PE Week Wire: Tues., Feb. 19, 2008

I have a file on my desktop titled “Dead Firms Walking.” It’s a list of venture capital and buyout firms that have virtually no chance of raising another fund. Most of them don’t even plan on trying.

When I left for Costa Rica in late December, ComVentures was in the file. LPs had grown tired of the firm’s constant partner ousters, accusations of self-dealing and entrepreneur litigation. It also didn’t help that returns for the firm’s fourth and fifth funds were in the toilet (it’s sixth fund is said to be better, but still…).

When I returned from vacation, however, ComVentures had reinvented itself as something called Velocity Interactive Group. New focus, new partners, new website. I changed the firm’s name on my file, and added a question mark next to it. Then, after more than a month of procrastination, I set to work on learning what had happened behind the scenes, and what is likely to follow.

I’ve posted the entire story to peHUB, as it was simply too long for this space. In short, it’s a tale of two investment groups – ComVentures and a prior incarnation of Velocity – that simultaneously arrived at dead ends, and took a stab at survival by teaming up. But there is no smart bet on its future viability, particularly given how large its history looms as an impediment.

Here are a few nuggets:

• Velocity was originally formed by Ross Levinsohn (former head of Fox Interactive) and Jonathan Miller (former CEO of AOL). The pair had an investment thesis of “monetizing the blogosphere,” and began looking for financial sponsors from both the VC and buyout markets. They ultimately settled on General Atlantic, and sent out term sheets to acquire four companies: Auttomatic, creator of open-source blogging tool WordPress; Broadband Enterprises, an online video network; Federated Media Publishing, an advertising sales network for blogs; and Sphere, an online search engine for blog and news content. Each of those offers was rejected, and the General Atlantic subsequently disintegrated.

• Merger discussions between ComVentures and Velocity were done without the knowledge of ComVentures partners Michael Rolnick or Jeb Miller. The two were fired without prior warning during a December 17 meeting. Within hours, the firm had informed its limited partners of the move, sent out a press release and relaunched its website.

• Rolnick’s dismissal triggered the keyman clause in ComVentures’ latest fund, but limited partners have shown little interest in ousting the current general partner. The problem, they say, is that the portfolio is too full for that sort of thing.

• Rolnick also was one of two de facto managing general partners at ComVentures, but Van der Meer was able to fire him thanks to an odd clause that allowed either of the two managing partners to fire the other. The only caveat was that you had to do it first. Had Rolnick known what was about to happen, he could have acted preemptively.

• Velocity has not yet sent out a PPM for its “first” fund, but expects to do so soon with a target of between $400 million and $500 million. Van der Meer, Levinsohn and Jonathan Miller were on the road last week, meeting with prospective investors. They also signed a new deal, although I don’t yet know the details.

• I have a lot of doubts that Velocity will be able to raise a new fund, as every LP I talked to said it would be an extraordinarily tough sell. That said, there are two mitigating factors worth noting: (1) It’s possible that Velocity will eventually bypass the traditional LP market, and instead go to big media companies already familiar with Levinsohn and Miller. (2) I had lunch last Friday with Van der Meer and Levinsohn, and these guys are very good salesmen. Good enough that I almost wanted to open up my own checkbook. Emphasis on almost.

Top Three

Skyflying Media, a Chinese outdoor media advertising company, has raised $83 million in Series A funding. Backers include Goldman Sachs, New Horizon Capital and Sequoia China. Citigroup Global Markets served as Skyflying’s financial advisor.

Clear Channel Communications has sued Providence Equity Partners, in an effort to compel Providence to close a $1.2 billion purchase of 56 television stations. Providence responded by saying that it was “surprised and disappointed” by the decision. It also asserted that its merger termination fee agreement was no longer operable, because Clear Channel had commenced litigation.

Mubadala Development Co., a sovereign wealth fund of Abu Dhabi, is considering an increase of its ownership stake in The Carlyle Group. Reuters reports that Mubadala, which bought a 7.5% stake in Carlyle for $1.35 billion last September, is looking to up its interest “slightly” as it plans further acquisitions in aerospace, energy and real estate. Carlyle declined comment, and may have little interest in permitting such a sale. The firm has come under fire for its original sale to Mubadala, including by a California state legislator who has offered a bill that would block state pension funds from investing in firms partially owned by sovereign wealth funds of governments with poor human rights records.

VC Deals

Agámi Systems Inc., a Sunnyvale, Calif.-based provider of enterprise-class unified storage systems, has raised $45 million in Series C funding. Advanced Equities led the round, which includes an extension option. Return backers include New Enterprise Associates, Kleiner Perkins, Apex Venture Partners, Alta Partners, TIF Ventures and Duff Ackerman Goodrich. The company has now raised around $90 million in total VC funding since 2003.

Coverity Inc., a San Francisco-based provider of software quality and security improvement solutions, has raised $22 million in its first round of institutional funding. Foundation Capital and Benchmark Capital co-led the deal, with Paul Holland (Foundation), Mike Schuh (Foundation) and Bruce Dunlevie (Benchmark) taking board seats.

Safend, a Tel Aviv-based provider of endpoint data leakage prevention solutions for enterprise computers, has raised $9 million in Series C funding. A “multi-billion dollar European asset management firm” led the round, and was joined by return backers Elron, Intel Capital and Walden Israel Venture Capital.

Pliant Technology, a Milpitas, Calif.-based developer of solid-state drive storage devices for enterprise computing, has raised $8 million in Series A funding. Lightspeed Venture Partners led the round. Get more info.

Ravenflow, an Emeryville, Calif.-based provider of application delivery acceleration solutions, has raised $5 million in new VC funding. Backers include Alloy Ventures, Palomar Ventures and the Roda Group. In other company news, Ravenflow has named Susan Boers as its new CEO. She previously eas president of Telelogic North America. Get more info.

RazorSight Corp., a Fairfax, Va.-based provider of on-demand financial audit and analytics software for media, communications and entertainment companies, has raised $4 million in additional Series A funding, according to a regulatory filing. The company held a $10 million first close on the round in late 2005, led by Sierra Ventures.

Peanut Labs, a San Francisco-based provider of Generation Y market research for social networks and other online content providers, has raised $3.2 million in Series A funding. Backers include Leapfrog Ventures and BV Capital.

Invodo Inc., an Austin, Texas-based online video management platform, has secured $1.2 million of a $1.5 million Series A round, according to a regulatory filing. Backers include Sevin Rosen Funds and S3 Ventures.

PlanarMag Inc., a developer of electromagnetic components for the computer, data networking and telecom markets, has raised first-round funding from American River Ventures. No financial terms were disclosed, although VentureWire places the round amount at $1.5 million.

Buyout Deals

Cinven is among four likely bidders for state-owned Turkish tobacco company Tekel Cigarette. Others include British-American Tobacco and Turkish holding companies Dogan and Lima Insaat. The Financial Times reports that the auction will take place later this week, with bids expected to range from $1 billion to $1.5 billion.

3i Group has completed its £174.5 million acquisition of UltraLase Ltd., the UK unit of Spanish plastic surgery provider Corporacion Dermoestetica SA.

3i Group’s listed Infrastructure Fund has emerged as the mystery bidder for UK wind farm developer Novera Energy. The 90-pence per share offer would value the company at £112 million.

PE-Backed IPOs

Pogo Jet Inc., a Chicopee, Mass.-based on-demand jet charter service focused on the East Coast, has set its IPO terms to 7 million common shares being offered at between $12.50 and $16.50 per share. It would have an initial market cap of around $175 million, were it to price at the high end of its range. The company plans to trade on the Nasdaq under ticker symbol POGO, with W.R. Hambrecht serving as lead underwriter (via its OpenIPO process). Backers include Tiger Partners (30.82% pre-IPO stake), Village Ventures, Worcester Capital Partners and Long River Capital Partners. Pogo Jet’s service is not expected to launch until 2009.

PE Exits

Arcapita has agreed to sell TLC Health Care Services Inc. to Amerdisys Inc. (Nasdaq: AMED), for an enterprise value of $395 million. TLC is a Lake Success, N.Y.-based provider of home healthcare services in 22 states. Navigant Capital Advisors advised TLC on the deal.

Brown Brothers Harriman has agreed to sell CMS, a St. Louis-based provider of radiology planning solutions, to Elekta AB (STO: EKTAB). No financial terms were disclosed.

HIT Entertainment, a UK television programmer owned by Apax Partners, has sold Guinness World Records to Canada’s Jim Pattison Entertainment. No financial terms were disclosed, but the deal is believed to be for around £60 million.

Paine & Partners has sold Byram Healthcare Centers Inc. to OPG Group NV. No financial terms were disclosed. Byram is a provider of disposable medical supplies to patients in their homes.

Seaport Capital has completed its sale of Everest Broadband, a provider of high-speed communications services in the Kansas City market, to SureWest Communications (Nasdaq: SURW) for $173 million in cash. CoBank provided acquisition financing.

PE-Backed M&A

Bruegger’s Enterprises Inc., a bagel shop chain owned by Sun Capital Partners, has acquired Triangle Bagels and Bagel Factory Inc. no financial terms were disclosed. Triangle Bagel is a franchisee of 14 Bruegger’s shops in North Carolina, while Bagel Factory has five locations in and around Philadelphia.

RMI, an Atlanta-based provider of rail information services to the transportation industry, has acquired Optimization Alternatives, an Austin, Texas-based provider of transportation control systems for intermodal terminals. No financial terms were disclosed. RMI is a portfolio company of Carlyle Venture Partners.

The Step2 Company, a portfolio company of Liberty Partners, has agreed to acquire Thinkactivity Inc., an Englewood, N.J.-based maker of toys for infants and toddlers. No financial terms were disclosed.

Firms & Funds

Baring Private Equity Partners is targeting $450 million for its third India-focused fund, according to a regulatory filing. It already has secured $210.5 million, and has set a $550 million maximum cap.

Bunker Hill Capital Partners is targeting $250 million for its second fund, according to a regulatory filing. The Boston-based firm focuses on buyouts of lower-middle-market companies. It already has closed on around $110 million, from limited partners like Hartford Life Insurance Co., Northwestern Mutual Life Insurance Co. and fund-of-funds manager White Rose.

FTVentures, a San Francisco-based private equity firm focused on financial technology companies, has raised $465 million for its third fund, according to a regulatory filing. The firm raised $423 million for its prior fund back in 2001, from limited partners like AIG, Bank of America Corporation, BNP Paribas, Charles Schwab, Credit Suisse Group, Deutsche Bank, Development Bank of Singapore, GE Capital, HSBC Holdings, Key Corporation, National City Corporation, Skandinaviska Enskilda Banken, Standard Chartered Bank, U.S. Bancorp, and Wells Fargo.

Wind Point Partners, a Southfield, Mich.-based middle-market buyout firm, is targeting $1 billion for its seventh fund, according to a regulatory filing. Wind Point closed its sixth fund in 2005 with $700 million.

Human Resources

John Boneparth has joined Hall Capital Partners as president. He previously founded Corinthian Cove Consulting. Hall Capital Partners is an investment advisory firm with $22 billion in assets under management.