PE Week Wire, Sept. 28, 2006

*** I have been a skeptic of venture capital involvement with podcasting companies since day one, even if day one wasn’t all that long ago. I just struggle to see venture-type ROI for most of these deals, unless they can be flipped before Yahoo, Google, etc. put down their tall glasses of content Kool-Aid. This isn’t to say that the podcasting market is inherently unprofitable, because it isn’t. VC-backed companies, however, are supposed to produce something a bit more exciting than respectable margins.

Some VCs agree with me, but it is clear that many others do not. Case in point is PodShow inc., which recently raised $15 million in Series B funding. This follows up on an $8.85 million Series A deal from last summer, from Kleiner Perkins, Sequoia Capital, Ram Shiram and Jerry Newman. All four are back this time around, but an undisclosed lead came aboard at a major pre-money valuation step-up. I know lots of firms that it isn’t – NEA, Oak, Spark, Greylock, etc. – but that is only useful if there was a narrower market of potential backers.

Rumors had been floating around the DEMO conference that this deal might get even larger, but Ray Lane of Kleiner Perkins assures me that $15 million is all for now. He also acknowledges that PodShow has become a bit of a VC bellwether for the podcasting market, as its original funding was soon followed by deals for companies like Odeo and In other words, expect additional podcasting deals to come down the pike shortly. Be interesting to see when the first exits occur…

*** A reader asks: “Does it make any sense that Morgan Stanley is getting back into private equity? I thought they left because of conflicts with advisory clients. Have those conflicts somehow evaporated?”

I hear you dear reader, and have been wondering the same thing myself. Morgan Stanley isn’t talking yet – partially because new group co-head Stephen Trevor is required to honor a six month non-compete with Goldman Sachs – but the apparent idea is to focus on co-investments with clients, instead of joining bidding groups that compete with clients.

This lowers the conflict-of-interest bar a little, but not entirely. What if Morgan Stanley’s private equity group is feeling pressured to put money to work? Could such pressure end up clouding its advice to clients? And what if an advisory client wants to fund a deal itself, without Morgan Stanley’s cash. Will the advisors focus more on other deals with co-investment opportunities? There are more such hypotheticals, which will have to be worked out before the group begins activity.

*** If you haven’t done so yet, please fill out our Reader’s Survey.

*** Yesterday I asked you to name the latest insurance company fund-of-funds group that’s going independent. The answer is the Swiss Re, via a deal with Horizon21.

*** Finally, I hope to see many of you at today’s Master Class on Fundraising for PE and VC firms in New York. I’ll be doing a keynote interview with Barry Gonder of Grove Street Advisors at 2:30…

Top Three

Demand Media Inc., a Santa Monica, Calif.-based acdquiror of online content sites and generic Internet domain names, has raised $100 million in second-round funding. 3i Group and Oak Investment Partners co-led the deal, while Spectrum Equity Investors also participated. Demand Media was formed earlier this year with a $120 million infusion from Oak, Spectrum and Generation Capital Partners.

Sistemas Técnicos de Encofrados (STEN), a Spanish construction company, has raised over €100m in private equity funding from 3i Group, in exchange for a minority ownership position.

Eagle Test Systems Inc., a Mundelein, Ill.-based provider of automated test equipment for the semiconductor manufacturing industry, priced 5.5 million common shares being at $16.50 per share, for an IPO take of approximately $90.75 million. It originally planned to offer 6.6 million shares at between $14 and $16 per share. It will trade on the Nasdaq under ticker symbol EGLT, while Banc of America Securities and Lehman Brothers served as lead underwriters. TA Associates sold 2.5 million shares in the IPO, and retains a 29.2% ownership position.

VC Deals

SpinalMotion Inc., a Menlo Park, Calif.-based developer of investigational artificial discs for treating patients with degenerative disc disease, has raised $20 million in Series C funding. Skyline Ventures led the round, and was joined by MedVenture Associates and return backers Thomas Weisel Healthcare Ventures and Three Arch Partners.

Gamida Cell Ltd., an Israel-based developer of stem cell therapy products, has raised $16 million in Series D funding. Israel Healthcare Ventures led the deal, and was joined by return backers Elscint Biomedical Inv*stment, Denali Ventures, Biomedical Inv*stments and TEVA Pharmaceuticals (Nasdaq: TEVA).

VideoEgg Inc., a San Francisco-based provider of Web-based video publishing solutions, has raised $12 million in Series C funding. Maveron led the deal, and was joined by return backers August Capital and First Round Capital.

3VR Security Inc., a San Francisco-based provider of next-generation video recorders, has secured $9 million of a $17 million Series C round, according to a regulatory filing. Return backers include DAG Ventures, Kleiner Perkins Caufield & Byers and VantagePoint Venture Partners.

Amaranth Medical Inc., a developer of bio-absorbable stents for peripheral and coronary vascular applications, has raised $7.5 million in Series A funding from Bio*One Capital and Charter Life Sciences. The company was founded in Singapore with its R&D facilities still there, but its headquarters is currently based in the Palo Alto, Calif. office of Charter Life Sciences.

BoardVantage Inc., a Menlo Park, Calif.-based provider of secure portals for corporate board work, has raised $5.5 million in fourth-round funding from return backers Bay Partners and Foundation Capital.

Integrated Mobile Inc., a Columbus, Ohio-based provider of wireless managed mobility services, has raised $5 million in private equity funding from Enhanced Equity Fund.

Sensory View of America Inc., an Austin, Texas-based provider of neuro-sensory diagnostic testing systems and software, has raised an undisclosed amount of seed funding from Lonestar Capco Fund LLC.

SignStorey Inc., a Fairfield, Conn.-based provider of in-store media networks for the grocery industry, has raised an undisclosed amount of Series B funding. The company only would say that the deal lead was a “Fortune 1000 asset management company,” and that existing shareholder Golden Gate Capital also participated.

Buyout Deals

Univision Communications Inc. (NYSE: UVN) received 63% shareholder approval for a $36.25 per share buyout offer from Haim Saban, Madison Dearborn Partners, Providence Equity Partners, Texas Pacific Group and Thomas H. Lee Partners. The company had been required to get approval of 60% or higher.

Arrowpoint Capital has agreed to acquire Royal & SunAlliance USA from London-based Royal & Sun Alliance Insurance Group PLC.

PE-Backed IPOs

Switch and Data, a Tampa, Fla.-based provider of Internet exchange infrastructure, has filed to raise $150 million via an IPO of common stock. It plans to trade on the Nasdaq under ticker symbol SDXC, with Deutsche Banc Securities and Jefferies & Co. serving as co-lead underwriters. Switch and Data shareholders include CapStreet Group, Seaport Capital Partners and Tudor Ventures.

ICF International Inc., a Fairfax, Va.-based consulting and technology services firm, priced 4.67 million common shares at $12 per share, for an IPO take of approximately $56.04 million. It will trade on the Nasdaq under ticker symbol ICFI, while UBS served as lead underwriter. CM Equity Partners was the company’s majority shareholder pre-IPO, and still retains a significant ownership position.

Telemar Participacoes, a provider of communications services in Brazil, has withdrawn registration for a proposed $1.45 billion IPO. The company cited “unfavorable market conditions.” Telemar shareholders include GP Investimentos.

Jazz Semiconductor Inc., a Newport Beach, Calif.-based wafer foundry, has withdrawn registration for a $105 million IPO. The move comes one day after Jazz agreed to go public via a $250 million reverse merger with blank check acquisition company Acquicor Technology Inc. (AMEX: AQ).

PE Exits

Microsoft Corp. (Nasdaq: MSFT) has agreed to acquire Gteko Ltd., an Israel-based provider of support automation software solutions for personal computers. No financial terms were disclosed, although Israeli newspaper reports put the sale price at around $120 million. Gteko raised $12 million in a 2004 venture capital deal from firms like Intel Capital and Pitango Venture Capital.

The Carlyle Group has completed its sale of Stellex Aerostructures Inc., a Lebanon, N.J.–based provider of subsystems and components for the aerospace and defense industries, to GKN PLC. Carlyle’s distressed fund completed a tender offer for a majority of Stellex’s common stock in October 2004, with an investment of between $15 million and $20 million.

Sun Microsystems Inc. (Nasdaq: SUNW) has agreed to acquire Neogent Inc., an Austin, Texas–based provider of identity management services automation. No financial terms were disclosed. Neogent has raised VC funding from Saber Capital.

Firms & Funds

The Ohio Capital Fund has made fund-of-fund commitments to Draper Triangle Ohio Ventures, Columbia Capital IV, Reservoir Partners II and Globespan Capital Partners V. Ohio Capital Fund is managed by Buckeye Venture Partners, a joint venture between Fort Washington Investment Advisors and Peppertree Partners.

Apollo Management is planning to raise a European mezzanine fund, according to a speech given yesterday by Apollo CEO Leon Black at the Private Equity Analyst conference. He did not say whether it would be a listed business development company (as Apollo has done in the U.S.) or a more traditional vehicle.