PE Week Wire: Thursday, October 2, 2008

Q3 venture capital data won’t be finalized for a few more weeks, but preliminary numbers look grim.

Our VentureXpert database shows that VCs disbursed just $5.7 billion into 628 U.S.-based companies last quarter, compared to $7.58 billion for 1,004 companies in Q2. The Q3 figures are certain to rise as Thomson Reuters receives more quarter-end surveys from NVCA member firms, but we’re still looking at the first sub-$7 billion quarter since the end of 2006.

Pay particular attention to that “companies funded” stat, which indicates that VCs are making bigger bets on fewer companies. As of right now, companies funded in Q3 received an average investment of $9.04 million. We haven’t seen those levels since 2001, and reflect massive bets into the cleantech space.

There also appears to be a drop in fundraising totals for U.S.-based venture firms, with preliminary data showing a 33% drop from Q2.

Remember to emphasize the preliminary nature of these numbers, but don’t expect enough northward movement to reverse the downward trend.

*** Twitter is too secretive for its own good. Last month, I noticed that the company had filed a Form D with the SEC, indicating that it had called down just over $17 million of a $22 million Series C round. This is the same round that Twitter had previously announced without a dollar amount, and the one that Om Malik pegged at $15 million. So I made some calls to see if this was really a $22 million deal (disclaimer: I cared because such minor revelations seem to get peHUB Techmeme love).

A knowledgeable source insisted that the filing was incorrect, although he/she acknowledged that the actual round size was a bit closer to $17 million than to $15 million. But that source was on background, and I’ve got a legit SEC doc in my hand. So I tried getting in touch with the company. After a few days, Twitter co-founder Biz Stone replied with a one-line email: “We don’t discuss the specifics of our financing other than announcements we’ve made on our blog.”

How ridiculous. First, it’s a false claim because Twitter discussed the specifics of its financing in the SEC doc. Second, it’s a dumb PR strategy given that all I wanted was verification that the information Twitter had disclosed was incorrect. Heck, the incorrect info is already sitting in our database (so subtract a bit from the above Q3 totals). My source said to expect an amended SEC filing, but that was weeks ago and nothing has been submitted.

Until then, we have an information conflict. And one that could be cleared up if Twitter didn’t play things so close to the vest.

*** I spoke yesterday to a handful of secondary market players – both buyers and placement agents. The general consensus was that trading has slowed to a trickle, while one buyer referred to the market as “frozen.” Plenty of inventory, but buyers have no idea how to value it (particularly if it’s highly-leveraged), and sellers don’t like the only available option (massive discounts).

Also learned that the bank commitments to Lehman Merchant Banking and Venture Capital funds have not yet hit the market. Ditto for most AIG stuff.

*** Yesterday’s top news item was that Chicago has agreed to lease its Midway Airport to a group of investors led by Citigroup. Good news for those who support the privatization of U.S. infrastructure. But it was also a good day for opponents, as Albertis and Citi bailed on a $12.8 billion deal to lease and operate the Pennsylvania Turnpike.

*** Yes Matilda, you can still get leveraged financing… Well, so long as your buyout is sub-$100 million.

That’s what I hear from Charlesbank Capital Partners, which last Friday closed a buyout of Tecomet, a contract manufacturer of components for the medical device and aerospace industries. The seller was Cardinal Health, which insisted that the original agreement not be contingent on Charlesbank obtaining financing. The firm said ok, but still managed to fund the deal with a 50/50 equity-debt split. Again, it closed this past Friday. Slightly comforting…

Top Three

HP has agreed to acquire LeftHand Networks Inc., a Boulder, Colo.-based provider of storage virtualization and iSCSI SAN solutions, for $360 million in cash. LeftHand Networks has raised around $85 million in VC funding since 2001, from firms like Boulder Ventures, EPIC Ventures, Garage Technology Ventures, Ironside Ventures, JPMorgan Partners, New World Ventures, Portage Venture Partners, Sequel Venture Partners, Sprout Group, Valhalla Partners and Vista Ventures.

KKR reportedly is in talks with French electricity group EDF to make a bid for Constellation Energy Group Inc. (NYSE: CEG), which already has agreed to be bought by Warren Buffett’s Berkshire Hathaway for $4.7 billion.

Ironwood Pharmaceuticals Inc. (f.k.a. Microbia), a Cambridge, Mass.-based antibacterial drug company focused on gastrointestinal disorders, has raised $50 million in seventh-round funding. Morgan Stanley Investment Management led the round, and was joined by “numerous investors from previous financing rounds.” The company has now raised over $250 million in total VC funding since 1998, from firms like Morgan Stanley, Ridgeback Capital, Fidelity Biosciences, Paperboy Ventures, Polaris Venture Partners and Venrock.

VC Deals

Ausra, a Palo Alto, Calif.-based developer of a utility-scale solar thermal power plant, has raised $60.6 million in Series C funding. Kern Partners led the round, and was joined by Generation Investment Management, Starfish Ventures and return backers Khosla Ventures and Kleiner Perkins Caufield & Byers.

Gigya, a Palo Alto, Calif.-based provider of tracking solutions for online widget makers, has raised $11 million in Series C funding. DAG Ventures led the round, and was joined by return backers Mayfield, Benchmark Capital and First Round Capital. The company has now raised $24.5 million in total funding.

Astadia Inc., an Atlanta-based provider of IT consulting for the SaaS market, has raised $7 million in Series B funding. Backers include North Atlantic Capital and Kodiak Venture Partners.

Buyout Deals

Allied Capital has sold its equity interest in Norwesco Inc., a maker of polyethylene storage tanks for the agricultural and industrial markets, to Olympus Partners. Allied sponsored a management buyout of Norwesco in 2005, and reports that it realized an $86 million gain on its equity investment and the repayment of $65 million in outstanding subordinated debt it had lent the company.

Elm Creek Partners has agreed to acquire FreeFlight Systems Ltd., a Waco, Texas–based provider of navigation systems for commercial and military aircraft. No financial terms were disclosed.

Marlin Equity Partners has acquired the assets of MedAvant Healthcare Solutions, a Santa Ana, Calif.-based provider of technology for the electronic exchange of medical claims and clinical information among hospitals, doctors, medical laboratories and insurance payers. No financial terms were disclosed. MedAvant had filed for bankruptcy protection back in July.

PPG Industries (NYSE: PPG) has completed the sale of a 60% stake in its automotive glass and services business to Kohlberg & Co. for approximately $270 million. The carve-out was originally slated to go to Platinum Equity for $500 million, but the firm backed out after claiming that PPG had misrepresented the business.

The Star Tribune Co. this week missed $9 million in debt payments, which were a quarterly installment of second-lien and senior loans. The newspaper publisher originally went into default nearly four months ago, and raises new worries that it may declare bankruptcy. Avista Capital Partners bought the company last year for $530 million.

Transom Capital Group has acquired The Midwest Center for Stress and Anxiety, an Oak Harbor, Ohio-based provider of self-help and coaching programs to people who suffer from stress, anxiety, and depression. No financial terms were disclosed.

PE Exits

EQT Partners has sold Pfaff Beteiligungs GmbH to Columbus McKinnon Corp. (Nasdaq: CMCO) for €36 million in cash. Pfaff-silberblau is a European provider of lifting, material handling and actuator products. It expects 2007 revenue in excess of €62 million.

PE-Backed M&A

HCPro Inc., a portfolio company of Halyard Capital, has acquired Beacon Health, a Mequon, Wis.-based provider of information and publications for the homecare and hospice industry. No financial terms were disclosed. Beacon was represented on the sale by W.B. Grimes & Co.

Infineon Technologies AG has sold its bulk acoustic wave business to Avago Technologies, a portfolio company of KKR and Silver Lake Partners. The deal is valued at approximately €21.5 million. Avago is currently in registration for a $400 million IPO.

Mercury Computer Systems (Nasdaq: MRCY) has sold the assets of SolMap Pharmaceuticals to FORMA Therapeutics, a Cambridge, Mass.-based startup that recently raised around $4 million from the Novartis Option Fund. No financial terms were disclosed. SolMap is a biotech venture that uses computational and experimental fragment-based drug design.

SunGard Data Systems Inc. has completed its $585.3 million acquisition of a majority interest in trading software company GL Trade (Paris: GLT). SunGard was acquired for $11.4 billion in 2005 by Bain Capital, Blackstone Group, GS Capital Partners, KKR, Providence Equity Partners, Silver Lake Partners and TPG Capital.

Human Resources

Peter Baumgartner has joined Vestar Capital Partners as a Munich-based managing director of the firm’s Vestar Resources group, which provides advice and services to portfolio companies. He previously was a partner and managing director with Mercer/Oliver Wyman, where he most recently served as head of that firm’s Manufacturing, Transportation and Energy division.

David Pakman is stepping down as CEO of, in order to become a partner with Venrock. He will work out of the firm’s New York office, and will focus on digital media opportunities. He explains the decision on his blog.

Donald Tang, former vice chairman of Bear Stearns & Co., is leaving JPMorgan Chase & Co. in order to launch a private equity firm. The WSJ quotes a source saying that the new firm will be similar to a “merchant bank with a distribution platform.”

Dubai International Capital has made the following hires in its private equity group: Eric Kump as a London-based managing director, previously with Merrill Lynch Global Private Equity; David Smoot as a Dubai-based managing director, previously with Morgan Stanley Private Equity; Marc Holland as London-based financing director, previously with Investor AB; and Alykhan Nathoo as chief executive of Dubai-based DIC Emerging Markets, previously with Bain Capital in London.

Patrick Von Bargen, former CEO of the Center for Venture Education, has joined Washington, D.C.-based lobbying firm Quinn Gillespie Associates. He will represent clients in the cleantech and financial services sector. Von Bargen is the former managing executive for policy and staff at the SEC.

VMG Partners has promoted Kara Cissell-Roell to managing director. She helped launch the consumer-focused firm in 2005, and before that was a principal with TSG Consumer Partners.