PE Week Wire: Thursday, August 28, 2008

Just when you thought this Blackstone extortion case couldn’t get any stranger, we learn that the Smurfs are involved. Yeah, those Smurfs (as if there are other ones).

For the uninitiated, a man named Stuart Ross was arrested last week for trying to extort $11 million from David Blitzer, a senior managing director with Blackstone Group who is married to Ross’ estranged daughter. He was released on $2,500 bail Saturday morning, and apparently believes the entire thing is a Blackstone-conceived plot to “crush” him. As he put it outside the courtroom: “This was a preconceived operation by Blackstone to show its strength.”

Ummm… ok. A firm worth billions of dollars feels the need to flex its muscles at the expense of an unknown non-practicing attorney. If that were the case, Schwarzman could have just paid him to play piñata at next year’s birthday bash.

Anyway, back to the Smurfs. Seems Ross hasn’t always been hard up for money. Back in the day, he made a fortune off licensing rights to the little blue guys (and one special lady), but he’s since squandered it. Maybe he should try extorting those duplicitous Snorks…

*** I thought most of you were going to agree with my take on the Insight Venture Partners/Photobucket situation. And perhaps the silent majority did, but the vocal minority did not. This even included my colleague David Toll, who wrote:

IVP should have notified LPs about the investment… That way, LPs could have then raised any concerns, or given their blessing. Regardless of whether IVP execs had a legal right to make a killing on the side, LPs have a right to feel miffed for a number of reasons: Time and again PE firms have stretched their investment strategies to take advantage of special opportunities or unusual market conditions. IVP could easily have done that here, given the size of the investment…

Of particular interest to me were a number of emails asking why I glossed over the issue of time. Specifically, the time that Insight partners spent on an investment that was of no possible value to its limited partners. As Chris wrote at peHUB:

GPs do not have infinite time. Bandwidth is a critical factor when doing diligence on a fund. If a partner already sits on 5-15 portfolio company boards (typical for a VC of this size), what is the opportunity cost of sitting on a board and focusing on an opportunity that lies outside of the fund?

Another respondent correctly pointed out that I once criticized Fred Wilson of Union Square Ventures, for all the “work hours” he spends blogging. Touché.

I’d like to offer an amended thesis, but it’s something I’m really struggling with. Do I say that professional investors should never invest their personal money in deals that would require a substantial time commitment (note: IVP’s Jeff Lieberman said Photobucket was not a major time-consumer, but at the same time he sat on the company’s board and spent hours in the room with Rupert Murdoch during sale negotiations)? If so, a lot of angel financing would die off. Do I say that VCs should be able to spent time on a deal for personal gain, so long as it does not pose a monetary risk to the fund? If so, how do you prove that the time IVP spent on Photobucket – no matter how little — couldn’t have been better spent finding a fund investment or helping an existing portfolio company? Do I say that VC and PE investors should not sit on any corporate boards outside their portfolios? Actually, I do think I’ve said that – but more for concerns over liability than time.

Is it possible that IVP should have shared some of the proceeds with LPs anyway, as a show of good faith? I’ve already heard from one LP about a 13-year-old situation in which this may have happened (details are disputed), and most general partners are obligated to share outside directorship fees.

I’m really in knots over this, but am determined to come up with some personal philosophy before this time tomorrow. As always, your input is encouraged. To be clear, I still do not believe IVP’s actions were wrong. I’m just a bit less sure that they were right.

*** First Read, including some particularly unkind words for VCs looking to fund iPhone apps.

*** Second Opinion, including laid-off Wall Streeters enjoying their summer “vacation.”

*** Erin wonders if anyone will step up to buy all the old media assets that are for sale.

*** London-based Chris Spink on private equity’s mixed signals, including talk of this morning’s Bodycote buyout by CD&R.

peHUB Across America II

We’re less than a month away from the next round of peHUB Shindigs, and more than 300 of you have already gotten tickets. So what are the rest of you Denver, San Fran and Seattle folks waiting for?

Be sure to join your fellow readers for for an evening of cocktails, conversation and comisseration (or maybe celebration, given the revised GDP figures). Tickets cost just $10, with proceeds going to a local charity that will be voted on by event attendees. Here’s the info:

• Denver

Tuesday, Sept. 23

The Wynkoop Brewing Co.

http://pehubdenver.eventbrite.com

• San Francisco

Wednesday, Sept. 24

Pete’s Tavern (across from AT&T Park)

http://pehubsf.eventbrite.com

• Seattle

Thursday, Sept. 25

The Chapel Bar

http://pehubseattle.eventbrite.com

Crazy kudos to regional sponsor Square 1 Bank, which is now one of my all-time favorite banks. Also, I encourage you to do some business with our outstanding local sponsors: Headwaters MB and the Rocky Mountain Venture Capital Association in Denver; Goodwin Procter and Gunderson Dettmer in San Francisco; and Cascadia Capital in Seattle. Yes, we still have a few local sponsorships available. Just shoot me an email for info.

Top Three

The Active Network, a San Diego-based online community and application technology provider for the active lifestyle/sports market, has raised $80 million in Series F funding. Return backers include ESPN, Canaan Partners, North Bridge Venture Partners and Performance Equity Partners. peHUB was first with the news yesterday.

Clayton, Dubilier & Rice has agreed to acquire materials testing business Bodycote Testing Group from Bodycote PLC. The deal is valued at approximately £417 million, with CD&R operating partner Fred Kindle to serve as chairman of the newly-independent company.

Cisco Systems has agreed to buy PostPath Inc., a Mountain View, Calif.-based provider of email and calendaring software. The deal is valued at approximately $215 million. PostPath raised nearly $23 million in VC funding, from firms like Worldview Technology Partners, Matrix Partners and Jafco Ventures. The company’s $1.6 million Series A round in late 2003 came with a post-money valuation of just $2.7 million.

VC Deals

RadioFrame Networks Inc., a Redmond, Wash.-based provider of a platform for converging mobile voice and data, has raised $28 million in combined Series F equity and debt financing. Plainfield Asset Management was joined on the deal by return backers like Ignition Partners, Ericsson Venture Partners and VantagePoint Venture Partners. The company had previously raised around $78 million since 2001.

NYX Interactive, a Swedish supplier of systems for digitally-distributed gaming entertainment, has raised €5 million in VC funding from Nordic Capital.

Nexterra Energy Corp., a Vancouver, Canada-based maker of gasification systems that use waste fuels “inside-the fence” at industrial and institutional facilities, has raised C$3.8 million in fourth-round funding. Return backer ARC Financial Corp. led the deal, which brings the firm’s total investment in Nexterra to around C$20 million.

Buyout Deals

3i Group and CVC Capital Partners are among the bidders for Fraser & Neave’s printing and publishing business, which includes Times Bookstores in Singapore and Malaysia. Morgan Stanley is running the process, which is expected to net at least $400 million.

Aladdin Knowledge Systems Ltd. (Nasdaq: ALDN) has rejected a $13 per share buyout bid from Vector Capital, saying that the offer “significantly undervalues the company.” It also has rejected an alternate proposal whereby Vector would acquire Aladdin’s digital rights management business for between $125 million and $135 million.

PE Exits

CVC Capital and Standard Chartered are seeking buyers for Singapore-based metal stamping company Amtek Engineering, which they acquired last May for approximately $390 million.

Great Lakes Dredge & Dock Corp. (Nasdaq: GLLD) has filed for a secondary public offering of around 18.69 million common shares. It would include the 14.26 million shares held by Madison Dearborn Capital Partners, which represents a 24.4% ownership position. GLDD stock closed trading yesterday at $7.20 per share, which would value the Madison Dearborn holdings at approximately $103 million. www.gldd.com

Firms & Funds

Sequoia Capital India has closed its second growth equity fund with $725 million in capital commitments. The firm also has promoted executive director Abhay Pandey to the position of managing director. www.sequoiacap.com

Human Resources

Steve Swad has been replaced as CFO of Fannie Mae, with the company saying that he planned to “pursue other opportunities in private equity.” This is the second time that Swad has considered jumping into the private equity pool. He resigned as CFO of AOL early last year to join a private equity firm, but ultimately joined Fannie Mae instead.

Andy Cairns has joined Bank of America as a London-based managing director and head of investment-grade debt capital markets for EMA and Asia. He previously was with HSBC. The bank also has hired former Mariam Toulan as a London-based managing director and head of EMEA leveraged loan syndication. She previously was executive director of JPMorgan’s leveraged finance distribution for European debt capital markets.