PE Week Wire, Nov. 2, 2006

It’s official: VC firms have re-mastered public relations.

After several years of post-bubble seclusion, VC firms once again are calling mainstream reporters to discuss changes in investment strategy (or at least of the need to change investment strategy). Last month it was Sevin Rosen, which got ahead of a potentially damaging story about a decision to suspend fundraising. This week it’s Charles River Ventures, which announced a new seed loan program called QuickStart.

CRV officially issued a press release yesterday, and talked to all of the important reporters (save for your not-so-humble correspondent, whose subsequent feelings of self-doubt led to a raid on the leftover Halloween candy bowl). Many of the resulting stories suggested that this was a novel program, and that seed investing was wrongly neglected among brand-name institutional firms. Hurrah, viva la seed-stage investing.

Great story to write… in 2003. Back then, lots of brand-name VC firms were moving downstream in order to mitigate risk. This was problematic, particularly since a dearth of early-stage VCs would eventually cause dealflow shortages for the new class of later-stage VCs. But, since then, two things have happened. First, a remarkable number of dedicated early-stage firms has emerged. Names like Shasta, True, Tugboat, Omidyar, Y Combinator, etc.

Second, a decent number of veteran firms launched their own seed-funding programs, whether they be pure funding mechanisms or basement incubator programs. You might remember that I wrote last year that Highland Capital – just to cite one of many examples — has an entire rent-free office space for startups on the first floor of its Lexington, Mass. headquarters.

None of this mitigates the CRV plan’s value, or potential. It is just media sniping (hello, I will be your sniper this morning). The bi-coastal firm says it will do up to 50 deals over the next three years, which would work out to around two deals per partner, per year (seven active partners). Very manageable (note: I did have a call set up yesterday w/ CRV, which fell through due to scheduling problems. Please don’t read this column as sour grapes, because such an impression would be misplaced).

The problem I see, however, is that CRV’s media strategy could lead to an overwhelming amount of deal-flow. The firm currently has just seven partners, two EIRs and one associate. What are they going to do when 500 business plans – or more – come through the door this month? Particularly since most of this seems to be just a West Coast operation.

Moreover, I expect most of these plans to be lousy. After all, Silicon Valley is infested with angels looking to unload $250k. Sure their terms might be a bit more onerous that are CRV’s, but it’s not like the capital hasn’t been available.

In other words, not all publicity is necessarily good publicity.

*** Related note: Some readers asked if there was a major entrepreneurial downside to such seed-stage programs, in cases where the VC firm opts not to sponsor the Series A round. “Isn’t this a major vote of no confidence, which would scare off other VCs?” asked John.

I put that question to an early-stage investor at last night’s Celtics game, who said it can cut both ways. It is possible that other VCs could be scared off if a firm like CRV passes, but it also could be liberating for the entrepreneur – who is no longer required to sell part of his/her company to any specific firm. The VC told me he’s seen both scenarios play out here on the East Coast, and that success or failure can be had either way.

*** Speaking of the Celtics, I’m back on the “Please fire Doc Rivers” bandwagon. NBA commish David Stern was sitting one row in front of me, and I almost wanted to ask if he could intervene…

*** QuizTime: Can you name the Boston-area VC firm that is launching a sponsored growth equity fund? This will be its first side vehicle, after years of proselytizing against such efforts. Hint: Look up.

Top Three

Nomura Holdings Inc. has agreed to acquire electronic brokerage Instinet Inc. from Silver Lake Partners and company management. No financial terms were disclosed, although various media reports put the price at around $1 billion. Silver Lake paid just over $200 million last year for a majority stake in Instinet from the Nasdaq Stock Market, which had just acquired the assets from Reuters (Nasdaq paid $1.88 billion for the entire Instinet Group Inc., but spun off the institutional brokerage biz to Silver Lake).

MobiTV Inc., an Emeryville, Calif.-based provider of mobile and broadband television and music services, has raised $30 million in additional Series C funding. The total round now comes in at $100 million, with a post-money valuation in excess of $400 million. Adobe Systems and Hearst Corp. came in as new backers, while existing shareholders include Oak Investment Partners, Menlo Ventures, Redpoint Ventures and Gefinor Ventures.

EMC Corp. (NYSE: EMC) has agreed to acquire Avamar Technologies Inc., an Irvine, Calif.-based provider of data backup and recovery solutions. The deal is valued at approximately $165 million in cash, and is expected to close within the next 30 days. Avamar has raised around $40 million in VC funding from firms like CMGI @Ventures, Benchmark Capital, Goldman Sachs, Morgan Stanley Venture Partners and Lightspeed Venture Partners.

VC Deals

Greenway Medical Technologies Inc., a Carrollton, Ga.-based provider of software that helps physicians improve clinical care and optimize efficiency, has raised $22 million in second-round funding. Wachovia Capital Partners led the deal, and was joined by return backer Inv*stor Growth Capital.

Paras Pharmaceuticals Ltd., a Gujarat, India-based developer of OTC healthcare and personal care products, has raised $12 million from Sequoia Capital India. The company announced last month that it had secured $42 million from Actis.

NebuAd Inc., a Sausalito, Calif.-based provider of online advertising solutions, has raised around $6.1 million in Series A funding led by Menlo Ventures, according to a regulatory filing.

Mint Software Inc., a Sunnyvale, Calif.-based provider of online personal finance management solutions, has raised $750,000, according to a regulatory filing. Backers include First Round Capital, Felicis Ventures and Ron Conway.

Buyout Deals

Brockway Moran & Partners has acquired MW Industries Inc., a Logansport, Ind.-based manufacturer and catalog marketer of custom engineered mechanical components. CITIC Capital Partners and company management also participated.

Hellman & Friedman and WPP are planning to bid between €800 million and €1 billion for France-based sports marketing agency Sportfive SA, according to The Telegraph of London. Current Sportfive shareholders include Advent International, EQT Partners and Goldman Sachs.

Thoma Cressey Equity Partners has completed its acquisition and subsequent merger of VisionSolutions and iTera Inc., in order to create a provider of solutions to the System I market. No financial terms were disclosed.

TorQuest Partners has bought Herbal Magic from Trivest Partners fort an undisclosed amount. Herbal Magic is a Canadian operator of weight loss centers. CIBC World Markets advised Trivest on the sale.

Fortis Private Equity has acquired Innovative Medical Solutions BV, a Dutch provider of branded medical and wellness products. No financial terms were disclosed for the deal, which also included participation by company management.

Energy Capital Partners has completed its purchase of the competitive generation business from Northeast Utilities and its affiliates, representing approximately 1,442 megawatts. No financial terms were disclosed.

PE-Backed IPOs

GlobalStar Inc., a Milpitas, Calif.-based provider of voice and data communications services via satellite, priced 7.5 million common shares at $17 per share, for an IPO take of approximately $127.5 million. The company had been planning to price 6.5 million shares between $16 and $18 per share. It will trade on the Nasdaq under ticker symbol GSAT, while Wachovia Securities and JPMorgan served as co-lead underwriters. Shareholders include Thermo Funding Co., Columbia Ventures Corp., Banc of America Securities and Qualcomm.

PE-Backed M&A

Buffets Inc., an Egan, Minn.-based portfolio company of Caxton-Iseman Capital, has completed its $16.25 per share acquisition of Ryan’s Restaurant Group Inc. (formerly Nasdaq: RYAN). Leverage for the deal was arranged by Credit Suisse Securities, UBS Securities and Goldman, Sachs & Co., which resulted in a full refinancing of Buffets’ and Ryan’s existing debt; and a sale-leaseback transaction arranged by affiliates of Fortress Inv*stment Group.

Dice Holdings Inc., an Urbandale, Iowa–based provider of specialized career sites and career fairs, has completed its purchase of eFinancialGroup, a UK-based operator of career site for financial professionals. No financial terms were disclosed. Dice has been owned by General Atlantic and Quadrangle Group since August 2005.

HealthMedia Inc., an Ann Arbor, Mich.-based provider of online behavior change interventions, has acquired, a provider of online behavioral health interventions, including programs for depression and insomnia. No financial terms were disclosed. HealthMedia has raised over $13 million in VC funding from firms like Chrysalis Ventures, Avalon Ventures, the Princeton Fund and Arboretum Ventures.

PE Exits

Clifton House Acquisition Ltd. has sold The Expanded Metal Company Ltd. (EMCO), a UK-based supplier of expanded metal mesh components and finished goods, to Gibraltar Industries Inc. (Nasdaq: ROCK). No financial terms were disclosed, except that EMCO has annual sales of approximately $62 million.

Firms & Funds

AIG Capital Partners is raising up to €500 million for its second New Europe Fund, according to a regulatory filing.

North Castle Partners of Greenwich, Conn. is raising up to $300 million for its fourth fund, according to a regulatory filing. It already has secured $63.8 million in commitments, with Merrill Lynch serving as placement agent.

Avrio Ventures of Calgary, Alberta has held a Cnd$53 million first close on its inaugural fund. A second closing is planned for next year. The VC firm will focus on Canadian companies in the industrial bioproducts, food technology and nutraceutical ingredient spaces.

OpenView Venture Partners, a spinout of Insight Venture Partners’ Boston office, reported to the SEC that limited partners in its $100 million inaugural fund include Commonfund, CalPERS, Hermes and Procific.

HitecVision Private Equity, a firm focused on oil and gas opportunities in Europe and North America, is opening a UK office in Aberdeen. It will be run by Mike Hill, a former director of 3i Group’s oil and gas team.

BIA Digital Partners II has received an SBIC license from the U.S. Small Business Administration. The fund currently has $105 million in committed capital, with a final close on $150 million scheduled for next month. It makes mezzanine investments in media, telecommunications, information and business service companies.

Duff & Phelps has acquired Chanin Capital Partners, a specialty I-bank specializing in distressed situations. No financial terms were disclosed.

Human Resources

Bill Wildern has joined Cleveland-based Resilience Capital Partners as a managing director and head of the firm’s new Detroit office. He previously was managing director of consulting firm BKK.

Richard Yanowitch has joined Accel Partners as a venture partner focused on the digital media, social networking and online sectors. He currently serves as vice chairman of NDS Group, and is a former executive vice president with VeriSign.

Morgenthaler has promoted Joe Machado from senior associate to principal, in the firm’s buyout group. Machado currently serves as a director of Comm-Works, and as a board observer of both Phillips & Temro Industries and Flow

David Marcus and Colin Wilson-Murphy have joined turnaround firm Drum Capital as associates. Marcus comes to Drum from Bassini Playfair Wright LLC. Wilson-Murphy previously was an I-banking analyst with Capstone Partners.

Jeffrey Katz has joined Dechert LLP as a partner in the firm’s corporate and securities practice. He previously was a senior attorney at Milbank, Tweed, Hadley & McCloy.

Eric Risley has joined Rutberg & Co. as senior managing director and head of I-banking. He previously ran the software corporate and I-banking group at Banc of America Securities.