As Dan mentioned last week, he’s taking a Boston-based vacation starting today. He lined up a slew of guest columnists, and today’s Wire features our own Connie Loizos, who also writes for both peHub.com and Venture Capital Journal. She can be reached at connie.loizos@thomsonreuters.com. And of course, send your press releases and news tidbits to me at erin.griffith@thomsonreuters.com
Between the IPO drought and a slowdown in M&A, Marty Pichinson can’t answer the phone fast enough these days.
Pichinson is cofounder of 27-year-old Sherwood Partners, long known to industry insiders as “the undertaker” of the venture industry. Its primary role is to efficiently shutter companies, and, when possible, to return a little something to their creditors. And as you might guess, demand for its services is growing in a straight line toward the sky right now. (Among some of the high-profile startups Sherwood is in the process of winding down are bankrupt mobile content provider Amp’d and the bankrupt residential home phone provider SunRocket.) Indeed, in January of 2007, the firm was being asked to take on three new clients a month. Fast foward to today, and it’s taking on three to four newly imploding companies every week. Most of them are Web 2.0 startups backed by Valley VCs, but it also counts Google and Microsoft as clients.
I reached Pichinson — an unreserved 62-year-old who once managed musical acts and tends to pepper his speech with words like “caca” — yesterday, after he returned from a three-week trip to Poland.
How long does it take you to wind down a company?
If we restructure the company — try to save it, it’s anywhere from 3 months to 12 months. If we close it, it takes up to a year because of all the legal ramifications.
Where are these startups, and their backers, going wrong?
Well, you’ve got to start bringing in companies like Sherwood early to work with managers and help shave off costs. It’s all about extending the runway long enough that customers can absorb a product.
Everyone comes up with this cockapoo about startups. It’s not about being smart. It’s about being around long enough.
Couldn’t VCs help more with what sounds like business fundamentals?
This is what people don’t understand: decades ago, when a VC put money into a Cisco or HP and sat there and worked with them, they were managing a $2 million fund. Now, with funds the sizes they are, do VCs really have the time to work with all these companies when they don’t know which will be the winner? No.
How about raising smaller funds and backing fewer companies?
They have to put money into so many companies. Who else is going to bet on ideas? That’s what venture capital is. Did you ever think you could take a cell phone with you to Italy and talk with people as if you were home? Paradigm shifts like the kinds we’re enjoying and will continue to enjoy cost money. I think the venture model is perfect the way it is.
You must be recovering from jet lag. Just kidding. You’re working with a lot of Web startups, correct? What are you seeing?
A growing practice is companies that want to acquire others; they’re calling us in to do an ABC [an assignment for the benefit of creditors], so they can purchase the assets while we’re winding the company down. It lets the employees keep going. In other cases, we’ll get a forebearance [the stay of enforcement of something like a debt or obligation that’s due], so we’ll get 90 days to get our arms around everything and come up with a plan, like give stock to creditors, which they like.
So they’re trying to squish together failing Web 2.0s so they won’t have to write off their investments entirely.
Yes.
Is that a sign of trouble, or business as usual?
You know what I think? I think the economy, excuse my French, sucks right now. You have no secondary market for mortgages. You got an energy crisis that’s killing us all. You’ve got storms and floods in the Midwest. Things are a mess, and we haven’t seen anything yet. Q3 and Q4 are expected to be worse. Credit card debt is going to collapse. Hedge funds are dying. Limits are going to start suing everyone. It’s a perfect storm, almost like mankind has never seen. Shit happens, but the venture model works.
Top Three
The Blackstone Group, Bain Capital and NBC Universal purchased the Weather Channel, a cable television channel and subsidiary of Landmark Communications. Deal terms were not disclosed but news reports pegged the deal’s value at just under $3.5 billion. Deutsche Bank, GE Commercial Finance provided debt. Blackstone Group’s hedge fund, GSO Capital, and Bain Capital’s hedge fund, Sankaty Advisors, also contributed financing. www.weather.com
BCE, along with its consortium of LBO backers and their lenders, reached an agreement to go forward with its buyout, priced at the original deal value of around $50 billion. The agreement stipulates BCE will cease to pay dividends for the rest of the year, saving around $1.9 billion for its buyers. The consortia is led by Providence Equity Partners and includes Ontario Teachers’ Pension Plan, Madison Dearborn Partners and Merrill Lynch Global Private Equity. Citigroup, Deutsche Bank, Royal Bank of Scotland and Toronto-Dominion Bank comprise the lending group. www.bell.ca
Babcock & Brown purchased the assets of The Peoples Natural Gas Co. and Hope Gas Inc. from Dominion Resources Inc. The deal is valued at $910 million. www.babcockbrown.com
VC Deals
Agios Pharmacueticals, a Cambridge, Mass.-based biotech company focused on cancer metabolism, closed on $33 million in Series A funding. The round was co-led by Third Rock Ventures, Flagship Ventures and ARCH Venture Partners.
GameDuell, a San Francisco-based online gaming company, raised €11 million ($17.3 million) in Series B Funding. Germany-based Wellington Partners Venture Capital provided the funding, a follow-on to an undisclosed Series A funding from Holtzbrink Ventures and Burda Digital Ventures. www.gameduell.com
WebMynd, an online search company, is nearing a close on its first round of venture capital worth $250,000 from undisclosed sources, according to VentureWire. The funding is committed but not yet closed. www.webmynd.com
Eka Systems, a utility metering concern, has raised $18.5 million in Series D funding from Flybridge Capital Partners, RockPort Capital Partners, and Metropolitan Investments. The business has received $40 milllion in venture backing to date. www.ekasystems.com
Intelligent Energy, a UK fuel cell maker, raised $13.6 million from a set of undisclosed investors.
Tandem Diabetes, a medical device company based in San Diego, raised $13 million in a second round of financing lead by Domain Associates. Further investments were gleaned from TPG Biotech and Second Technology Capital Investors.
Ozone Media Solutions, an Indian advertising targeting strategist, received its first round of funding from IDG Ventures India, a network of venture funds backed by IDG. The size of the Series A commitment was undisclosed.
Buyout Deals
The Blackstone Group, Bain Capital and NBC Universal purchased the Weather Channel, a cable television channel and subsidiary of Landmark Communications. Deal terms were not disclosed but news reports pegged the deal’s value at just under $3.5 billion. Deutsche Bank, GE Commercial Finance provided debt. Blackstone Group’s hedge fund, GSO Capital, and Bain Capital’s hedge fund, Sankaty Advisors, also contributed financing. www.weather.com
Bain Capital, KKR, Silver Lake and GS Capital Partners, among others, have placed bids for Huawei, a Chinese maker of wireless products, according to The Financial Times. TPG, Carlyle Group and The Blackstone Group expressed interest but are no longer in the process. The deal is valued at approximately $4 billion. www.huawei.com
BCE, along with its consortium of LBO backers and their lenders, reached an agreement to go forward with its buyout, priced at the original deal value of around $50 billion. The agreement stipulates BCE will cease to pay dividends for the rest of the year, saving around $1.9 billion for its buyers. The consortia is led by Providence Equity Partners and includes Ontario Teachers’ Pension Plan, Madison Dearborn Partners and Merrill Lynch Global Private Equity. Citigroup, Deutsche Bank, Royal Bank of Scotland and Toronto-Dominion Bank comprise the lending group. www.bell.ca
TPG pulled its agreement to invest £179 million ($350 million) in UK mortgage lender Bradford & Bingley. www.bbg.co.uk
Huntsman Corp. has asked the court to require Apollo Management-backed Hexion Chemicals Inc. to go through with its agreed buyout, arguing that additional financing is not necessary to complete the transaction. www.huntsman.com
Babcock & Brown purchased the assets of The Peoples Natural Gas Co. and Hope Gas Inc. from Dominion Resources Inc. The deal is valued at $910 million. www.babcockbrown.com
Laxey Partners announced its agreement to purchase the shares it does not already own of TDG, a UK transportation company. The deal is valued at £203 million ($403 million). Financing will be bridged by Bank of Ireland-owned Burdale Financial. Laxey Partners already owns 22% of TDG. www.laxeypartners.com
Masdar Clean Tech Fund and Virgin Green Fund purchased metal and petroleum recycling business DuraTherm Inc for an undisclosed amount. HSH Nordbank AG provided debt financing. Masdar Clean Tech is a $250M investment vehicle made up of commitments from Abu Dhabi Future Energy Company, Consensus Business Group, Credit Suisse and Siemens AG. http://www.duratherm-intl.com
Olympus Partners acquired Ann’s House of Nuts, a Mariland-based private label snack food maker. The Connecticut-based buyout firm did not disclose the terms of the transaction.
LinkMed AB, a Swedish life sciences private equity firm, will acquire 100 percent of Swedish biotech company, Olerup SSP AB, in a deal valued at SEK 216 million ($35 million). www.linkmed.com
Sun European Partners, the Europe arm of Sun Capital Partners, acquired UK furniture retailer A. Share & Sons. No terms were disclosed.
Progressive Molded Products, a Canadian auto parts maker backed by Thomas H. Lee Partners, will cease operations. The business blamed a decrease in demand from its customers for its failure to survive restructuring. TH Lee purchased the business in 2004. www.thlee.com/index.html
PE-Backed IPOs
GeoVera Insurance Holdings, backed by Hellman & Friedman and Friedman Fleischer & Lowe, LLC withdrew its IPO plans. The IPO was priced to raise up to $106 million. www.geovera.com
PE Exits
AXA Private Equity has sold Benedicta, a French condiment maker, to H.J. Heinz company. No terms were disclosed. www.heinz.com
PE-Backed M&A
Bioniche Pharma has acquired the Enlon line of products from Baxter Health Care Corp. Bioniche is backed by RoundTable Healthcare Partners. www.bionichepharmausa.com/
Firms & Funds
Darby Overseas Investments is expecting to close its Brazilian infrastructure mezzanine fund by the end of June, Buyouts reports. The firm is expecting to close on R$400 million (U.S. $249 million). www.darbyoverseas.com
Beecken Petty O’Keffe & Co., a health care-focused buyout firm, is expecting to close on $650 million for its third fund, Beecken Petty O’Keefe & Co. Fund III LP, in the third quarter, according to Buyouts. Twin Bridge Capital Partners has committed. www.beeckenpetty.com/
Human Resources
Thomas Weisel Partners Group has chosen interim Chief Financial Officer Shaugn Stanley to fill the position permanently. The firm has hired Keith Harris, formerly Chief Financial Officer of Westwind Partners, as Chief Operating Officer of TWP Canada. www.tweisel.com
UK hedge fund GLG Partners LP hired Driss Ben-Braham from Goldman Sachs. www.glgpartners.com/
Mike Bunker has joined Early Stage Partners, a venture capital firm owned by Capital One Partners. Bunker was previously a district manager for Bard Access Systems at C.R. Bard. www.esplp.com/
Christine Herron and Kent Goldman have joined venture capital firm First Round Capital in its San Francisco Office. The new hires hail from Geocapital Partners and the corporate development team at Yahoo, respectively. www.firstround.com/
Richard NeJame joined the recapitalization and restructuring group at Broadpoint Capital, a subsidiary of Broadpoint Securities Group. NeJame previously worked at Imperial Capital.
Scott B. Meyer has joined Warburg Pincus as an Entreprenuer-in-Residence. Meyer was formerly the CEO and President of About.com. www.warburgpincus.com/
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