer goods company, and, ironically, TED. “Finally, I’m getting some of that conference money back,” says Kaufman with a laugh.

Kluster is a work in progress, and Kaufman clearly doesn’t have all of the answers, but in an increasingly interconnected word, crowdsourcing product and marketing ideas is clearly on the rise. For the young entrepreneur, there’s clearly strength in numbers.

Reminder: I (Erin Griffith) am filling in for Dan during his vacation, so send your press releases and news tidbits to erin.griffith@thomsonreuters.com.

Top Three

Dave & Buster’s, the entertainment and dining chain owned by Wellspring Capital, filed to raise $170 million in an IPO. Wellspring, which owns more than 80% of the business, failed to sell Dave & Buster’s in an auction earlier this year.

The Blackstone Group has scheduled a first close on its sixth fund for July 25, according to LBO Wire. The firm expects between $6 billion and $7 billion in commitments.

Marwit Capital purchased the entertainment division of cinema operator Trans-Lux Corp for $8.5 million and an additional $16 million in debt. The buyout consists of ten movie theatres in the West and Southwest. The deal’s closing, scheduled for July, is subject to Marwit lining up financing.

VC Deals

Tyrell Inc, a handheld acne treatment device maker based in Houston , raised $28 million in a Series E round of fundraising led by Santé Ventures and Catterton Partners, and joined by existing investor Austin Ventures.

Monte Cristo Games, a Paris-based gaming company, received €4.5 million ($7 million) in funding from Arts Alliance, 360 degrees Capital Partners and Innoven Partenaires.

The funding will be used to expand Monte Cristo’s city-building online game CITIES XL(TM).

Sabal Medical, a Daniel Island, S.C.-based bedside mobile automation technology company, received a second round of financing of an undisclosed amount led by by Nexus Medical Partners of Quincy , MA , and its German affiliate, Medicis Nexus Partners GmbH of Munich.

Clickability, a San Francisco-based online content organizing service, received $3.5 million in debt financing from SaaS Capital Inc.

PixelEXX Systems, a Nanotechnology company, received $250,000 in seed capital from on-profit business, BioGenerator.

Atomic Moguls, a fantasy sports-focused company based in Seattle , raised $1 million in venture funding from Second Avenue Partners, according to a local report.

VideoPlaza, a Swedish advertising startup, has raised €420,000 ($665,861) in seed money from Swedish VC firm Creandum.

OpenSpan Inc, a desktop productivity and SOA acceleration software company based in Alpharetta , Ga. , secured $13 million in Series C funding co-led by FTVentures and Globespan Capital Partners, with re-investments from Matrix Partners, Sigma Partners and Imlay Investments.

Sand 9, a wireless device technology developer based in Boston , Ma., received $8 million in Series A funding led by Flybridge Capital Partners.

Engine Yard, a San Francisco business that builds and hosts Rails applications, raised $15 million in a second round of funding led by New Enterprise Associates, with participation from Amazon.com and existing investor Benchmark Capital.

Adapx, a Seattle-based digital pen and paper maker, received an undisclosed investment from In-Q-Tel, the investment arm of the CIA.

SHS Gesellschaft für Beteiligungsmanagement invested an undisclosed amount in Biontis GmbH in Geesthacht, a German developer of automated processes for biochemical analysis of complex liquid mixtures.

ThingMagic, Inc., a Cambridge , MA.-based developer of RFID readers, sensors, and embedded RFID technologies, secured $9.5 million in funding from existing investors including Tudor Ventures, The Exxel Group, Morningside Technology Ventures and .406 Ventures. This follows an initial round and line of credit of $21 million total, announced in early 2006.

Buyout Deals

Blackstone Group, Apax Partners and Cinven are considering bids for troubled home health operator Southern Cross, the Financial Times reported.

Kolhberg Kravis Roberts, Blackstone Group, and Permira are weighing a counter-bid for Informa, Reuters reported.

Marwit Capital purchased the entertainment division of cinema operator Trans-Lux Corp for $8.5 million and an additional $16 million in debt. The buyout consists of ten movie theatres in the West and Southwest. The deal’s closing, scheduled for July, is subject to Marwit lining up financing.

Najafi Companies, a private investment company based in Phoenix, agreed to buy the US book club arm of German media conglomerate Bertelsmann. The price is not disclosed but media reports placed the seller’s asking price at just under $400 million.

Audax Group, through its Bridgeport, Texas-based portfolio company, Bridgeport Tank Trucks, purchased oilfield fluid transport and disposal services business West Fork Tank Trucks Inc. The purchase price was not disclosed.

Monomoy Capital Partners, a Muskegon, Mich.-based acquired the assets and operations of Kurdziel Industries Inc., a manufacturer of large counterweights for the material handling, construction and aerial-lift equipment industries. Monomoy has renamed the company Carlton Creek Ironworks.

PE Exits

H.I.G. Capital sold portfolio company Source Electronics to Avnet Inc. Source Electronics, based in Hollis, N.H., makes integrated circuits, Deal terms were not disclosed.

Veritas Capital’s bankrupt portfolio company, Wornick Co, a military food provider, has completed its bankruptcy cycle. As part of the restructuring, the business has been sold to senior secured noteholders. Veritas purchased the company for $155 million in 2004.

PE-Backed IPOs

Dave & Buster’s, the entertainment and dining chain owned by Wellspring Capital, filed to raise $170 million in an IPO. Wellspring, which owns more than 80% of the business, failed to sell Dave & Buster’s in an auction earlier this year.

PE-Backed M&A

groSolar, a White River Jct., Vt.-based solar energy company backed by NGP Energy Technology Partners, SJF Ventures, Calvert Group Ltd. and Allco Finance Group, acquired Chesapeake Solar LLC, based in Jessup, Md.

Firms & Funds

ArcelorMittal, a steel maker based in New Dehli, launched a Clean Technology Venture Capital Fund with an initial investment of $20 million in California-based thin-folm solar developer, Miasole. Further, the company launched a Carbon Fund with an initial investment commitment of $157 million.

The Blackstone Group has scheduled a first close on its sixth fund for July 25, according to LBO Wire. The firm expects between $6 billion and $7 billion in commitments.

Weston Presidio cancelled fundraising plans for its sixth fund, according to industry reports. The fund had a target for $1 billion and is being pulled on account of bad market conditions. The firm’s prior fund is around 60% deployed.

Quantum Energy Partners, alongside natural gas industry veterans Dr. Larry Bickle and Larry Lawyer formed a natural gas storage facility company called Triton Energy Partners, to be based in Houston.

NBGI Private Equity, a UK buyout firm, launched a French buyout business based in Paris.

Human Resources

Greycourt & Co., a Pittsburgh, Pa.-based advisor to hedge fund investors, hired Margaret M. Towle, Ph.D. as a managing director based in the firm’s Portland office. Prior to Greycourt, Towle was chief investment officer of Northern Trust Global Advisors.

Charles Toy, Bernard McGuire and Amit Chandra joined PCG International, a private equity funds of funds manager based in Washington D.C. Toy was previously general counsel at the Overseas Private Investment Corporation and joins PCGI as a managing director. McGuire was previously a direct PE investor and entrepreneur in China and joins as a managing director. Chandra joins as a senior associate, previously with Ohio buyout firm Key Principal Partners.