Hamilton Lane founder Les Brun is back in the private equity market, with plans to raise a $1 billion leveraged fund-of-funds that would invest in venture capital managers. It’s a novel approach that Brun hopes limited partners can wrap their heads around. It’s also a favor to old friends.
Brun cashed out of Hamilton Lane about 18 months ago, after which he used some of the proceeds to buy up Philadelphia-area auto dealerships. He also was part of the Bruce Toll-led group that acquired the Philadelphia Inquirer and Daily News from McClatchy. It seemed like he was done with institutional investing.
And then his phone rang. On the other end were Bob Keith and Mark DeNino, TL Ventures managing directorswho once had worked with Brun at Fidelity Bank in Philly. Their firm was in deep trouble. Its biotech team had left to form their own firm (Devon Park BioVentures), and most of their IT investors followed suit (Guggenheim Venture Partners). There had been talk about raising a $400 million for a sixth fund, but there was simply too much uncertainty and too few experienced partners. TL Ventures had joined the walking dead – managing existing investments, without much hope of making new ones.
“Bob and Mark and I had a few chats about the difficulty of raising venture capital funds in this environment, and at some point a light-bulb went on,” Brun says. “Why not apply a leveraged buyout model to a fund-of-funds that invests in venture capital?”
Brun and Keith searched for a relevant example, and learned that Nomura of Japan had used a CLO structure with buyouts as the underlying asset. Not quite apples to apples, but close. Brun went to the rating agencies with his idea, and they signed off on it – albeit not with as high a degree of leverage as Nomura had done.
The result was a new affiliate of TL Ventures, which has its own investment team and advisors like capital icon Alan Patricof, Proskauer Rose attorney Robin Painter and HBS professor Josh Lerner. It plans to raise a total of $1 billion, including investment-grade, non-recourse leverage. Up to $100 million of that will go to anchor TL Ventures’ new fund.
To be sure, this is not an easy endeavor. Brun expects a first close in early 2008, but acknowledges that it has been a tricky pitch to limited partners. “LPs usually want to check a box – ‘venture capital’ or ‘fixed income’ – so this is a bit difficult for some of them.” He also acknowledges that his effort partially looks like a bailout for a VC firm that can’t raise money on its own.
“The core TL team is still there, but this isn’t just about raising money for TL,” Brun says. “It’s about a new model and a new fund that will invest in dozens of venture capital funds. I have a lot of longstanding relationships with general partners, and hope to apply economy of scale in a new way.”
We’ll check back early next year, to see if it worked.
*** Early publication this morning, as I’m off to moderate a panel at Future Forward. I’ve also got moderation duty tomorrow down in Greenwich — Yale SOM Private Equity Conference — which means that Alex Haislip will be pinch-hitting. Talk to you again later today at peHUB, and back in this space on Monday.
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Just Linking Around
* Will Baidu.com follow Alibaba.com down IPO road?
* Fred Wilson largely debunks the “selection bias” issue, vis-a-vis venture capital returns.
* Morgan Stanley is taking a $2.5 billion write-down. Just a drop in what could be a $500 billion bucket.
* Chuck Prince apparently “retired” from Citigroup. John Gapper calls an ouster and ouster.
Top Three
Merrill Lynch has put its mid-market senior lending arm on the auction block, according to Buyouts Magazine. General Electric and Cerberus Capital Management are among the bidders. The unit employs 147 people, and completed 148 transactions valued at more than $5.2 billion in 2005, according to an overview posted to the division’s website (it has not made subsequent info available). Buyouts subscribers can read the full story here. The rest of you can get a slightly-shorter version over at peHUB.com.
Vaperma Inc., a Quebec City-based provider of gas separation solutions aimed at reducing energy costs and carbon footprint, has raised Cnd$21.5 million in second-round funding. Low Carbon Accelerator Ltd. led the deal, and was joined by return backers Emerald Technology Ventures, BDC Capital and Fonds d’investissement en developpement durable. Get more info.
Clear Channel Communications Inc. (NYSE: CCU) reported a 51% jump in Q3 earnings, largely due to increases in outdoor advertising revenue. The company also said that its pending buyout by Bain Capital and Thomas H. Lee Partners may not close until Q1 2008, due to lagging regulatory approvals.
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VC Deals
Zip Trade Technologies Inc., a New York-based provider of commercial products and services for software developers and system operators who use PHP, has raised $20 million in Series D funding. First Mutual Credit led the round, and was joined by return backers G-Trade and Bank One.
Sixtron Advanced Materials, a Quebec–based developer of thin-film coatings for solar cells, has raised Cnd$10 million in Series A funding led by Ventures West, according to VentureWire. www.sixtron.com
SantoSolve AS, an Oslo, Norway-based drug developer focused on pain therapeutics, has raised $7 million in new VC funding. Its lead candidate is for osteoarthritis. DnBNor, Gezina and Glastad Invest were joined on the round by return backers Teknoinvest and InnovationsKapital. www.santosolve.com
Iptivia Inc., a New York-based provider of IP service assurance solutions to enterprises and service providers, has raised $6.54 million in Series A funding. Backers include Paladin Capital Management and OmniCapital Group. www.iptivia.com
Formac Pharmaceuticals NV, a Belgium-based developer of improved oral compounds of small organic drugs, has raised Euro1.7 million in VC funding. Backers include Allegro Investment Fund, Hunza Ventures, Gemma Frisius Fonds K.U.Leuven II and Vinnof.
Pinyon Technologies Inc., a Reno, Nev.-based provider of smart antennae solutions, has raised $1.2 million in Series A funding. The only disclosed investor is George Lauro, founding partner of Alteon Capital Partners.
Buyout Deals
CIC Partners has sponsored a recapitalization of OmniSYS LLC, a provider of pharmacy-related medical benefit claims. No financial terms were disclosed for the deal, which was done in partnership with OmniSYS founder and CEO Jerry Ransom.
Colony Capital has completed its $5.4 billion take-private buyout of Station Casinos Inc., in partnership with Station CEO Frank Fertitta. Station stockholders received $90 per share in the deal, which included $3.4 billion in assumed debt. www.stationcasinos.com
Sun Capital Partners has entered exclusive negotiations to acquire the 73-restaurant Smokey Bones Barbeque & Grill chain from Darden Restaurants Inc. (NYSE: DRI). www.smokeybones.com
PE-Backed IPOs
ARYx Therapeutics Inc., a Fremont, Calif.–based developer of retro-metabolic drugs, raised $50 million through its IPO. The company priced five million common shares at $10 per share, compared to an initial price range of $14-$16 per share, for an initial market cap of approximately $175 million. ARYx will trade on the Nasdaq under ticker symbol ARYX, while Morgan Stanley served as lead underwriter.It had raised over $110 million in total VC funding since its 1997, from firms like MPM Capital (26.1% pre-IPO stake), Nomura Phase4 Ventures (19.5%), OrbiMed Advisors (14.6%), Ascent Biomedical Ventures, BioMed, JAFCO Life Science Investments, Scottish Widows Investment Partnership, Montreux Equity Partners and Novel Bioventures. www.aryx.com
ICx Technologies Inc., a Washington, D.C.-based provider of sensor solutions for the homeland security market, has raised $80 million through its IPO. The company priced five million common shares at $16 per share ($17-$19 range), for an initial market cap of approximately $535 million. It will trade on the Nasdaq under ticker symbol ICXT, while Lehman Brothers servedas lead underwriter. Wexford Capital remainsthe company’smajority shareholder. www.icxt.com
Fabrinet Inc., a Thailand-based provider of foundry services to optical component, module/subsystem and optics OEMs, has filed for a $250 million IPO. It plans to trade on the NYSE under ticker symbol FN, with Morgan Stanley and Deutsche Bank Securities serving as co-lead underwriters. Shareholders include H&Q Asia Pacific (60.4% pre-IPO stake), JDS Uniphase Corp. (6.7%) and J.F. Shea Co. (6.7%). www.fabrinet.th.com
Jajah Inc., a Menlo Park, Calif.-based Internet telephone company, plans to go public in the second or third quarter of next year, according to a Reuters interview with company co-founder Roman Scharf. The offering would be designed to raise between $100 million and $200 million. Jajah has raised over $23 million in VC funding from firms like Sequoia Capital, Globespan Capital Partners, Intel Capital and Deutsche Telekom. www.jajah.com
PE Exits
ACON Investments has agreed to sell Brazilian supermarket chain GBarbosa to Cencosud of Chile. No financial terms were disclosed. ACON acquired GBarbosa from Royal Ahold in March 2005, in partnership with company management. It had retained UBS and Merrill to lead an IPO, before being approached by several strategic buyers, including Cencosud.
TechTarget Inc. (Nasdaq: TTGT) has acquired KnowledgeStorm Inc., an Alpharetta, Ga.-based provider of qualified leads for IT vendors. The deal is valued at approximately $58 million, including $52 million in cash and 359,820 shares of unregistered TechTarget common stock. KnowledgeStorm had raised over $16 million in VC funding since 1999, from firms like Apex Venture Partners, LiveOak Equity Partners, Sterling Partners, Imlay Investments, Gefinor Ventures and Total Technology Ventures. www.techtarget.com www.knowledgestorm.com
PE-Backed M&A
CyOptics Inc., a Breinigsville, Penn.–based supplier of high-speed optical chips and components for broadband communications solutions, has acquired Inplane Photonics Inc., a South Plainfield, N.J.-based manufacturer of planer lightwave circuits for optical networks in telecom and defense applications. No financial terms were disclosed. CyOptics has raised over $123 million in VC funding since 1999, from JVP, Sprout Group, Towerbrook Capital Partenrs, EuroFund, Birchmere Ventures, TL Ventures, BlueRun Ventures, SemiConductor Devices, CIV, Innovacom, Finaventures, Cisco Systems, Intel Capital and Vitesse Semiconductor. Inplane Photonics had raised around $38 million in VC funding from JVP and Morgenthaler Ventures.
Forbes Media has acquired Clipmarks, a New York-based developer of an online service that lets users clip and share text and other content from Web pages. No financial terms were disclosed. Forbes Media was formed last summer by Forbes and Elevation Partners.
Gryphon Investors have sold Irvine, Calif.-based Consolidated Fire Protection Holdings Inc. to MX Mercury Beteiligungen GMBH, a global fire and life safety company owned by Industrial Kapital and company management. No financial terms were disclosed.
IAC North America, an automotive parts supplier owned by W.L. Ross & Co., has acquired Collins and Aikman’s manufacturing facility in Hermosillo, Mexico. The deal was valued at $17 million, plus the assumption of certain liabilities on a restructured basis. The facility generated more than $300 million in revenue last year, and has 1,300 employees.
Mascoma Corp., a Cambridge, Mass.-based provider of cellulosic biomass-to-ethanol development and production, has acquired Celsys BioFuels Inc., an Indianapolis-based commercializer of a pretreatment processes for multiple biomass feedstocks, including corn fiber. No financial terms were disclosed. Mascoma has raised nearly $40 million in VC funding from Khosla Ventures, Atlas Venture, Flagship Ventures, Kleiner Perkins, Pinnacle Ventures and VantagePoint Venture Partners. www.mascoma.com
Xiotech Corp., an Eden Prairie, Minn.-based provider of data storage and data discovery solutions, has acquired the Advanced Storage Architecture group of Seagate Technology (NYSE: STX). No financial terms were disclosed. Xiotech is backed by Oak Investment Partners.
Firms & Funds
Carousel Capital has closed its third fund with $210 million in capital commitments. The Charlotte, N.C.-based firm acquired small-market profitable companies based in the Southeastern U.S.
Champ Private Equity, the Australian private equity firm that is 50% owned by Castle Harlan, will open an office in Singapore. It will be led by Champ managing director Nathanial Childres.
Istithmar, a Dubai-based private equity firm, has opened a new office in Shanghai, China. It is the firm’s first office outside of the UAE and will be led by managing directors Gable Gao and Jane Shao.
Human Resources
The Carlyle Group has added three senior pros for its Central and Eastern European private equity team, based in Warsaw. They are: Janusz Guy, managing director, formerly a managing director with Spectra Holding; Piotr Nocen, director, former partner with 3TS Capital Partners; and Aleksander Kacprzyk, director, formerly with McKinsey & Co.
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