Beware of VC firms changing investment strategy. The bottom quartile is littered with shops that rushed into a new sector at its peak, only to be taken down by inexperience, inflated valuations and unrealistic exit expectations. See most firms that said in 2002: “Our future is in nanotech, and our LPs are very supportive of the move.”
But, every now and then, a move is timed correctly.
In the late 1990s, Technology Partners was puttering along as one of many VC firms that split its focus between IT and life sciences. Actually, it was closer to sputtering. The Palo Alto-based firm had the ignominy of a 1998-vintage fund with a negative IRR, which was tougher to achieve than future Doc not winning the Eastern Conference with three All-Stars (as you’ll see, it’s hard – but not impossible).
It nonetheless managed to raise $245 million for its seventh fund in 2000, and soon went to LPs with a brand new strategy. It would keep its split focus, but replace IT with cleantech. Again, this is back in 2000. For context, Al Gore’s presidential campaign was minimizing the environmental message, because of fears that it wouldn’t resonate.
It took a little while to get cleantech up and running, but eventually built an eclectic portfolio that included such companies as CoalTek (clean coal), Tesla Motors (electric cars) and Imperium Renewables (biodiesel production, in registration for an IPO). The fund’s life sciences portfolio also had some hits, including IPOs for Thermage and CryoGen.
The result is a positive IRR for the 2000-vintage fund, which is as rare as a negative 1998 fund. The positive isn’t huge – 3.9% through year-end 2006, according to CalPERS – but is nonetheless impressive.
Anyway, Technology Partners today is announcing that it has closed its eighth fund with $300 million. No changes this time around, except that genera partner Ted Ardell is transitioning into a venture partner role.
*** There is another set of private equity hearings on Capital Hill today, with speakers to include Bruce Rosenblum of The Carlyle Group and Adam Ifshin of Oaktree Capital Management. If they are able to push a few more Democrats into the “nay” camp on change, then this whole issue might be dead until a Democratic president is elected (be it in 2008 or beyond).
Seems some are buying into the idea that PE firms will simply push the costs on to limited partners, and no Democratic politician wants to be responsible for reducing pension fund returns. But, as I’ve said before, I think that worry is mostly unfounded. A few firms might raise fees, but most will be unable to do so at a time when returns are dropping. I actually put the question to a roomful of PE firm CFOs last week, and most did not expect a corresponding fee increase (although a sizable minority did).
*** In a related note, NASBIC president Lee Mercer offers up his carried interest tax thoughts for peHUB.
*** Most interesting note from the PE CFO conference: Being told how some LPs insist that their agreements include guaranteed invites to offsite annual meetings (instead of just getting the info via FedEx). When you think you’ve heard everything
Top Three
Novarra Inc., an Itasca, Ill.–based provider of mobile Internet browsing software, has raised $50 million in Series E funding. Return backers JK&B Capital led the deal, and was joined by strategic backer Qualcomm. Get the exclusive story at peHUB.
Bear Stearns Merchant Banking has agreed to acquire MC Shipping Inc. (AMEX: MCX) for $284 million. Under terms of the deal, MC Shipping stockholders would receive $14.25 per share, which is a 19.6% premium over last Friday’s closing price. It also includes a 35-day “go shop” provision. MC Shipping is an international shipping company focused on maritime transportation of liquefied petroleum gas, with headquarters in Monaco and an office in London. It partially owns and operates a fleet of 19 vessels, and has contracted to purchase 4 others. www.bsmb.com www.mcshipping.com
Goldman Sachs has invested $50 million for a minority stake in Perimeter eSecurity, a Milford, Conn.-based provider of managed network security services. Part of the capital will be used to provide liquidity for prior Perimeter Internetworking shareholders, which include Total Technology Ventures, the ASTRI Group, Connecticut Innovations, 1to1 Venture Partners and Redstone7.com. The company raised just under $5 million over two rounds in 2000 and 2001. The latter deal included a post-money valuation of around $10 million. www.perimeterusa.com
VC Deals
Hammerhead Systems Inc., a Mountain View, Calif.-based data communications equipment vendor, has raised $18 million in Series D funding. The round was first reported by PE Week Wire last month, based on a regulatory filing. Foundation Capital led the deal, and was joined by return backers Mayfield Fund, Enterprise Partners Venture Capital, Pequot Ventures, Silver Creek Ventures and Apex Venture Partners. Hammerhead has raised $98 million in total VC funding since its 2002 inception. www.hammerheadsystems.com
Bay Microsystems Inc., a San Jose, Calif.-based provider of packet processing and traffic management solutions, has raised $16 million in fifth-round funding. Quicksilver Ventures and W Capital co-led the deal, and were joined by return backers Selby Venture Partners, Needham Capital, Pacifica Fund, Glenbrook Capital, Crossbridge Partners and Franklin Park Investment Partners. Bay Microsystems has raised over $78 million in total VC funding since 1999. www.baymicrosystems.com
Vringo, a Jerusalem-based provider of video ringtone sharing solutions, has raised $12 million in Series B funding. Warburg Pincus led the round, with principal George Allen joining the Vringo board of directors. www.vringo.com
CareParent Inc., a Palo Alto, Calif.-based online provider of elder care information and resources, has raised $6 million in Series A funding, according to a regulatory filing. Investors include DCM and Split Rock Partners.
AliphCom Inc., a San Francisco-based maker of Bluetooth headsets branded as Jawbone, has raised $4.25 million in Series 2 funding, according to a regulatory filing. Khosla Ventures was joined by return backer Mayfield Fund. www.jawbone.com
CalciMedica Inc., a La Jolla, Calif.-based drug startup focused on autoimmune and inflammatory diseases, has raised $1.53 million in Series A funding from S.R. One Ltd., according to a regulatory filing. www.calcimedica.com
PayScale Inc., a Seattle-based provider of online compensation and benefits data, has raised $1.5 million in Series C funding from SAP Ventures. This closes the round out at $10.3 million, including prior infusions from Allen & Co., Corporate Executive Board, Trinity Ventures, Madrona Venture Group, Fluke Venture Partners and Buerk Dale Victor. www.payscale.com
ExpoTV, a New York-based provider of consumer-generated video product reviews, has raised an undisclosed amount of VC funding from DFJ Gotham Ventures. Existing backers include Masthead Venture Partners and Prism VentureWorks. www.expotv.com
Buyout Deals
3i Group has agreed to acquire the gas and diesel engine unit of Deutz AG, which will refocus on its core business of making compact engines. The deal is valued at €360 million, and is expected to close by the end of Q3. www.3i.com www.deutz.de
CanWest Global Communications Corp. and GS Capital Partners have abandoned plans to sell high-yield notes to support their Cdn$2.3 billion buyout of Alliance Atlantis Communications Inc. Instead, the firms will receive bridge financing from a syndicate of banks.
Laredo Petroleum has received up to $300 million in line-of-equity financing from Warburg Pincus. The line-of-equity, which may be increased to $500 million at Warburg’s discretion, will be provided over time to help Laredo pursue the acquisition, exploration and development of oil and gas properties in the Mid-Continent region of the United States.Laredo also has arranged a $300 million revolving credit facility with commercial banks. www.warburgpincus.com
Littlejohn & Co. has completed its acquisition of the Switches business of ITT Corp. (NYSE: ITT), which manufactures switches, dome arrays, interface controls and keypads for industries like mobile communications, computer and automotive. No financial terms were disclosed. www.littlejohnllc.com www.itt.com
Shamrock Activist Value Fund has come out in opposition to GSO Capital Partners’ proposed $1.1 billion buyout of Reddy Ice Holdings (NYSE: FRZ). It believes the $31.25 per share offer is too low, and has issued a “books and records demand” that would require Reddy Ice to provide Shamrock with a list of other company investors. Reddy is a Dallas, Texas-based manufacturer and distributor of packaged ice. www.reddyice.com
Foot Locker Inc. (NYSE: FL) has out itself up for sale, after forecasting its first quarterly loss in the past six years. The retailer said that it has received inquiries from private equity firms, and that it has hired Lehman Brothers to help manage the process. Its current market cap is approximately $2.92 billion. www.footlocker.com
American Capital Strategies has bought Fleischmann’s Vinegar Co. from Swander Pace Capital, according to LBO Wire. No financial terms were disclosed. Swander Pace had acquired the Cerritos, Calif.-based vinegar maker from Burns Philp & Co. of Australia in 2002, for $48 million. www.fleischmannsvinegar.com
Gryphon Investors has agreed to acquire Sheplers Inc., a Wichita, Kan.-based ranchwear retailer, according to LBO Wire. The deal is said to be worth at least $60 million, with sellers including Sage Capital Partners and Luther King Capital Management. www.sheplers.com
Solantic LLC, a Jacksonville, Fla.–based provider of urgent care and other health services, has raised $100 million in private equity funding from Welsh, Carson, Anderson & Stowe. The capital will be used to help Solantic expand in both Florida and other states. It expects to open more than 40 freestanding clinics by the end of 2009, and to further expand its presence through acquisitions and operations in other host environments. Banc of America Securities served as placement agent for the transaction. www.solantic.com
Summit Partners has agreed to acquire to online postsecondary education division of Touro College. No financial terms were disclosed. www.summitpartners.com www.tourou.edu
PE-Backed IPOs
CDM Resource Partners LP, a Houston, Texas-based provider of turnkey natural gas contract compression services, has filed for a $169 million IPO. It plans to sell seven million common units, and trade on the NYSE. Lehman Brothers and Merrill Lynch are serving as co-lead underwriters. The company is owned by management and Carlyle/Riverstone Global Energy & Power Fund II. www.cdmrm.com
Paragon Shipping Inc., an Athens, Greece-based dry-bulk shipping company, has set its IPO terms to 10.3 million common shares being offered at between $16 and $18 per share. Paragon plans to trade on the Nasdaq under ticker symbol PRGN, with UBS and Morgan Stanley serving as co-lead underwriters. Shareholders include Citigroup and Silver Point Capital.
Exits
ADC (Nasdaq: ADCT) has acquired a minority interest in ip.access Ltd., a Cambridge, UK-based manufacturer of picocell and femtocell infrastructure solutions for GSM, GPRS, EDGE and 3G. No financial terms were disclosed. Ip.access has raised around $25 million in VC funding from Scottish Equity Partners, Intel Capital, Rothschild Gestion and Amadeus Capital Partners. It’s unclear if the deal bought out any existing shareholders. www.adc.com www.ipaccess.com
PE-Backed M&A
Gores Group has sold web development agency Proxicom Inc. to iCrossing Inc., a Scottsdale, Ariz.-based digital marketing company. No financial terms were disclosed. iCrossing has raised around $141 million in total VC funding, from firms like Goldman Sachs, Oak Investment Partners, RRE Ventures and StarVest Partners. www.icrossing.com www.proxicom.com
Auto Meter Products Inc., a Sycamore, Ill.-based portfolio company of Harbour Group, has acquired Dedenbear Products Inc., a Pleasant Hill, Calif.-based maker of electronic and mechanical products for competitive drag racers. No financial terms were disclosed. www.autometer.com www.dedenbear.com
Firms & Funds
JMI Equity has closed its sixth fund with $600 million in capital commitments. The firm focuses on providing growth capital to software and business services companies, and has offices in both Baltimore and San Diego. www.jmiequity.com
Cross Atlantic Partners plans to begin raising $150 million for its sixth fund later this year, according to VentureWire. The New York-based firm focuses on later-stage opportunities in the life sciences sector. www.crossatlanticpartners.com
Technology Partners has closed its eighth fund with $300 million in capital commitments. It focuses on both cleantech and life sciences opportunities. www.technologypartners.com
Human Resources
Bruno Deschamps has agreed to join 3i Group as a partner and managing director for the firm’s French activities. He has spent the past five years as a partner with Clayton, Dubilier & Rice. 3i had been without a France chief since last fall, when Guy Zarzavatdjian was put in charge of the firm’s growth capital business. www.3i.com
Dr. Alan Levy has joined Frazier Healthcare Ventures as a venture partner focused on opportunities in the medical device space. He previously served as founder, president and CEO of Northstar Neuroscience (Nasdaq: NSTR) and, before that, was president and CEO of Heartstream. www.frazierhealthcare.com
Larry Kramer, former founder and CEO of CBS Marketwatch, has joined Polaris Venture Partners as a senior advisor. He later served as president of digital media at CBS. www.polarisvp.com
Antonio Casari has joined hedge fund Magnetar, where he will work on the firm’s UK private equity team. He previously was a director on the leveraged finance team at Lehman Brothers.
Global Life Science Ventures has promoted Stephen McCormack to managing director. He had joined the firm’s Zug, Switzerland office in May 2006, and became a partner that November. www.glsv-vc.com
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