PE Week Wire: Tues., Feb 27, 2007

The VSP Capital Memorial trophy is awarded each year to theventure capitalfirm that most effectively turns itself into a punching bag. The 2007 frontrunner is ComVentures.

First came the recent FilmLoop flap, in which ComVentures engineered the sale of one portfolio company to another. Now comes another troubling development: While ComVentures was working to sell FilmLoop last December, it also was being sued by Sequoia Capital for copyright infringement. ComVentures says the case has since been “resolved amicably,” even though no resolution has yet appeared in the court’s online records system. Neither Sequoia nor its attorney returned request for comment or confirmation (download all relevant court filings here).

This is a bizarre story for two reasons. First, because of how obstinate ComVentures seems to have been. Second, because such cases generally get resolved long before they reach court dockets (credit to VC Litigation Reporter for first spotting this).

According to court documents, both Sequoia and ComVentures redesigned their websites last year. Sequoia went first with an August 30 launch, and even took the unusual step of registering the site as an original work of authorship with the U.S. Copyright Office. Soon after, the firm’s servers began “to detect significant and prolonged access to the site from someone sharing the IP address for, and presumably within, the ComVentures network.” A printout of Sequoia’s server logs were filed with the court, and can be downloaded below as Docs 2. In all there were 373 recorded visits.

Six weeks later, ComVentures unveiled its own redesign. The new site had a number of striking similarities to the Sequoia site, in terms of both setup and style. For example, check out this ComVentures page and this Sequoia Capital page. Pay particular attention to the geography and company-stage navigation bars.

Had the complaint stopped here, I would have assumed that some ComVentures lackey/designer had simply made a mistake in not knowing that you can’t rip off someone else’s site. He/she was told that the ComVentures brain-trust admired the Sequoia site, and took that to mean “copy it.” After all, the first question any web designer asks when building a new site is: “What other sites do you like?”

And maybe that’s exactly what happened. But what happened next is bizarre. Sequoia’s Mike Moritz allegedly called ComVentures chief Roland van der Meer to complain on at least two separate occasions. Sequoia’s outside counsel also formalized the request in a letter to ComVentures’ outside counsel. The complaint alleges that ComVentures agreed to make “certain changes,” but then that the only real changes made were that the offending pages were not directly linkable from the ComVentures homepage. In other words, the alleged copyright infringement remained, but was just a bit harder to find.

Again, I would like to think this was a slip up (sometimes hard to find all legacy pages) – except that the offending pages are still online nearly three months after the suit was filed. Maybe there was concern that full retreat would be perceived as admittance of guilt, but ComVentures isn’t willing to get into that level of detail with me (not that I blame them).

Sequoia had been seeking both real and punitive damages, and I do not know if any money changed hands via the apparent settlement. But I do know that this is just one more headache ComVentures did not need right now…

Two other quick thoughts: (1) It is important to note that it is difficult to judge a legal complaint’s allegations without also getting the defendant’s point-of-view. In this case, ComVentures does not seem to have filed any documents. (2) Sequoia picking on ComVentures is a bit like Iron Mike picking on King Hippo, and I’d certainly agree that Sequoiaseems to takeitself a bit too seriously. But, that said, no one knows the value of copyright — or patent — protection better than a VC firm, and it makes total sense that they’d want to protect what they feel is theirs.

*** A number of you have been wondering about the timing of last week’s Pacific Corporate Group announcements. First came a press release detailing how the firm had split itself into two separate legal entities, along with glowing praise from CalPERS executives. Next came a press release about how CalPERS had awarded PCG two $400 million mandates. As many of you asked: “Was this a quid pro quo?”

PCG insists that such a conclusion is inaccurate, and that CalPERS did not mandate the legal split before awarding the mandates. Instead, it says that it’s been working on such a split for some time – in consultation with CalPERS, but only among others – and that the announcements’ proximity was mostly coincidental. It’s also worth noting that some folks at PCG believe I’m “out to get them” – which is not true. They keep getting themselves, and I’m just around to report it.

So that’s the end, right? Well, sort of. There are two historical pieces of information required for context. First, PCG and CalPERS did once engage in a quid pro quo arrangement related to a mandate: Back in 2000, CalPERS was considering PCG for a $500 million “Corporate Partners Program” mandate. But PCG, per its routine, had just experienced some personnel turnover related to firm economics/management control (Chris Bower has it, others want it). So CalPERS insisted that PCG restructure itself into some sort of official partnership, in order to reduce such friction in the future. PCG did so, and got the mandate (even if the restructuring was an abject failure).

Second: Multiple sources tell me that PCG had basically won these two new mandates back in September. Then came the defections of Monte Brem, Tara Blackburn and Steve Moseley — and CalPERS was in a bind. Either award the mandate to a PCG in-flux, or wait until things settle down a bit. They chose the latter.

So back to quid pro quo: Is it possible that CalPERS did in 2006/2007 exactly what it did in 2000, by requiring that PCG change its ownership structure before awarding mandates? Sure it’s possible, and it is certain that the management change was done to partially placate CalPERS (not to mention Oregon, Illinois Teachers, et. all). But the only statements in play so far is that there was no quid pro quo between CalPERS and PCG this time, so we’ll have to chalk the skepticism up to past behavior – not to evidence.

*** Quiztime: Can you name the Boston-area VC firm that just closed on a new $275 million fund? Hint: You could make a good argument that the firm is now more Silicon Valley than Rt. 128.

*** Finally, repeated apologies for yesterday’s tech glitch. Hopefully it won’t happen again…

Top Three

Motricity Inc., a Durham, N.C.-based provider of mobile marketplace management solutions, has raised $50 million in equity funding from Carl Icahn, through an affiliated company. Motricity previously had raised around $130 million in VC funding, from firms like Technology Crossover Ventures, New Enterprise Associates, Massey-Burch Capital, Noro-Moseley Partners, Intel Capital, Qualcomm Ventures, Sienna Ventures, TriState Investment Group, Wakefield Group and Advanced Equities.

The Norwegian Government Pension Fund is considering a 5% allocation to private equity and venture capital. The €212 billion system currently has no alternative assets, with 60% allocated to bonds and the remainder to public equities. The allocation shift also would include a 10% earmark for real estate, and has been recommended by advisor Norges Bank.

John Riccitiello is leaving Elevation Partners in order to rejoin video game publisher company Electronic Arts. He had served as president and COO of EA until leaving in 2004 to co-found Elevation, but now is returning to serve as CEO.

VC Deals

BiPar Sciences Inc., a Brisbane, Calif.-based drug company focused on cancer therapies, has raised $35 million in Series B funding. Domain Associates led the deal, and was joined by return backers Vulcan Capital, Canaan Partners, PolyTechnos Venture-Partners, Asset Management Company and Quantum Technology Partners. BiPar is developing multiple compounds designed to inhibit PARP 1, an enzyme involved in cell repair and that is up-regulated in certain tumors.

Achievo Corp., a San Ramon, Calif.-based software and IT outsourcing company, has raised $24 million in Series B funding. No investor details were disclosed. Achievo previously had raised VC funding from Tsinghua Venture Capital Co.

ViDeOnline Communications Ltd., a Redwood City, Calif.-based provider of licensed digital content to the Asian markets, has raised $12 million in third-round funding led by Intel Capital.

Vivace Semiconductor Inc., a Beverley, Mass.-based video chip maker, has raised $7 million in additional Series A funding. The round is now closed at $10 million. Hotung Capital Management and China Renaissance Capital Investment came in as new backers on the second-tranche. Kodiak Venture Partners led the overall round, with Dragonvest also participating.

SPADAC, a McLean, Va.-based provider of predictive and geointelligence analysis solutions for governmental and industrial clients, has raised $6.5 million in Series B funding from Pequot Ventures.

Mate Intelligent Video, an Israel-based video surveillance and content analysis startup, has raised $6 million in first-round funding. Infinity Equity Capital led the deal with a $3.2 million infusion, and was joined by I-CSVC and seed backer The Peleg Group., a Seattle-based ecommerce community for art, has raised $2.6 million in Series A funding. Holtzbrinck Ventures of Germany led the round, and was joined by Crosslink Capital, Erik Blachford (former CEO of Expedia), Tom Hughes (co-founder of Photodisc), the Samwer brothers (founders of eBay Germany and Jamba) and Nick Hanuaer (founder of aQuantive and Second Ave Partners).

Buyout Deals

Axiom Equity Partners of Denver has acquired BLB Enterprises LLC, a Boston-based global supply company with a focus on manufacturing goods and procuring materials throughout Asia. No financial terms were disclosed.

Catterton Partners has acquired MonoSol LLC, a Merrillville, Ind.-based developer of water-soluble films, from The Bass Group. News of the deal was first reported by LBO Wire, which put the price tag in excess of $55 million. Bass rolled some equity over into the deal, while existing MonoSol lender LaSalle Bank arranged senior financing.

Dow Chemical (NYSE: DOW) shares rose as much as 8% yesterday before settling up at 3.5%, on a UK press report that the company could be the target of a $54 billion buyout bid. The Sunday Express reported that the bidding consortium could include the Blackstone Group, Carlyle Group and KKR.

PE-Backed IPOs

Rosetta Genomics Ltd., an Israel-based drug company focused on microRNAs, priced 3.75 million ordinary shares at $7 per share, for an IPO take of approximately $26.25 million. It originally filed to sell three million shares at $11-$13 per share, but later amended the terms to 4.75 million shares being offered at $7.50-$8.50 per share. It will trade on the Nasdaq under ticker symbol ROSG, while C.E. Unterberg Towbin served as lead underwriter. Backers include Insight Capital and Kadima Hi-Tech Ltd.

Tongjitang Chinese Medicines Co., a Chinese drug company focused on modernized versions of traditional Chinese medicine, has filed for a $142 million IPO. It plans to offer 8.85 million American depository shares at between $15 and $17 per share — and trade on the NYSE under ticker symbol TCM. Merrill Lynch and UBS are serving as co-lead underwriters. Shareholders include Merrill Lynch, whose private equity and VC funds hold an 8.8% pre-IPO position.

The upcoming IPO calendar includes expected pricings from Oceanaut (2/28), Clearwire (3/7) and Xinhua Finance Media (3/8).

PE-Backed M&A

BecoTek AS, a Norwegian industrial components based on copper alloys, has acquired Johnson Metall AB, a Nordic manufacturer of finished and semi-finished products in bronze, from Hexagon AB. BecoTek is controlled by Norvestor.

Berkeley Capital Management of San Francisco has agreed to acquire the investment team of CapitalWorks Investment Partners, a San Diego-based firm that manages approximately $650 million in traditional and alternative assets for institutional investors. No financial terms were disclosed. Lovell Minnick Partners acquired Berkeley Capital Management in 2003 from London Pacific Group.

Broadview Networks Holdings Inc., a Rye Brook, N.Y.-based provider of integrated communications and managed security services, has agreed to acquire InfoHighway Communications, a New York-based provider of hosted and managed communications solutions for business customers in the Mid-Atlantic and Northeastern U.S. No financial terms were disclosed. Broadview shareholders include Baker Capital, MCG Capital, New Enterprise Associates, ComVentures and Lightspeed Venture Partners. InfoHighway backers include Apollo Real Estate Advisors, LLR Partners, Liberty Venture Partners, Spectrum Equity Investors and Trimaran Capital Partners.

Alpha Packaging, a St. Louis–based blow molder of HDPE and PET bottles and jars, has acquired Quality Container, a Ypsilanti, Mich.-based manufacturer of HDPE bottles and jars for the pharmaceutical and nutritional supplement markets. No financial terms were disclosed. Alpha Packaging is backed by Stonebridge Partners.

PE Exits

Hewlett-Packard (NYSE:HPQ) has agreed to acquire PolyServe Inc., a Beaverton, Ore.-based provider of storage software for application and file serving utilities. No financial terms were disclosed. PolyServe has raised around $72 million in VC funding since its 1998 inception, from firms like Greylock, Fidelity Ventures, New Enterprise Associates and The Roda Group.

JPMorgan Partners sold 3.74 million shares of Cabela’s Inc. (NYSE: CAB) stock via a secondary offering. Fellow Cabela’s shareholder Fulcrum Growth Partners sold 375,000 shares. Wachovia Securities underwrote the offering. Cabela’s is a Sidney, Neb.-based retailer of hunting, fishing and camping merchandise.

AOL is in talks to acquire Third Screen Media for around $80 million, according to The Wall Street Journal. Third Screen is a Boston-based provider of mobile advertising and marketing software, and has raised $8 million in VC funding from firms like TD Capital Ventures and Blue Chip Venture Co.

Firms & Funds

The California State Teachers’ Retirement System (CalSTRS) has issued an RFP for a new alternative investment consultant. Its current contract with McKinsey & Co. expires later this year. CalSTRS’ alternatives portfolio is valued at approximately $9.4 billion, with committed values of $19.9 billion.

Point Judith Capital of Providence, R.I. has closed its second early-stage VC fund with $73 million in capital commitments from LPs like Tudor Investment Corp. In related news, Point Judith announced that Sean Marsh has joined the firm as a fulltime general partner. He previously had been listed as a Point Judith GP, but only via his role as a general partner with Point Judith affiliate Village Ventures. He will take the place of Point Judith co-founder Dave Mixer, who has transitioned into a part-time role in order to focus on a new effort called China Merchants Hidden Jade Partners.

Human Resources

Andrew Thornborrow has joined BlueRun Ventures as general counsel. He previously was with Gunderson Dettmer Stough Villeneuve Franklin & Hachigian.

John Janitz and Dominick Schiano have joined DLJ Merchant Banking Partners as global industry partners. Janitz previously served as co-managing principal for turnaround firm Questor Management Co., while Schiano had been a managing director with Questor. DLJ Merchant Banking also hired former Compass Partners pro Allen Yurko as a London-based industrial partner.

Thomas Weisel Partners has formed an I-banking team dedicated to the alternative energy and cleantech market. It will be led by John Book, who previously was with First Albany Capital. His former team members Robert Kaplan and Chris Gidopoulos also are coming aboard. In other Thomas Weisel Partners news, the firm said that chief administrative officer David Baylor will take over as chief financial officer on April 2.

Tabreez Verjee has been named CEO of online video sharing site GoFish Corp. (OTC BB: GOFH). He previously was a general partner with Global Asset Capital.

Joseph Nemia has been named president of CIT Commercial & Industrial, a unit of CIT Corporate Finance. He previously served as executive vice president and chief sales officer of CIT Commercial Finance. Prior to joining CIT in March 2007, Nemia was a senior managing director with GE Commercial Finance.

Henry Allen has joined Marsh Inc. as global leader of consumer business, which includes the company’s affinity and program management business and its private client services business. He previously ran the European operations of Geocapital and, before that, was with GE Capital.